The Role of Financial Spinning, Learning, and Predation in Market Failure

This paper examines the possibility that market failures may be explained by predatory information flows between sellers and buyers when they act in dysfunctional relationships characterized by predator–prey dynamics and a behavioral pattern we define as “financial spinning.” The Global Financial Crisis serves as an example, among many others. It involved predatory mortgages and heavy securitization, and illustrates the fact that some sellers of toxic products (individuals and corporations) may have strong incentives to get buyers-prey to become disconnected from their financial needs, goals, and preferences, while accumulating debt. This may happen even in the context of a knowledge economy, and may lead the market towards failure. Computer-driven trajectory exploration based on learning-factored Lotka-Volterra equations shows that the predatory, noxious information is beneficial to sellers-predators but only up to a point. Consumers, for their part, are not always willing or able to receive sufficient information, which would otherwise allow them to protect themselves. Our approach may also guide corporations’ efforts towards improving their customer relationships, social image, and community participation. We contribute to the use of Lotka-Volterra equations and trajectory exploration in the context of predatory asymmetry of information at the interpersonal, sellers-buyers level, of spinning and of market failure.