Activist Retail Investors and the Future of Financial Markets: Understanding YOLO Capitalism 2022048729, 2022048730, 9781032397252, 9781032397276, 9781003351085

Citation preview

Activist Retail Investors and the Future of Financial Markets

Contemporary financial markets have been characterized by sociocultural phenomena such as “meme stocks,” the GameStop short squeeze, and “You Only Live Once (YOLO) trading.” These are movements led by small-scale retail investors banding together to participate forcefully in financial markets through decentralized but coordinated actions. This book deploys many different subdisciplines to explore the recent “power grabbing” of retail investors and the online environment that enables them to join the ranks of major financial players, and participate in contemporary capitalism. It offers multiple perspectives on the genesis, role, motivations, power, and future prospects of retail investors as a force in contemporary financial markets. Drawing upon the insights of authors hailing from many different countries, the book frames YOLO capitalism through numerous angles that help to explain the context and the importance of activist retail investors in modern financial markets, and thereby explore the possibilities of a transformed financial future with much wider small-scale participation. The book assesses the potential of online—and other—communities in enabling global coordination in impacting or even driving financial and crypto markets, and the challenges that come with it and weighs the competing narratives both positive and negative regarding YOLO capitalism. It strikes a balanced assessment of their legal, cultural, behavioral, economic, and political roles in modern finance. This book will be of interest to a multidisciplinary and interdisciplinary audience of scholars in financial markets, financial regulation, political economy, public administration, macroeconomics, corporate governance, and the philosophy and the sociology of finance. Usman W. Chohan is a public value theorist who serves as Director for Economics and National Development at the Centre for Aerospace & Security Studies (CASS), Rawalpindi, Pakistan. Sven Van Kerckhoven is Vice-Dean for Education and Assistant Professor of Business and Economics at the Brussels School of Governance, Belgium.

Routledge International Studies in Money and Banking

Responsible Finance and Digitalization Implications and Developments Edited by Panu Kalmi, Tommi Auvinen and Marko Järvenpää Digital Currencies and the New Global Financial System Edited by Ranjan Aneja and Robert Dygas Negative Interest Rates and Financial Stability Lessons in Systemic Risk Karol Rogowicz and Małgorzata Iwanicz-Drozdowska Digital Finance and the Future of the Global Financial System Disruption and Innovation in Financial Services Edited by Lech Gąsiorkiewicz and Jan Monkiewicz Sovereign Debt Sustainability Multilateral Debt Treatment and the Credit Rating Impasse Daniel Cash Environmental Risk Modelling in Banking Edited by Magdalena Zioło Money, Debt and Politics The Bank of Lisbon and the Portuguese Liberal Revolution of 1820 José Luís Cardoso The Digital Revolution in Banking, Insurance and Capital Markets Edited by Lech Gąsiorkiewicz and Jan Monkiewicz Activist Retail Investors and the Future of Financial Markets Understanding YOLO Capitalism Edited by Usman W. Chohan and Sven Van Kerckhoven For more information about this series, please visit: www.routledge.com/ Routledge-International-Studies-in-Money-and-Banking/book-series/SE0403

Activist Retail Investors and the Future of Financial Markets Understanding YOLO Capitalism Edited by Usman W. Chohan and Sven Van Kerckhoven

First published 2023 by Routledge 4 Park Square, Milton Park, Abingdon, Oxon OX14 4RN and by Routledge 605 Third Avenue, New York, NY 10158 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2023 selection and editorial matter, Usman W. Chohan and Sven Van Kerckhoven; individual chapters, the contributors The right of Usman W. Chohan and Sven Van Kerckhoven to be identified as the authors of the editorial material, and of the authors for their individual chapters, has been asserted in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks and are used only for identification and explanation without intent to infringe. British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data Names: Chohan, Usman W., editor. | Kerckhoven, Sven van, editor. Title: Activist retail investors and the future of financial markets : understanding YOLO capitalism / edited by Usman W. Chohan and Sven van Kerckhoven. Description: Abingdon, Oxon ; New York, NY : Routledge, 2023. | Series: Routledge international studies in money and banking | Includes bibliographical references and index. Identifiers: LCCN 2022048729 (print) | LCCN 2022048730 (ebook) | ISBN 9781032397252 (hardback) | ISBN 9781032397276 (paperback) | ISBN 9781003351085 (ebook) Subjects: LCSH: Finance—Social aspects. | Finance—Political aspects. | Investments. | Capitalism. Classification: LCC HG101 .A26 2023 (print) | LCC HG101 (ebook) | DDC 332—dcundefined LC record available at https://lccn.loc.gov/2022048729 LC ebook record available at https://lccn.loc.gov/2022048730 ISBN: 978-1-032-39725-2 (hbk) ISBN: 978-1-032-39727-6 (pbk) ISBN: 978-1-003-35108-5 (ebk) DOI: 10.4324/9781003351085 Typeset in Bembo by Apex CoVantage, LLC

To the Degenerates and Apes of YOLO Capitalism

Contents

About the Editorsxii About the Authorsxiv Acknowledgmentsxvi List of Tablesxviii List of Figuresxix Appendicesxx Acronymsxxi Timelinexxiii 1 Introduction

1

USMAN W. CHOHAN AND SVEN VAN KERCKHOVEN

Background 1 Overview of This Book  7 Concluding Remarks  11 PART 1

Retail Investors as Drivers, Creators, and Mediators of Value15 2 Public Value Theory and YOLO Capitalism USMAN W. CHOHAN

Introduction 17 Civil Society as Driver of Value  21 Measuring and Ascribing Public Value  22 GameStop Short Squeeze and the Reddit Rebellion  23 Embodiment of Values  24 (Re)measurement and (Re)appropriation of Value  26 Public Managerial and Political Responses  27 Strategic Triangle  29 Conclusion 31

17

viii  Contents

3 Happier than Ever: The Role of Public Sentiment in Cryptocurrencies, Meme Stocks, and NFTs

35

ALESHA SERADA

2021: Year of the NFT?  35 Affect and Populism in Political Theory  38 A Pandemia of Fear and Greed: Sentiment, Mood, and Interest in Finance  39 Planet of the Apes: NFTs and the Celebrity Culture  44 Conclusion 46 Acknowledgments 47 4 GameStop, WallStreetBets, and Capital as Power

54

TIM DI MUZIO

Introduction 54 Setting the Stage for the Surge  56 The Gathering Storm  58 Capital as (Social) Power  62 Conclusion 65 5 Speculative Behavior and Expectations in Economic Turmoil: A Keynesian View

69

ILKER ASLAN, USMAN W. CHOHAN, AND SVEN VAN KERCKHOVEN

Introduction 69 Decline in Investors’ Relative Knowledge  70 Animal Spirits  74 The Tyranny of Experts  76 Conclusion 78 6 Memes as Cultural Artifacts: YOLO Investors, Degeneracy, and the Memeified Economy SEAN O’DUBHGHAILL AND SEAN WINKLER

Introduction 83 “I Am Not a Cat”: Behind the Scenes at r/WallStreetBets  83 The Meaning of Memes  85 Memes and Common Sense  89 Memes Bridge Divides  90 Conclusion 93

83

Contents ix PART 2

Retail Investors as Activists, Renegades, and Disruptors97 7 Narrative Economics and YOLO Investors: r/WallStreetBets and the GameStop Short Squeeze

99

SVEN VAN KERCKHOVEN AND SEAN O’DUBHGHAILL

Introduction 99 The Arrival of the YOLO Investor  100 Narrative Economics and Meme Stocks Going Viral  102 Online Fora as Information Distributors  104 Online Forums as a Disciplinary Tool  108 Regulatory Reactions to Online Outlets  110 Conclusion 112 8 The Behavioral Biases of Cryptocurrency Retail Investors: Lessons from ICOs

115

FRÉDÉRIC TRONNIER, PETER HAMM, AND DAVID HARBORTH

Introduction 115 Heuristics and Biases  116 Personality Traits  118 Methodology 119 Results 120 Descriptive Results  120 Personality Traits and Behavioral Biases of ICO Retail Investors  121 Analysis of Investor Satisfaction for ICO Investments  123 Discussion 123 Impact on Other YOLO Investment Classes  126 Conclusion 129 Limitations and Future Research  130 Acknowledgment 130 9 FOMO in Digital Assets TATJA KÄRKKÄINEN

Introduction 136 Fear of Missing Out in ICO Markets  137 Empirical Estimator Specification  138 Data and Methodology  139 ICO Organization Retail Investor Survey Data  139 Empirical Strategy  141

136

x  Contents

Results 141 Conclusion 146 10 Is a Trader a Trader, No Matter How Small?

