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From wheel of fortune to wheel of misfortune: Financial crises, cycles, and consumer predation

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  • Olivier Mesly
  • David W. Shanafelt
  • Nicolas Huck
  • François‐Éric Racicot

Abstract

Predator–prey dynamics are widely used in ecology but seldom utilized in economics and marketing, despite their ability to express financial market agents' behaviors when considered in combination with economic cycles and financial crises. This multidisciplinary article presents a stylized framework of a market cycle that combines the notions of supply and demand and predator–prey interactions between buyers and sellers of housing mortgages. We illustrate our framework using data from the Global Financial Crisis and a Lotka‐Volterra predator–prey model. We find that with our framework we can capture the dynamics of the market, particularly the peak and decline in the number of sellers and sold subprime mortgages. Our framework sheds a new light on consumer behaviors, pinpointing how they can put themselves into vulnerable prey positions. This article is one of the first of its kind to propose market phases and predator–prey dynamics nested in economic cycles and consumer buying trends.

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  • Olivier Mesly & David W. Shanafelt & Nicolas Huck & François‐Éric Racicot, 2020. "From wheel of fortune to wheel of misfortune: Financial crises, cycles, and consumer predation," Journal of Consumer Affairs, Wiley Blackwell, vol. 54(4), pages 1195-1212, December.
  • Handle: RePEc:bla:jconsa:v:54:y:2020:i:4:p:1195-1212
    DOI: 10.1111/joca.12326
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    More about this item

    JEL classification:

    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
    • N42 - Economic History - - Government, War, Law, International Relations, and Regulation - - - U.S.; Canada: 1913-
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • P46 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Consumer Economics; Health; Education and Training; Welfare, Income, Wealth, and Poverty
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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