The Impact of Evolutionary Psychology on Modern Capital Market Investors' Decision-Making and Response Strategies

In human evolution over millions of years, writing has only existed for a few thousand years; before that, humans relied mainly on oral tradition to obtain information for hundreds of thousands of years. This evolutionary communication habit makes modern people naturally more receptive to story-based, emotional information rather than abstract data and facts [1]. In the capital market, this manifests as investors being more easily attracted to various “insider information” and “market rumors” because these information forms conform to the natural processing mode of our brains.

Early humans survived by group collaboration and had a strong dependence on group consensus. Deviating from mainstream views often meant exclusion, which was dangerous in evolutionary terms. Modern investors still retain this psychological mechanism and tend to follow mainstream market views and group behaviors even if these views lack factual support. This behavior manifests as herding effect and conformity in financial markets [2].

Robert Shiller, Nobel laureate in economics, pointed out in his Narrative Economics that stories and narratives have greater influence on economic activities than financial data [3]. Virally spread narratives can drive major economic events, and this phenomenon is particularly obvious in capital markets. Investors are more likely to remember and spread stories with plots and emotions, while cold financial data often fail to attract the same attention.

Evolutionary psychology research finds that various cognitive biases of investors are often not isolated but interrelated and mutually reinforcing [4]. These collectively reflect the common evolutionary historical experiences of humans. For example:

• Availability heuristic
  : Easier to recall recently heard rumors than historical data
• Confirmation bias
  : Tendency to seek information that supports existing views
• Anchor effect
  : Influenced by the first heard “insider information” on subsequent judgments
• Overconfidence
  : Overestimating one’s ability to judge rumors

• Formulate clear investment standards and checklists
• Establish a data-driven scoring system
• Set preset trading conditions and risk control rules

• Cross-verify information from different channels
• Attach importance to first-hand data and original data
• Establish an information source credibility rating system

Modern technology can help investors overcome evolutionary cognitive limitations. By analyzing massive amounts of data with AI algorithms, patterns and signals easily overlooked by humans can be identified, thereby providing more objective investment advice [5].

• Algorithmic trading reduces human emotional interference
• Strategy-based investments such as fixed investment reduce the need for timing
• Risk management systems set hard constraints

• Learn behavioral finance theory and understand common biases
• Practice critical thinking and question “too good to be true” stories
• Keep an investment diary to record decision-making processes and results

• Focus on fundamental analysis rather than short-term market noise
• Understand the historical laws of market cycles
• Cultivate psychological resilience to volatility

Through collective decision-making and diversified perspectives, the impact of individual cognitive biases can be effectively reduced. Institutional investors usually establish strict investment processes and risk control systems, which helps overcome evolutionary intuitive judgment tendencies.

Institutions have stronger research teams and data resources, enabling in-depth due diligence and fundamental analysis, thereby reducing reliance on rumors and hearsay.

Human evolutionary psychology does deeply influence the decision-making patterns of modern investors; the preference for rumors is an instinctive response formed over millions of years of evolution. However, recognizing this limitation is the first step toward rational investment. By establishing systematic investment frameworks, utilizing modern technical tools, continuous educational training, and institutionalized investment processes, investors can gradually overcome evolutionary cognitive biases and achieve more rational and successful investment decisions in the information-rich modern capital market.

Future development trends indicate that a hybrid investment model combining human wisdom and machine intelligence may become mainstream, which can not only exert human intuition and creativity but also utilize the objectivity and computing power of technology, ultimately realizing the organic combination of evolutionary limitations and rational investment.

[1] Kitces - “Evolutionary Psychology As A Means To Explain Financial Behaviors” (https://www.kitces.com/blog/evolutionary-psychology-behavioral-finance-research-theoretical-framework-friedman-leeson/)
[2] Wikipedia - “Behavioral economics” (https://en.wikipedia.org/wiki/Behavioral_economics)
[3] Forbes - “The Advent Of Narrative Economics” (https://www.forbes.com/sites/stevedenning/2019/09/18/the-advent-of-narrative-economics/)
[4] Charles University - “Role of Behavioral Finance in Portfolio Investment Decisions” (https://dspace.cuni.cz/bitstream/handle/20.500.11956/43150/DPTX_2010_2__0_332599_0_110165.pdf)
[5] Jinling API Data