152

NIZAN GESLEVICH PACKIN

Introduction 152 One: Financial Education  157 Two: Toying with Money  158 Three: Policy Implications  162 Four: Around the World  164 Concluding Remarks  165 11 Social Movements in Contemporary Political Economy: Lessons from YOLO Retail Investors

170

MIKAYLA NOVAK

Introduction 170 The GameStop Experience: Social Movement Parallels  172 Participation, Motivation, and Regulation: Broader Reflections from a Contemporary Political Economy Perspective  176 Conclusion 179 12 Retail Investors and Anti-system Politics Online

185

SCOTT TIMCKE

Two Weeks in January  185 Transformations in the Broader US Economy and Society  186 Accelerating Social Inequality in the Pandemic  188 The Sociology of Anti-system Politics  189 Conclusion 192 13 Counter-hegemonic Finance: The GameStop Short Squeeze 197 USMAN W. CHOHAN

Introduction 197 One: On Gramscian Aspirations  199 Two: The Shadow of 2008 and Occupy Wall Street  201 Three: The Gramscian Lens for the GSS  206 Conclusion: The Counter-hegemony of the Apes?  211

Contents xi

14 Conclusion

215

USMAN W. CHOHAN AND SVEN VAN KERCKHOVEN

Conclusion: On YOLO Capitalism  215 Key Lessons  216 Activist Retail Investors Suffer from Many Biases  217 Some Activist Retail Investors Are Bounded by an Ethical Calculus or Moral Directive  218 YOLO Capitalism Is a Living Social Phenomenon  218 Activist Retail Investors Are a Symbolic Society in Leisurely Pursuit 219 Activist Retail Investors Remain Nestled within Capitalism’s Logic 220 Limitations 221 Future Areas of Research  223 Final Words  224 Index226

About the Editors

Usman W. Chohan is an international economist and academic who serves as Director of Economic Affairs and National Development at the Centre for Aerospace & Security Studies (CASS), one of Pakistan’s premier researchbased think tanks, where he was a founding director. He is among the top 10 business authors (out of 12,000 authors) on the Social Science Research Network (SSRN), which is the largest open repository of knowledge in the world. He has published four books in the past four years, all with Routledge: Public Value  & Budgeting: International Perspectives, Reimagining Public Managers: Delivering Public Value, Public Value and the Digital Economy, and Pandemics and Public Value Management. In the academic realm, his research has been cited widely, for example, in the World Trade Organization, the European Parliament, the National Bureau of Economic Research, IEEE, and the OECD, among many others, and Dr. Chohan has testified before various authorities based on his technical expertise in budget oversight. Dr. Chohan is also the president of the International Association of Hyperpolyglots (HYPIA), the largest association of hyperpolyglot language speakers in the world. He is fluent in seven languages and conversant in various others. He has previously worked at the World Bank and the National Bank of Canada. In addition to this edited volume, Dr. Chohan’s forthcoming sixth book is titled Public Value and the Post-Pandemic Society. Sven Van Kerckhoven is Assistant Professor in Business and Economics at the Brussels School of Governance (Vrije Universiteit Brussel), where he also serves as Vice-Dean for Education. He is also a professorial fellow at the United Nations University Institute on Comparative Regional Integration Studies. He received his Ph.D. in Applied Economics from the KU Leuven and has been a visiting professor at the latter university, a Rutherford Fellow at the University of Warwick (UK), and a visiting scholar at Stanford University (USA). He has taught a wide variety of courses in the fields of economics, finance, and entrepreneurship. His research interest lay on the intersection between political science and applied economics, mostly with a focus on the governance of the global economy. He has worked, and published, on the functioning of international institutions and bodies, such as

About the Editors xiii

the World Trade Organization, the International Monetary Fund, the European Union, and the G7/G20. In terms of issue fields, his interests include financial markets, sustainability, and the global beer market. He is currently the coordinator of two Jean Monnet Modules—one on the Economics of European (Dis)Integration and the other on Sustainability and Trade.

About the Authors

Ilker Aslan is a Turkish/Swiss economist and works as a management consultant in Zurich, Switzerland, focusing on the insurance industry. His research area is economic theory, risk management, and monetary policy. Tim Di Muzio is Associate Professor in International Relations and Critical Political Economy at the University of Wollongong. His research focuses on the intersection between the history of market civilization, global capitalism and questions related to energy, the environment, and global social reproduction. Peter Hamm is Research Assistant at the Chair of Mobile Business & Multilateral Security at Goethe University Frankfurt, Frankfurt am Main, Germany. David Harborth is Research Fellow at the Chair of Mobile Business and Multilateral Security at Goethe University Frankfurt, Frankfurt am Main, Germany. Tatja Kärkkäinen at Kiitot conducts RDI in DeFi, DeSci, digital assets, and machine learning. As part of this research, she has authored a number of academic papers and holds a Ph.D. in FinTech from Glasgow University. Mikayla Novak is a senior fellow with the F. A. Hayek Program for Advanced Study in Philosophy, Politics and Economics at the Mercatus Center at George Mason. Her research interests include classical sociology, economic and fiscal sociology, rational-choice sociology, and social theory. Novak is the author of two books and has over 20 peer-reviewed academic journal articles. She has an academic and professional background in economics, including in blockchain and financial market studies. Sean O’Dubhghaill is Adjunct Professor at the Brussels School of Governance and at Trinity College. He is a social and cultural anthropologist who is interested in the topics of Irish identity, mobility, and diaspora matters. He recently published his first book An Anthropology of the Irish in Belgium: Belonging, Identity, Community (2019) with Springer.

About the Authors xv

Nizan Geslevich Packin is Professor of Law at Baruch College, City University of New York, and Senior Lecturer at the University of Haifa’s Faculty of Law. She researches and writes about financial regulation, FinTech, ethical implications of digital technologies, business law, consumer protection law, and information law. Alesha Serada is a Ph.D. candidate at the School of Marketing and Communication at the University of Vaasa, Finland. Their dissertation, supported by the Nissi Foundation, discusses construction of value in games on blockchain. Beyond that, they publish on horror, exploitation, and video games. Scott Timcke is Research Associate at the University of Johannesburg’s Centre for Social Change where he studies the overlap between algorithmic capitalism, FinTech, and neocolonialism. He has held fellowships at the University of Leeds’ Centre for African Studies and the Center for Advanced Internet Studies in Bochum, Germany. Frédéric Tronnier is Research and Teaching Assistant at the Chair of Mobile Business & Multilateral Security at Goethe University Frankfurt, Frankfurt am Main, Germany. Sean Winkler is Lecturer at Loyola University, California, with a research interest in cultural aspects of contemporary philosophy.

Acknowledgments

This book was the product of a patient and wide-ranging collective effort among stakeholders from around the world. It is through this collaborative approach that a fuller comprehension of activist retail investors in modern financial markets could be realized in this book. I would therefore like to thank all the authors, from the dozen-odd countries and from equally diverse academic backgrounds that they hail, for their contributions to this volume. These are women and men of great intellectual curiosity and substance, and this is reflected in the richness of their chapters. My co-editor Sven has been a true friend throughout this journey, and I appreciate his collaborative and cheerful spirit, and the success of this project has rested as much on him as on me. On the personal front, I am grateful to those people who helped me to sustain the intellectual skip in my stride despite the long-drawn nature of an edited volume as a research enterprise: my parents Naela and Musa, and Joanna Koper. But the list of my acknowledgments would be entirely incomplete without thanking those at the Centre for Aerospace and Security Studies (CASS), whose welcoming, collegial, and vibrant atmosphere has continued since its inception, and where I joined as one of its founding directors. My gratitude goes to AM Farhat Hussain Khan, ACM Kaleem Saadat, Amb. Jalil Abbas Jilani, AM Wasim-ud-Din, AM Ashfaque Arain, AM Farooq Habib, AM Zulfikar Qureshi, AM Aamir Masood, Dr. Zia-ul-Haq Shamsi, AVM Sohail Malik, AVM Faheem-ullah Malik, AM Shahid Alvi, Air Cdre Qadeer Hashmi, Air Cdre Tanveer Piracha, Air Cdre Zulfikar Ali, and Senior Editor Sara Siddiq, as well as the researchers. The institution that we have built, and for which I am now the oldest serving member (despite having been the youngest), is a marvel and a pocket-of-excellence in the region. Through persistent efforts, it shall be among the best in the world. Above all, I am grateful to the YOLO capitalists of r/WallStreetBests, who are at the vanguard of a new capitalism, one in which the people militate toward a spirited counter-hegemony, toward a fuller financial liberation, and toward a more participatory economy. YOLO capitalists have given us the impetus to think about how this late stage of capitalism, decadent and semi-feudal in its character, can be revitalized toward the benefit of the people, or give way to

