Behavioral strongContingencystrong Analysis - Mechner Foundation.pdfVIP

Formal Parallels Among Derivatives, Ponzi Processes, and Bubbles: A Behavioral Contingency Analysis Francis Mechner The Mechner Foundation Abstract A behavioral contingency analysis of securitization, the creation of derivatives, the formation and bursting of bubbles, and Ponzi processes reveals that they involve similar behavioral dynamics and have the same formal structure, suggesting that the use of behavioral units can reveal non-obvious parallels and regularities in analyzing economic and financial phenomena. The analysis begins with a conceptualization of property as a set of behavioral contingencies related to a given entity, rather than the entity itself. Such behavioral contingencies include the actions available to the property’s “owners” and “non-owners” and the consequences of those actions for various parties. This conceptualization of property provides the foundation for definitions of property transfer, value, risk, leverage, and consensus. Large-scale property transfers, like various types of securitization, Ponzi processes, and bubbling, involve various forms of aggregation, partitioning, and multiple- stage property transfer, and are seen to share certain important features. One of these is the transfer-caused clouding, blurring, or obliteration of the contingencies that defined the original transferred properties—that being why such property transfers cannot be made fully transparent and inevitably entail a potential for deception, whether intended or unintended. Deception contingencies are situations in which a party may misperceive or mispredict the consequence of an action, often to its detriment. Key words: Behavioral economics, behavioral contingencies, property, regulation, financial crisis, derivatives, securitization, deception, consensus, Ponzi, bubbles. Introduction This paper is directed at th