Bubbles & Diversity

"When there is more ethnic diversity among traders, there is a greater chance that traders will think more critically, have less of a tendency to take their assumptions for granted and thus price assets more accurately and avoid bubbles." According to Apfelbaum et al.'s study, homogeneousity in the stock market creates blind spots. The researchers ran two experiments, one in Texas, one in Singapore. Participants were put in simulated markets and told to earn money by pricing stocks accurately. In both locations, there was an ethnicially homogeneous group and a diverse one; participants were told if they were part of a homogeneous or a diverse team. Results show that traders in the diverse group did a 58% better job at pricing assets while in the ethnically homogeneous group there was a tendency to cause price bubbles by overvaluing assets. “The simple presence of people who are different and thus may have different assumptions and knowledge makes everyone in the group act differently” (via).



photograph by Izis Bidermanas (1911-1980), taken in 1950 via