Acknowledgments xvii

something new. For opening the door toward such possibilities, I am grateful to the digital mujahideens who have ushered in an era of YOLO capitalism. Dr. Usman W. Chohan Some days just seem too good to be true. r/WallStreetBets members had a field day at the end of January  2021. NFT, crypto, and ICO investors have also seen several triumphs in recent years. This book does not only provide an in-depth investigation into these events, but herald as well the coming to fruition of an extremely exciting project. As such, it marks, in itself, a moment of joy and gratefulness. I would thus like to thank all the authors for their timely contributions, and the great relationship we established across time zones and continents. Spurred by an interest in better understanding how some digital warriors are taking up arms and memes in order to spur rightful questions about righteous financial markets, this whole volume is one long acknowledgment of the actions of some who might inspire the many. I am grateful for all the activists out there: you hide between terms such as apes, degenerates, and retards, but the impact of your actions is no monkey-business. Of course, one can only engage in projects such as this with the support of a wide variety of people. At the Brussels School of Governance, I would like to thank all of my colleagues, both academics and those working in administration. Daily engagement with you keeps my pen sharp and my mind sharper. I would in particular like to thank those colleagues who have retired during the process of this edited volume: Louise, Tom, and Louise, you are dearly missed. Further special thanks to (alphabetically) Adriaan, Bert, Bram, Chris, Jacintha, René, and Sean who keep on reminding me that it is only through blood, sweat, and beers that one can make great progress. On a personal front, so many people have, in their actions and words, inspired me in so many different ways, so a word of thanks is but a small gesture to show my appreciation for all they have done for me. I would in particular like to thank my parents Phil and Sonia, my sisters Sophie and Florence and their partners, as well as the extended family ranging from my grandparents, uncles, aunts, and cousins, to my family-in-law, to little Janne, and the family dog Bueno. I would in particular like to dedicate this book to my peter, Paul Andries. It is but a small token of gratitude for having such a wonderful person so close to me. I really value all of your support and love. Speaking of the latter, there is one little madame that I am greatly indebted to: Victoria, you have not just been my rock, you are also an ever-blooming flower that lightens up my days. Thank you! Lastly, I can only express my deepest gratitude to Usman. You have been an inspiration and a mentor. Thank you for this great collaboration! Dr. Sven Van Kerckhoven

Tables

1.1 Overview of This Book 2.1 Strategic Triangle 8.1 Heuristics and Biases from the Behavioral Economics and Finance Discipline 8.2 Personality Traits and Their Relation to Financial Behavior 8.3 Descriptive Statistics on Retail Investors 8.4 Descriptive Statistics and Correlations on Personality and Biases 8.5 Chi-square Analysis on Behavioral Biases and Personality Traits 8.6 Regression of Average BB and Traits on Retail Investor Satisfaction in ICOs 9.1 OECD ICOs Survey Summary Data Table 9.2 Determinants of ICO Ownership Relationships 9.3 Determinants of ICO Awareness and Ownership

8 29 117 118 120 121 122 123 140 143 145

Figures

0.1 0.2 1.1 2.1 2.2 2.3 2.4 3.1 3.2 7.1 7.2 7.3 9.1 13.1

Geographical diversity of contributing authors xxvi Gender diversity of contributing authors xxvi GameStop: closing and volume (4 January 2021–22 May 2022) 4 YOLO investors’ engagement with value and values 18 Traditional multi-stakeholder PVT construction 18 Multi-stakeholder PVT construction in GameStop short squeeze 20 Values of YOLO capitalism 24 Comparison of trends in Google Search related to the topics of non-fungible token, cryptocurrency, and Ethereum from October 2017 to July 2022 36 The map of knowledge structure related to sentiment and Bitcoin/blockchain41 GameStop (worldwide interest) 105 r/WallStreetBets (worldwide interest) 106 Short squeeze (worldwide interest) 106 FOMO search topic association, related topics on fear of missing out between March 2020 and March 2021 137 OWS versus GSS in Gramscian terms 198

Appendices

3.1 Highly Cited References on Mood, Sentiment, Cryptocurrency, and Blockchain as of December 2021 9.1 Survey Questions

51 149

Acronyms

AIG American Insurance Group AMC AMC Entertainment Holdings, Inc. ASX Australian Securities Exchange BAYC Bored Ape Yacht Club BB Behavioral biases BNPL Buy now, pay later CARES Coronavirus Aid, Relief, and Economic Security Act CDO Collateralized Debt Obligation CEO Chief Executive Officer CFPB American Consumer Financial Protection Bureau Covid Coronavirus disease 2019 (Covid-19) DeFi Decentralized finance ESG Environment, society, and governance ETF Exchange Traded Fund FCA Financial Conduct Authority FDIC US Federal Deposit Insurance Corporation FIRE Financial Independence, Retire Early GFC Global financial crisis (2008) GME GameStop GSS GameStop short squeeze HCFS House Committee on Financial Services HODL Hold on for dear life ICO Initial coin offering IPO Initial public offering NASDAQ Nasdaq, Inc. NFCC National Foundation for Credit Counseling NFT Non-fungible token NYSE New York Stock Exchange OECD Organization for Economic Co-operation and Development OFC Online financial culture OTC Over-the-counter OWS Occupy Wall Street (movement) P2E Play to earn

xxii  Acronyms

P/E Price–earnings ratio PBOC People’s Bank of China PT Personality traits QGR Quick Guide for a Revolution (manual) S&P 500 Standard & Poor’s 500 SEC Securities and Exchange Commission SIR Susceptible, Infectious, or Recovered (model) SPAC Special-purpose acquisition company UBS UBS AG UK United Kingdom US United States WSB WallStreetBets YOLO You only live once

Timeline

15 September 2008

3 October 2008

12 January 2009

17 February 2009

17 September 2011

31 January 2012 18 April 2013 17 January 2014 9 March 2015

Lehman Brothers collapses, triggering the Global Financial Crisis (GFC) of 2008. The crisis was caused by the excessive use of complex financial instruments to collateralize mortgage securities The United States issues the Troubled Asset Relief Program (TARP), a historic stimulus to rescue the American economy after major banks face balance sheet crises that make them “too big to fail” for the American system The first Bitcoin transaction takes place, marking the beginning of cryptocurrency adoption across the world. Uptake of cryptocurrencies remains gradual for another five years before gaining significant momentum after 2014 President Obama signs the Recovery Act into law, leading to a bailout of Wall Street by the American taxpayer, but also creating resentment at the impunity of private power in American financial markets The Occupy Wall Street movement launches in New York, thereafter spreading across the United States and later across the world. It is met with repressive police tactics but succeeds in articulating notions such as “we are the 99%” r/WallStreetBets community (sub-Reddit) is founded on the social media site Reddit The company Robinhood Markets is founded in California The biopic The Wolf of Wall Street is released to widespread acclaim, graphically imprinting the excesses of Wall Street into the public imagination Robinhood introduces its mobile app for online trading. The app goes on to become a significant vehicle for retail investor participation

xxiv

Timeline

29 January 2016 9 November 2016 4 September 2017 6 January 2018

18 January 2020

9 March 2020

27 March 2020

August 2020 September 2020 8 December 2020 22 January 2021 27 January 2021 28 January 2021 18 February 2021

The movie The Big Short is released, popularizing the concept of “shorting” in financial markets, along with a powerful recounting of the 2008 financial crisis Donald Trump wins the US federal presidential election, driven in part by an anti-establishment and populist rhetorical stratagem China bans all initial coin offerings. It subsequently makes all cryptocurrencies illegal in September 2021 The cryptocurrency markets experience their first major crash, with Bitcoin falling by 65% in a one-month period. The event highlights the extreme volatility of crypto-assets as an asset class The first case of Covid-19 is detected in the United States, sparking what comes to be a massive public health and economic crisis for the country over the subsequent two years. The US goes on to be among the worst affected countries in the world Stock markets crash in response to fears of a pandemic, as unemployment soars to record levels, lockdowns are instated, and economic activity faces imminent paralysis. The markets recover rather quickly upon news of record government stimulus The United States passes the CARES Act into law, ushering a historic stimulus program that dwarfs the 2008 TARP stimulus. Money creation hits record levels, and American citizens also receive modest stimulus cheques, many of which are diverted in part toward financerelated activities Roaring Kitty posts a video on YouTube outlining his arguments of why GME’s share price could go up from $5 to $50 The Securities and Exchange Commission opens an investigation into Robinhood GME reports dismal earnings, stock plunges 20% The first GameStop short squeeze is initiated by activist retail investors GME reaches a value well above US$300 a share Robinhood, Webull, E-Trade, TD Ameritrade restrict trade of YOLO stocks A congressional hearing is conducted with the title “Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide.” Testimonies include Keith Gill (Reddit investor), Citadel CEO Ken Griffin, Melvin Capital CEO Gabriel Plotkin, Robinhood CEO Vlad Tenev, among others

Timeline xxv

19 February 2021 23 February 2021 22 June 2021 15 December 2021 20 February 2022 11 May 2022 17 May 2022 18 May 2022

GME falls back to roughly US$40 a share The United States records its 500,000th death from Covid-19 White Square Capital, a hedge fund shorting GME, shuts down Reddit files an S-1 form with the SEC with the aim of going public The Russo-Ukrainian War begins, interrupting a global post-Covid economic recovery Terra (Luna) stablecoin crashes, triggering panic in cryptocurrency markets The United States records its one millionth death from Covid-19 Melvin Capital, hedge fund shorting GME, closes down

xxvi  Timeline

Figure 0.1  Geographical diversity of contributing authors.

Figure 0.2  Gender diversity of contributing authors.

1 Introduction Usman W. Chohan and Sven Van Kerckhoven

Background The most stalwart proponents of capitalism have often felt themselves drawn toward a certain well-honed assertion: that financial markets can and do act as a democratizing and liberating force for the empowerment of ordinary citizens. This long-standing credo is deeply entrenched within the American psyche, and has served as a psychological crutch for neoliberal free-marketeers, the apologists for the endemic financialization of the American (and indeed global) economy that began in the final quarter of the 20th century (Krippner, 2005). Political rhetoric in the United States is often colored by the primacy of financialization and financial markets, while a revolving door between business and politics reinforces the myth of the financial markets’ supposed liberalizing ethos. So strong is this belief that it must be situated within the “unknown knowns” that Žižek delineated in his study of ideology (2019)—the Americans do not even know that they know it. Yet the ideological superstructure that legitimizes the hegemony of large financial interests has faced two debilitating blows thus far in the 21st century. The first coup was that of the global financial crisis (GFC) of 2008, which pierced the veil of self-anointed mastery that the behemoths of Wall Street had long adorned (Shrivastava & Ivanova, 2015; Chohan, 2022a). Behind the veneer of their omniscient aura, there lay the stark truth for the American (and global) public to see: that a hubristic excess of financial wizardry (read: voodoo) ultimately germinated the seeds of dysfunction while embedding systemic risks across the economy as a whole (Ahamed, 2009). But for the vast realization that dawned upon the American public after 2008, of the incompetence, hubris, and even ill-will of the “banksters,” they went entirely unpunished for their excesses. Rather, it was the American taxpayer who bailed out these financial janissaries, in no small part because of the “too big to fail” risk posed by the collapse of any behemoth (Roskin, 2010). Yet the crisis on Wall Street left deep scars on the Main Street of ordinary Americans (Di Muzio, 2011). They lost their homes and their jobs, falling into episodes of profound suffering of a psychological, emotional, and even physical nature (Greenglass et al., 2014). The children who grew up seeing their parents DOI: 10.4324/9781003351085-1

2  Usman W. Chohan and Sven Van Kerckhoven

go through such harrowing experiences bore a deep resentment toward the American financial regime as they came of age, and many did not buy into the credo of Big Finance acting as a democratizing or liberating force. Yet their youthful state left them disempowered and unable to seek any form of redress for the pain that the grown-ups in their lives faced (Shrivastava  & Ivanova, 2015). The trauma persisted in their minds as they began to reach adulthood, in circumstances not experienced by any previous generation: they grew up digitally savvy and fully interconnected through the virtual sphere. Their world encompassed technologies such as cryptocurrencies (Chohan, 2019a, 2019b, 2022b), non-fungible tokens (Chohan, 2021a), decentralized finance (Chohan, 2021b), immersive online recreation platforms (Serada, 2020; Serada et  al., 2021), and far more that had heretofore not existed but which now would be subsumed within a wider “digital economy’ (Chohan, 2021c). In 2020, the second blow struck, during what would still be a very early stage in their adult lives, and this generation faced another once-in-a-century sudden catastrophe: the Covid-19 pandemic, which paralyzed both Wall Street and Main Street in quick succession (Chohan, 2022a, 2022b, 2022c). However, the financial markets were quick to rebound from the initial turmoil, buoyed by an enormous stimulus package that dwarfed that of 2008. Corporate balance sheets and stock market portfolios were awash with unprecedented amounts of cash, at the same time that America’s youth were in a state of captivity and duress under Covid lockdowns (Chohan, 2022a). Once again, they could not help but notice how the “banksters” were having a field day (see also Di Muzio, 2012), while the flower of their youth was being decimated by the onslaught of a relentless respiratory virus. Yet in the lockdown phase, with so much spare time but scarce occasion to leave the home, many youngsters effectively melded two of their most distinctive traits: a resentment against Wall Street and a penchant for the digital realm. They did so quite ably and seamlessly, by investing in the stock market through digital apps (or even through traditional means) as never before. They also began to further explore technologies such as cryptocurrencies (Chohan, 2019a, 2022b), which offered a decentralized, loosely regulated, semianonymous, and highly volatile space of investment instruments that are not a component of the traditional asset-class universe (Chohan, 2021a). Stocks, cryptocurrencies, and other alternative investments (Karkainen, 2021) thus offered avenues to this young cohort of retail investors, who had now begun a novel, and perhaps somewhat clumsy, embrace of 21st-century capitalism. In doing so, they thus partook of the faithful credo which they themselves may or may not have believed: that capitalism would be a democratizing force, and that they could form part of its demos. But the culture that emerged from this movement was not a pinstripe or genteel one, in the manner that Wall Street had continued to propagate (despite the sleazy persona that was glorified both in Wall Street fact and fiction). Instead of adorning a veneer of sobriety in investment decision-making (Roskin, 2010), the youthful retail investors grounded their investment pursuits squarely in the whimsical culture of

Introduction 3

memes. This frivolous and meme-driven culture can be subsumed by the term YOLO capitalism (Chohan, 2022d), with YOLO signifying a devil-may-care attitude of “you only live once” which they joyfully espoused. True to meme culture (Serada, 2020; Serada et al., 2021), YOLO capitalism was guided by a levity of spirit and nonchalance toward the strictures of Wall Street decorum. The great totem of this culture was the social media website Reddit, or more specifically, the sub-Reddit known as r/WallStreetBets. It was on this forum that many YOLO retail investors would congregate and vociferously share their investment views and experiences. The sub-Reddit grew by leaps and bounds during the Covid-19 pandemic and drew in an increasingly diverse range of retail investors (diverse in terms of investment acumen), many of whom began to view r/WallStreetBets as a place of genuine psychological comfort, and one of solidarity across other identity markers, not least in the yearning for a slice of the capitalist pie and for liberation from the tyranny of increasingly unequal and oppressive socioeconomic conditions. An inclusive culture thus emerged on r/WallStreetBets which reveled in selfdeprecation and vulgarity, often with monikers among members such as “ape,” “retard,” or “degenerate,” which was in turn juxtaposed with valuable financial education and sound investment advice across long and pensive threads and posts. As such, alongside the whimsical culture of investment memes, one could also find a substantive body of well-reasoned investment analysis. Any dispassionate financial practitioner would be amiss in paying such logical analysis short shrift, based on the merits of financial study and rigor that were encapsulated in such posts on the sub-Reddit. The ethos of YOLO capitalism, then, could be seen at the juncture of financial empowerment through rigorous analysis, a sense of community and solidarity, and a juvenile levity and brouhaha (Chohan, 2022d). It is difficult not to appreciate the unvarnished charm of such modern financial praxis. In 2021, one body of analysis on the sub-Reddit revolved around the stock of GameStop (ticker: GME), a chain of leisure stores in which many of the YOLO retail investors had spent countless days perusing video games and toys during their childhood (or perhaps even quite often as adults). The premise of the YOLO investors’ analysis was that the Wall Street banksters had been unduly punitive toward this stock, betting against it to a degree that had lost all sense of proportion. The banksters had supposedly detected both cyclical and structural weaknesses in GME, with the former pertaining to pandemic-related headwinds and the latter pertaining to the increasing disintermediation of game purchases through downloads rather than in hard copies. But the YOLO retail investors, with the user RoaringKitty (aka Keith Gill) at the forefront in analysis, discerned that the short interest on GameStop was in excess of 140%, a mathematically irreconcilable situation in which Wall Street banksters were on the hook for more stock than was in existence! Through the merits of their logical persuasion, RoaringKitty and other incisive retail investors on r/WallStreetBets built the case for undoing (squeezing) the short positions of the Wall Street banksters by going long (buying) the stock.

4  Usman W. Chohan and Sven Van Kerckhoven

In theory, a large enough volume of long positions (with the YOLO capitalists at the vanguard) could lead to infinite losses for any mainstream banker recalcitrant enough to hunker down on their position. Thus, after so long spent powerless in the shadow of Wall Street’s tyranny and exploitation (Novak, 2018a, 2018b), the apes and degenerates could finally strike a blow against capitalism’s Goliath through a short squeeze. Some Redditors were persuaded merely by the sound logic of the investment case, others by the participatory culture that bred a mob of pitchfork portfolios, and still others by a hunger for vengeance and economic justice. And so it began: the YOLO retail investors, pathetic apes and retards as they called themselves, mobilized against Wall Street’s Gomorrah with full fury. They went long on GameStop and drove its price to astronomical levels (see Figure 1.1), and made incredible financial returns along the way. Memes on the sub-Reddit jeered with triumphant exhilaration, as did the moving stories of young retail investors who felt, in some cases for the very first time in their lives, that they were truly winning at something. It was a revolt of the dispossessed, bringing the tyrants of Wall Street to their knees; or so it began to seem. Monetarily, the collective losses to the deepest short positions were in the billions of dollars, and it was all thanks to a bunch of apes shooting a rocket to the moon (in their parlance). These apes had, like many zealots before them (Di Muzio, 2011, 2012; Novak, 2018a), entered the temple to smash the idols. This event came to be known as the GameStop short squeeze (GSS), and it was widely covered in the press and on social media over a sustained period during 2021. The YOLO retail investors were themselves apt at promoting their cause, both in cyberspace and even in physical spaces (such as an advertisement GameStop: Closing and Volume 400

250000000

350

200000000

300 250

150000000

200

100000000

150 100

50000000

50

Volume

5/4/2022

4/4/2022

3/4/2022

2/4/2022

1/4/2022

12/4/2021

11/4/2021

10/4/2021

9/4/2021

8/4/2021

7/4/2021

6/4/2021

5/4/2021

4/4/2021

3/4/2021

0 2/4/2021

1/4/2021

0

Close

Figure 1.1  GameStop: closing and volume (4 January 2021–22 May 2022). Source: Yahoo Finance.

Introduction 5

on Times Square in New York). They were jubilant and self-congratulatory as their gains materialized and the mainstream financial pundits scratched their heads, either in disgust or in amazement. But even as the mood of triumph and exhilaration grew, observers began to detect chinks in the armor of the people’s revolt. For one, self-serving hedge funds were joining in with the apes to profit from the momentum and to perhaps pick off rivals caught in the storm. For another, the principal medium through which retail investors conveniently conducted their trades, an app named Robinhood, subverted their trading capabilities by forbidding buying but allowing selling, thus acting as a gatekeeper who was pushing the stock price downward. This action by Robinhood was perceived as one of bad faith (although it did not acknowledge this and offered alternative justifications), not least because Robinhood was not the democratizing technology app that it professed, but rather a dealer in the data of users, which it would sell to banksters in exchange for money while the banksters could front-run their own trades and profit from timelier execution in a model known as payment for order flow (Parlour  & Rajan, 2003; Battlio  & Loughran, 2008). Whether in good faith or bad, Robinhood’s actions were met with a frothing rage by the degenerates. Protests ensued around the United States, which included telling placards including the iconic statement, “Too Big to Fail, Too Small to Win,” alluding to the gaming or rigging of the financial markets in favor of large-scale private power at the expense of common citizens (Di Muzio, 2011, 2012; Novak, 2018a, 2018b; Roskin, 2010). Nevertheless, many on r/WallStreetBets urged their comrades to stay their ground and HODL (hold on for dear life). Many did adhere to this cri de coeur, and the commotion on capital markets that they had created continued to draw both ire and wonder from the public, from the banksters, and from those in higher office. Some narrative accounts, written in the style of novels, have also emerged around YOLO capitalists and the GSS which have garnered a positive public reception (Mezrich, 2021; Jakab, 2022). A poll of American adults conducted at the time of the GSS showed that the movement enjoyed bipartisan support: 54% of Democrats and 46% of Republicans agreed that “the actions of the small investors gave Wall Street a much-needed taste of its own medicine,” while only 21% in each party thought those actions were “reckless given the negative consequences they might have on large and small investors or the economy.” In addition, 68% of Democrats and 59% of Republicans agreed that the stock market was “rigged against amateur investors in favor of large, professional investors” (Morning Consult, 2021). Another recent poll from YouGov/The Economist among US citizens found that 62% of Democrats and 50% of Republicans expressed a belief that Wall Street investors had privileged access to the financial system, while only 11% of Democrats and 20% of Republicans said market access was fair and equal to all (YouGov, 2021a). Similarly, another YouGov (2021b) poll just after the GSS unfolded indicated that Americans were twice as likely to see the Redditors behind the GSS as heroes rather than villains. However, about half

6  Usman W. Chohan and Sven Van Kerckhoven

the participants said that they did not know or agree with either statement, indicating that many may not have been adequately informed about the event. Various public intellectuals and pundits also shared personal observations that were sympathetic to the activist retail investors. Žižek’s (2021) Lacanian interpretation of the “nihilism” of the GSS was that it generated both direct pleasure (the object one aspires to) and surplus enjoyment (the action of getting to direct pleasure), which is why the YOLO capitalists enjoyed participation in the GSS perhaps more so than the outcome itself (see also Lacan, 1977). He further argued that the GSS offered an important opportunity for public inquiry on the conduct of Wall Street and Big Finance (Žižek, 2021). Robert Reich wondered how the Redditors could be accused of market manipulation when shorting was considered a robust investment strategy deployed by Wall Street itself (Reich, 2021). John Stewart pointed out that the degenerates were “joining a party” that Wall Street insiders had enjoyed for years (Stewart, 2021). Many public officials also articulated a sympathetic view toward the renegade Redditors. House Representative Alexandria Ocasio-Cortez joined in supporting the actions of the Redditors and aptly described the GSS as a “collision of social forces” and “spontaneous digital community-action” (OcasioCortez, 2021). She further stipulated that further action would need to be taken about the decision of Robinhood to halt trading in some securities during the short squeeze. The former White House Director of Communications and Wall Street guru Anthony Scaramucci argued, grandiloquently perhaps, that “we are witnessing the French revolution of Finance” (2021). Former Greek Minister of Finance Yanis Varoufakis argued more demurely that “it’s not a revolution—it’s not Occupy Wall Street—although I wish it were,” and noted with interest that “4.4  million people getting together, to make money—it wasn’t purely [or necessarily] ideological,” but it did have a “substantial proportion of people who didn’t care about making money and wanted to sock it to the hedge funds” (2021a). He further surmised that the GSS did had elements of collective action and ideology, but two things were missing: a manifesto (an alternate vision) and an alliance with other movements such as trade unions, climate activists, and others. When these movements would together pursue a vision for the world, a revolution would be possible, he remarked (Varoufakis, 2021a). In a later discussion, he added that corporate oligarchies deploying technology and market power actually drag capitalist societies one step back, and in that context, YOLO capitalism could be seen as a movement to push capitalism forward again (Varoufakis, 2021b). In the aftermath of the GSS, a congressional hearing on the subject was conducted by the relevant committee in the US Congress (House Committee on Financial Services, 2021), and this was complemented by rigorous analysis by the Securities and Exchange Commission (2021). In both undertakings, it was of no small consequence to observe the general tone of sympathy expressed by lawmakers, irrespective of their ideological and party inclinations. The Republicans saw the acts of the YOLO retail investors as one of making capitalism work for the people, and one which made the joys of capitalism serve the

Introduction 7

public, as it always should (in line with the credo identified at the beginning of this chapter). The democrats saw the problem as one of capitalist exploitation worthy of scorn, for which it was only fair and just of the people to retaliate and take matters into their own hands. It was determined that further study of the problems that had arisen in the investment universe since the GameStop short squeeze, and their longer-term effects on both retail investors and on society was in order. It is in full agreement with the determination of the US Congress that this book has been set out: one of deeper study into YOLO capitalism, its problems, and its effects on both society and on the modern retail investor. To put it plainly, the aim of this book is to examine contemporary retail investors through a diversity of perspectives, literatures, and disciplines. Keeping in mind the foregoing account of 21st-century American capitalism and its relationship to the American public, which can be alternately described as either exclusionary or even antagonistic, this book draws upon leading scholars in multiple fields to offer rich insights into the conditions of modern retail investors from their specialized points of intellectual departure. The next section provides an overview of the book’s structure and framing in light of this discussion.

Overview of This Book The contributors to this volume hail from many disciplinary junctures: economics, sociology, finance, computer science, law, governance, and public administration, among others. The chapters of this volume can thus be seen as stand-alone works that draw upon specific expertise brought forth to analyze a common phenomenon (YOLO capitalism) revolving closely around a specific event (the GSS). That said, the GSS is not the singular focus of this book, and the volume is intended toward fostering forward-looking interpretations of YOLO capitalism, and the roles activist retail investors can perform. Given the diversity of scholars, hailing from all four corners of the globe (as listed in the front matter of this volume), and with intellectual backgrounds and ideological underpinnings of every stripe, the reader might at times find scant agreement among them in terms of the interpretations that they offer. This is not a weakness but a strength of this book: it does not seek to condition the reader toward a particular ideological stance on contemporary capitalism, but rather encourages the reader to appreciate the multidimensionality of scholarship that can be mustered toward a common subject. As such, the book is loosely organized into two halves. The first section comprises chapters which, through a variety of disciplinary lenses, frame the YOLO retail investors as creators, mediators, and drivers of “value” (with some critiques thereof), in the broadest sense. This involves perspectives from public value theory, public sentiment analysis, and corporate governance, among others. The second half of the book comprises chapters which, through an equally broad array of lenses, frame YOLO investors as activists, disruptors, and renegades (with some critiques thereof), in the broadest sense. These two sections are

8  Usman W. Chohan and Sven Van Kerckhoven

complementary and go beyond a strictly Manichean approach, as critiques of each section are incorporated within the sections themselves. In other words, within each section, there are authors who challenge the role of Redditors as either value creators/appraisers or as true activists and disruptors. Yet such a disaggregation into two halves helps to bind the volume within a structure that can inform the reader’s exploration of a variety of perspectives emerging from within various disciplines. The chapters of this volume are delineated in Table 1.1 as well. Chohan’s work in Chapter  2 initiates the first half of the book with an appraisal of YOLO investors as public value creators. Drawing upon public value theory (PVT) and on earlier works on civil society as a driver of public value, Chohan argues that retail investors not only articulate values held by the public but also reap material value that is measurable and comparable. As such, the disaggregation and rediversion of value reaped by large institutional investors

Table 1.1  Overview of This Book Chapter Title

Author(s)

1

Introduction

2 3

Public Value Theory and YOLO Capitalism Chohan, U.W. Happier than Ever: The Role of Public Serada, A. Sentiment in Cryptocurrencies, Meme Stocks, and NFTs GameStop, WallStreetBets, and Capital as Power Di Muzio, T. Speculative Behavior and Expectations in Aslan, I., Chohan, U. W., Economic Turmoil: A Keynesian View and Van Kerckhoven, S. Memes as Cultural Artifacts: YOLO Investors, O’Dubhghaill, S., and Degeneracy, and the Memeified Economy Winkler, S.  Part 2: Retail Investors as Activists, Renegades, and Disruptors

4 5 6

7 8 9 10 11 12 13 14

Chohan, U.W., and Van Kerckhoven, S. Part 1: Retail Investors as Drivers, Creators, and Mediators of Value

Narrative Economics and YOLO Investors: r/WallStreetBets and the GameStop Short Squeeze The Behavioral Biases of Cryptocurrency Retail Investors: Lessons from ICOs FOMO in Digital Assets Is a Trader a Trader, No Matter How Small? Social Movements in Contemporary Political Economy: Lessons from YOLO Retail Investors Retail Investors and Anti-system Politics Online Counter-hegemonic Finance: The GameStop Short Squeeze Conclusion

Source: Author’s elaboration.

Van Kerckhoven, S., and O’Dubhghaill, S. Tronnier, F., Hamm, P., and Harborth, D. Kärkkäinen, T. Packin, N.G. Novak, M. Timcke, S. Chohan, U.W. Chohan, U.W., and Van Kerckhoven, S.

Introduction 9

toward small retail investors can be perceived as a process of value creation. This produces a chapter at the vanguard of PVT in terms of framing the citizen as key driver of value creation and mediation, bolstered by two other key agents of PV: public managers and politicians. Serada’s work in Chapter  3 then examines the role of mood and affect in community-building around asset classes of interest to YOLO capitalists, including stocks, cryptocurrencies, and NFTs in particular. Serada ties this affective movement of a decentralized collective within notions of positive populism, which presents a valuable perspective on community construction within contemporary retail investor subgroups interested in a decentralized virtual economy, irrespective of their orientation toward populism. Serada’s sentiment analysis approach also helps to shed a useful light on the appraisal of value as envisaged in affectively influenced spaces such as NFTs. Di Muzio’s analysis in Chapter 4 contests the ability of activist retail investors to appraise value, by centering his argument on capital as differential social power. From this point of departure, Di Muzio is able to frame YOLO capitalism as the pursuit of value where company valuations are disjointed from their fundamentals (in the traditional sense of asset valuations). This exploration sheds a useful light on how capital and power should together be reviewed in the context of YOLO capitalism, and why, if one presumes a greater prominence of activist retail investors, valuation and value might be better captured through non-traditional lenses. In Chapter 5, Ilker Aslan, Usman Chohan, and Sven Van Kerckhoven analyze YOLO capitalism in general and GameStop short squeeze in particular from a Keynesian lens. They examine three areas of Keynesian interest that influence the social conventions that guide investment decisions within emergent YOLO capitalism, namely, the principal agent problem in financial markets, the “animal spirits,” and the limitations of experts. The chapter thus argues that activist retail investors exert a revolutionary, albeit flawed, presence in financial markets O’Dubhghaill and Winkler’s work in Chapter  6 focuses its enquiry on memes, which serve as one of the core symbolic systems in the arsenal of YOLO retail investors, The authors revisit the genesis of memes and point to definitional quandaries, before highlighting three key characteristics: longevity, copying-fidelity, and fecundity; and key to the success of memes. They situate these characteristics in the context of YOLO capitalists and argue that scholars must simultaneously remain critical to the specific ways in which memes are deployed, and also extend a greater sympathy to casual mimetic newcomers The second half of the volume comprises chapters which study YOLO capitalists as activists, renegades, and disruptors. In Chapter  7, Van Kerckhoven and O’Dubhghaill initiate the second half of the volume with their analysis of YOLO capitalism through the prism of narrative economics. They focus on the evolution of a mobilizing narrative on social media outlets such as WSB, and argue that this narrative construction was seminal in the GSS movement, as well as in instilling a level of discipline and common cause among a decentralized community. This effective narrative development and dissemination, they argue, is necessary for dispersed communities engaging with modern financial markets.

10  Usman W. Chohan and Sven Van Kerckhoven

In Chapter 8, Tronnier, Hamm, and Harborth present a detailed quantitative study on investors in initial coin offerings (ICOs) to discern their personalities and certain biases in their dispositions, with a view to drawing parallels and inferences with meme stock investors. This is a valuable exploration because it points toward two valuable questions: (1) Just who are the activist retail investors? and (2) What makes these renegades tick? Tronnier et al.’s work raises interesting findings about dispositions of ICO investors, including the presence of confirmation bias, herding behavior, and overconfidence bias, which are likely to be strongly manifest in meme stock investors, and which helps to better situate the character of these disruptive agents in financial markets. Kärkkäinen empirically examines a specific type of sentiment in Chapter 9, commonly known as the fear of missing out (FOMO). This warrants an exclusive exploration because of its salience to activist retail investors; and using ICOs in South East Asia as her lens, Kärkkäinen’s quantitative approach finds that FOMO cannot be ruled out as a factor influencing investor interest in such an asset class. Her study is also valuable in that it looks at retail investors outside of the Western context where most research is typically situated. It should be noted that Chapters 9 and 10 share useful proximal connections, in that they both (1) explore the tokens of alternative assets, (2) draw upon quantitative approaches, and (3) advance the existing behavioral literature in studying biases among digital retail investors. In Chapter 10, Packin offers a careful and specific critique about the dissemination of digital retail investment apps to children (minors), given their vulnerability to gamification, less mature cognition, lack of data protections, addictive behavior, and acute financial risks, among others. Using ethical reasoning, behavioral law, and economics insights, Packin’s chapter identifies a frightening public policy deficit in the space of activist retail investors, with the risk of unsupervised minors playing irresponsibly with financial instruments, lured in by their ostensibly innocuous game-like appeal. Her chapter thus issues an important appeal to regulators for the protection of a vulnerable subgroup of retail investors. Novak’s study in Chapter 11 seeks to deconstruct the GSS from the prism of social movement theory, identifying the Redditors as agents of disruptive change and collective action in modern financial markets, while also pointing to the limits of a purely protest-based sociological perspective. Her persuasive analysis offers an apt study of YOLO capitalism because it updates and brings social movement studies and collective action theory into the contemporary context of decentralized, disruptive, digitally savvy, meme-inspired, and emotively charged activists in modern financial markets. In Chapter  12, Timcke grounds the GSS, and YOLO capitalism more broadly, in the discourse on anti-system politics, specifically in articulating a public rejection of how politics and economics are (mis)managed in neoliberal over-financialized societies. His penetrating analysis of the relationship between financial capitalism, desperation, and democracy posits that the failures of financialized neoliberalism lie at the root of the discontent that galvanized

Introduction 11

YOLO capitalists, and therefore makes a timely contribution to the political economy literature using the GSS as a salient case study. Chohan’s work in Chapter 13 deploys the Gramscian concepts of hegemony and counter-hegemony in the context of YOLO capitalism, and draws a parallel with the Occupy Wall Street movement as case study. His argument is that, although activist retail investors have mobilized their energies and ethos in a manner that Gramsci would have prescribed a century ago for agitation against hegemonic structures, there is a profound limitation in the praxis of the Reddit renegades which is both a blessing (lenient treatment) and a curse (inability to foster meaningful change). The chapter thereby resuscitates an important historical view on counter-hegemony in a contemporary light. Chapter 14 is the concluding chapter which seeks to draw key lessons from the contributions of the edited volume. It also presents suggestions for areas of future research, and considers limitations in the volume, despite its length and breadth.

Concluding Remarks We would hope that scholars interested in activist retail investors draw from the richness of perspectives encapsulated in this book, where it is worth reiterating that the ambition of this edited volume is not centered exclusively on the GSS. Rather, it delves deeply into the idea of YOLO capitalism, which is likely to become a larger feature of 21st-century capitalism, as technological somnambulism in society grows, and the legitimacy of Wall Street’s hegemony continues to be questioned. YOLO, as a state of mind, permeates the lived experience of today’s youthful cohorts to a profound extent, and not just in America. It is emblematic of the dizzying, stupefying complexity of the world as it now exists; a world where it is as easy to resign oneself to one’s fate as it is to vicariously view a million other fates unfold. As scholars, we have not resigned ourselves to the stupefying complexity either. Rather, we have sought to grapple with it and encapsulate a part of it in this lengthy volume prepared for an intellectually curious audience of scholars. If anything, we share the exuberance, and we heed the beckoning call of the degenerates on r/WallStreetBets, and so conduct our intellectual enterprise in a manner analogous to their pursuit of financial value. But if we lend ourselves a bit further to a comparison with the apes, we too are in some ways woven into the ethos of YOLO. We strive for such intellectual enquiry and remain accountable to posterity in our scholarship, not because we intend it to last forever, but because we know that YOLO: we too shall live only once.

References Ahamed, L. (2009). Lords of finance: The bankers who broke the world. Random House. Battalio, R. H., & Loughran, T. (2008). Does payment for order flow to your broker help or hurt you? Journal of Business Ethics, 80(1), 37–44. Chohan, U. W. (2019a). Are cryptocurrencies truly trustless? In Cryptofinance and mechanisms of exchange (pp. 77–89). Springer.

12  Usman W. Chohan and Sven Van Kerckhoven Chohan, U. W. (2019b). Initial coin offerings (ICOs): Risks, regulation, and accountability. In Cryptofinance and mechanisms of exchange (pp. 165–177). Springer. Chohan, U. W. (2021a). Non-fungible tokens: Blockchains, scarcity, and value. Critical Blockchain Research Initiative (CBRI) Working Papers. https://papers.ssrn.com/sol3/papers. cfm?abstract_id=3822743 Chohan, U. W. (2021b). Decentralized finance (DeFi): An emergent alternative financial architecture. Critical Blockchain Research Initiative (CBRI) Working Papers. https://papers.ssrn. com/sol3/papers.cfm?abstract_id=3791921 Chohan, U. W. (2021c). Public value and the digital economy. Routledge. Chohan, U. W. (2022a). The return of Keynesianism? Exploring path dependency and ideational change in post-covid fiscal policy. Policy and Society, 41(1), 68–82. Chohan, U. W. (2022b). Public value and citizen-driven digital innovation: A cryptocurrency study. International Journal of Public Administration, 1–10. Chohan, U. W. (2022c). Pandemics and public value management. Routledge. Chohan, U. W. (2022d). On YOLO capitalism. Working paper series: Notes on the 21st century. SSRN. Di Muzio, T. (2011). The crisis of petro-market civilization: The past as prologue. Global Crises and the Crisis of Global Leadership, 73–88. Di Muzio, T. (2012). Capitalizing a future unsustainable: Finance, energy and the fate of market civilization. Review of International Political Economy, 19(3), 363–388. Greenglass, E., Antonides, G., Christandl, F., Foster, G., Katter, J. K., Kaufman, B. E., & Lea, S. E. (2014). The financial crisis and its effects: Perspectives from economics and psychology. Journal of Behavioral and Experimental Economics, 50, 10–12. House Committee on Financial Services (2021, February 18). Game stopped? Who wins and loses when short sellers, social media, and retail investors collide. Virtual Hearing. https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=407748 Jakab, S. (2022). The revolution that wasn’t: GameStop, reddit and the fleecing of small Investors. Penguin. Karkkainen, T. (2021). Price discovery in the bitcoin futures and cash markets. In The Routledge handbook of FinTech (pp. 128–146). Routledge. Krippner, G. R. (2005). The financialization of the American economy. Socio-Economic Review, 3(2), 173–208. Lacan, J. (1977). Écrits. WW Norton & Co. Mezrich, B. (2021). The antisocial network: The GameStop short squeeze and the ragtag group of amateur traders that brought wall street to its knees. Grand Central Publishing. Morning Consult (2021, January  29–February  1). National tracking poll #2101105. https://assets.morningconsult.com/wp-uploads/2021/02/03174029/2101105_ crosstabs_MC_FINANCE_Adults_v1.pdf Novak, M. (2018a). Inequality: An entangled political economy perspective. Springer. Novak, M. (2018b). Civil society as a complex adaptive phenomenon. Cosmos+ Taxis, 5(3), 4. Ocasio-Cortez, A. (2021, January  28). WATCH: AOC talk GameStop Stock ban— livestream. CNET Highlights. www.youtube.com/watch?v=lgNQfCp1ViU Parlour, C. A., & Rajan, U. (2003). Payment for order flow. Journal of Financial Economics, 68(3), 379–411. Reich, R. B. (2021). Twitter comment. https://twitter.com/rbreich/status/1354895262205014020 Roskin, A. R. (2010). Too big to fail: Inside the battle to save Wall Street. Penguin Books. Scaramucci, A. (2021). Twitter comment. https://twitter.com/Scaramucci/status/13544454 27836416003

Introduction 13 Securities and Exchange Commission [SEC]. (2021, October  14). Staff report on equity and options market structure conditions in early 2021. SEC. www.sec.gov/files/staff-reportequity-options-market-struction-conditions-early-2021.pdf Serada, A. (2020). Cryptomarkets gamified: What can we learn by playing cryptokitties? In Proceedings of the 2020 DiGRA international conference: Play everywhere. Digra. Serada, A., Sihvonen, T.,  & Harviainen, J. T. (2021). CryptoKitties and the new ludic economy: How blockchain introduces value, ownership, and scarcity in digital gaming. Games and Culture, 16(4), 457–480. Shrivastava, P., & Ivanova, O. (2015). Inequality, corporate legitimacy and the Occupy Wall Street movement. Human Relations, 68(7), 1209–1231. Stewart, J. (2021). Twitter comment. https://twitter.com/jonstewart/status/13549010185 64321287?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E135 4901018564321287%7Ctwgr%5E%7Ctwcon%5Es1_&ref_url=https%3A%2F% 2Fwww.npr.org%2F2021%2F01%2F29%2F961703023%2Ffrom-elon-muskto-aoc-everybody-has-a-tweet-about-gamestop Varoufakis, Y. (2021a, February  19). Capitalism has become techno-feudalism. Al Jazeera Upfront. www.youtube.com/watch?v=_jW0xUmUaUc&t=460s Varoufakis, Y. (2021b, June  28). Technofeudalism is taking over. Project Syndicate. www. project-syndicate.org/commentary/techno-feudalism-replacing-market-capitalism-byyanis-varoufakis-2021-06 YouGov (2021a, January  29). Survey results. https://today.yougov.com/topics/politics/ survey-results/daily/2021/01/29/aa4ed/3 YouGov (2021b). Redditors who ran GameStop: Hero or villains? https://today.yougov.com/topics/ economy/articles-reports/2021/01/29/redditors-who-ran-gamestop-stock-hero-villain Žižek, S. (2019). The sublime object of ideology. Verso Books. Zizek, S. (2021, February 1). The capitalist nihilism of WallStreetBets. Spectator. www.spec tator.co.uk/article/the-capitalist-nihilism-of-wallstreetbets

Part 1

Retail Investors as Drivers, Creators, and Mediators of Value

2 Public Value Theory and YOLO Capitalism Usman W. Chohan

Introduction The aim of this chapter is to contextualize contemporary YOLO retail investors through the prism of public value theory (PVT). It draws upon the PVT framework of the strategic triangle (Moore, 1995; Alford & O’Flynn, 2009) and on earlier works on civil society as driver and co-creator of public value (Bozeman, 2019) to argue that contemporary retail investors not only articulate and embody certain values held by the public, but also ascribe value and then reap material value that is measurable and comparable. In other words, the chapter frames the PV engagement of civil society as threefold: (1) embodiment, (2) (re)measurement, and (3) (re)appropriation of value.1 These are also depicted in Figure 2.1 and speak to Benington’s definition of public value as (1) what the public values, and (2) what adds value to the public sphere (2009, p. 233). As a constellation of individuals, YOLO investors are engaging with notions of value and values in a multifaceted manner. They ascribe value to assets, which may exhibit a strong degree of sentimental value for them. They appropriate value that might have gone unrealized or appropriated alternatively by large private interests (as opposed to the public interest, see Leys, 1958). Yet they also embody public values and make them manifest in their financial praxis. These are values closely associated with the PV literature and its value inventories, such as equity, efficiency, and accountability, citizen involvement, freedom, and inclusivity (Stoker, 2006; Jørgensen & Bozeman, 2007; Bozeman, 2019; Chohan, 2021). The nature of these in the context of YOLO capitalism and public shall be discussed later in this chapter. Although the Reddit Rebellion was framed as a mob of rabble-rousers in some corners (particularly mainstream financial pundits), there are also many sympathetic voices toward the YOLO investors, including in formal political and public managerial circles, which helps to center this chapter on the interplay of PVT’s main agents: public managers, politicians, and civil society (see Figure 2.2). The chapter also reiterates the need for research into private interest versus public value (Dahl  & Soss, 2014; Chohan, 2021) given that “clearly, a gargantuan entity lurks in the background of neoliberal societies: private interest, which is often a determining, if not the determining, agent in DOI: 10.4324/9781003351085-3

18  Usman W. Chohan

Embodiment of values

•YOLO investors embody values including inclusivity (participation), equity (level playing field for investors), freedom (exerting financial independence), citizen involvement (in financial systems), efficiency (fixing market mispricing), and accountability (of financial markets) (Re)Measurement of value •YOLO investors conduct fundamental analysis to spot price mismatches / market mispricing •YOLO investors put their money in what they deem valuable, including sentimentally valuable (Re)Appropriation of value •YOLO investors are proactive PV agents who gain finanical returns for their efforts, and mobilize their capital to appropriate value in a market system

Figure 2.1  YOLO investors’ engagement with value and values. Source: Author’s research.

Poli cians (representa on, legisla on, oversight)

Public Managers protagonists of PVT who co-create value Civil Society passive collec ve customer

Private Interest (omi ed)

Figure 2.2  Traditional multi-stakeholder PVT construction. Source: Author’s elaboration.

many issues of social substance” (Chohan, 2019, p. 140); even as private interest unfortunately remains largely omitted from PV theorizations. The chapter covers this gap by framing YOLO investors as appropriators of value from large private interests on Wall Street instead of mere rabble-rousing

Public Value Theory and YOLO Capitalism 19

meme trolls, which also speaks to Hartley et al.’s prescient appeal that “rigorous attention [must be paid] to the views, values, aspirations and actions of a wider range of stakeholders” beyond PVT’s public managers alone, including “citizens, elected politicians, special advisors, policy analysts, corporations and even trouble-makers” (Hartley et al., 2017, p. 674, emphasis added). PVT was intended to serve as “a framework that helps us connect what we believe is valuable and requires public resources, with improved ways of understanding what our ‘publics’ value, and how we connect to them” (Moore, 1995). It is in that context that the chapter ties in civil society proactively within value processes and embodiments of society’s values. It fills a gap in terms of going beyond PVT’s “state versus market” dichotomies of the past (Benington, 2009), and the original PV notion that “the citizenry reflects a collective customer who articulates values to other value-creating agents,” or civil society serving as mere “customers and stakeholders” according public managers the “right to operate” in an “authorizing environment” (Moore & Khagram, 2004, p. 8; Moore, 1995, p. 114). It goes beyond rudimentary “models of public sector organization [which] have neglected civil society and positioned the public as either passive recipients of public goods or consumers in a quasi-market” (Williams & Shearer, 2011, p. 1374). Instead, it moves toward citizen participation in markets through the unique embodiment of values, the ascription of values in markets, and the appropriation of market-based and measurable value, which echoes Samaratunge and Wijewardena’s claim that “citizens are no longer the passive beings willing to accept everything spelt out to them” (2009, p. 316). As Hartley et al. reflect, “public value in its original conceptualization is primarily a theory about human agency” (2017, p. 674), and civil society is a key actor that exerts agency in YOLO capitalism. While this departs from PVT’s centricity around public managers, it addresses the absence of civil society mobilization and justifies the literature’s claim that PVT is “characterized by complexity, dynamism, uncertainty and ambiguity in which a wide range of actors are engaged in public value creation, and do so in shifting configurations” (Bryson et al., 2017, p. 2). The “shifting configuration” that is of interest to the chapter is one in which a tussle between smallscale civil society members galvanizes their energies to challenge large-scale private power, which constitutes a contribution to the PV literature since civil society has received limited attention in PVT’s theorizations (see Benington, 2009; Samaratunge & Wijewardena, 2009; Chohan, 2019) and private interest is by-and-large omitted altogether (Dahl & Soss, 2014; Chohan, 2021). This is depicted in Figure 2.3 as well. With the foregoing discussion of centering civil society’s public value role in embodying values and appropriating measurable value, the structure of this chapter is as follows. First, it will briefly cover the absence of citizen-oriented research in PVT (Bozeman, 2019), which leaves room to examine PVT where citizens are the drivers of value-creating initiatives. This is relevant due to the lead role that citizens take as YOLO investors working in concert in financial

representation, legislation, oversight of financial markets

Civil society (YOLO Investors) embodiments of values, (re)measurers and (re)appropriators of value

Public Managers

regulators and overseers of financial stability

Large Private Interest (Hedge Funds) competitors in financial markets who are challenged by civil society

Figure 2.3  Multi-stakeholder PVT construction in GameStop short squeeze. Source: Author’s elaboration.

20  Usman W. Chohan

Politicians

Public Value Theory and YOLO Capitalism 21

markets. Second, the chapter briefly discusses the absence of concrete measurements of “value” in PVT, especially insofar as citizens act as appraisers or measurers of value created. This is important because the financial gains attained by YOLO investors are measured in market terms (dollar figures), but their judgments and appraisals may at times not reflect valuation fundamentals of the stocks they collectively purchase. Thereafter, and third, the chapter considers the GameStop short squeeze (GSS) as a case study for citizen-driven value creation (see also Chohan, 2022a), and delves into PVT-oriented discussions about the embodiment of values along with the (re)measurement and (re)appropriation of value. This section is thus the core of the chapter. Fourth, the chapter covers the response of public managers and politicians as evidence of a new form of value co-creation in financial markets. Fifth, the chapter deploys the PV tool of the strategic triangle to consider questions of value recognition, legitimacy, and operational resources as they inform and explain YOLO capitalism’s potential. Concluding remarks then follow with an emphasis on the new PV perspectives that the chapter provides.

Civil Society as Driver of Value It has long been observed that the role of the citizen in public value co-creation has been underexplored and under-theorized (see review in Chohan, 2021), a point that Benington attributes to obsessions with a “state versus market” dichotomy, and a (comparatively) low interest in citizen participation as an area in the study of government (Benington, 2009). Bozeman notes that “it is surprising that public values research . . . focuses so rarely on empirically derived citizens’ public values,” and also notes the focus in PV “on the preferences not of citizens, but of managers, both public and private sector” (2019, p. 817). He concedes that “clearly, the views of managers and policymakers are critically important and knowledge of their views and preferences crucial to advancing both theory and practice,” but then correctly reemphasizes that “citizens’ views seem at least equally important” (Bozeman, 2019, p. 818; see also Van der Wal et al., 2008; Witesman & Walters, 2014). However, PVT’s limited engagement belies the importance of citizens and their values in the governance of a well-functioning society, as has been highlighted time and again in the public interest literature (Lippmann, 1955; Leys, 1958; Cassinelli, 1962) as well as by many public administration scholars outside PVT (Vigoda, 2002; Yang, 2005). Nevertheless, there has been a heightened call for theorizations of multi-actor approaches to PV (Bryson et  al., 2017), which do justice to the contribution of citizens (Bozeman, 2019; Chohan, 2021; Nabatchi, 2012). The literature has thus far only begun to look at the co-creation aspect of citizen participation (see co-creation in Best et al., 2019) and that of citizens are the drivers of value. For example, Chohan has used the Covid-19 pandemic as a lens to argue that, especially in developing countries where government operational resources are meager, citizens can play a critical role in bridging the gap through their own mobilizations (Chohan, 2022b).

22  Usman W. Chohan

In the context of contemporary finance, Chohan uses the lens of cryptocurrencies to point to the creation of value by citizens and the conflicting values they hold (security versus freedom), along with prudent regulatory balances between conflicting values that can allow public managers to co-create value with citizens (Chohan, 2021, pp. 59–91). There is a parallel to be drawn between the citizendriven innovations of the cryptocurrency space and those of app-using YOLO retail investors (see also Chohan, 2022a), as shall be argued in various chapters of this volume. In the case of cryptocurrency regulation (Chohan, 2021), public managers and politicians are responding to innovations and initiatives that are driven by citizens, and this chapter examines a similar citizen-led financial effort (YOLO retail investing). As such, one may see that PV has recently begun to incorporate citizen perspectives more proactively, but there is room to examine PV in instances where citizens sit in the driver’s seat and take the initiative in (re)appropriating measurable value from private interest.

Measuring and Ascribing Public Value PV scholars concede that it is inherently difficult to measure “value” in their context, unlike in that of the private sector where profits, earnings, stock value, or other accounting-based metrics might be used. Chohan has surmised that, in PVT, one speaks of “some form of [value], and [PVT] is in essence a debate around what this value is, how it can be measured, and how it can be enhanced” (Chohan, 2019). Public value was formulated as a public service “parallel to a corporate bottom line or a stock price,” but which “described benefits that applied to all of society” (Prebble, 2016, p. 114), and so PVT would go beyond “narrow monetary outcomes to include that which benefits and is valued by the citizenry more generally” (Williams  & Shearer, 2011, p.  1367; see also Moore & Khagram, 2004). PV therefore asks to think about “why our work is valuable to society” (Meynhardt, 2009, p. 214) But scholars concede that “there remains some lack of clarity over what public value is, both as a theory and as a descriptor of specific public actions and programs” (Williams & Shearer, 2011, p. 1367), and they caution that PVT “does not derive from a particular research tradition and there is, as yet, little by way of empirical research to support the claims made for it” (2011, p. 1381). In addition, Hartley et al. warn that “public value may fade from view unless empirical research is undertaken to test, challenge and extend the scholarly contributions,” and at present, “despite the growing discourse on the theory and practice of public value, there are very few publications which are based on empirical research,” and most are instead “scholarly, synthetic or descriptive” (Hartley et al., 2017, p. 670). Furthermore, wherever quantitative assessments have been deployed in PV contexts, it has often pertained to government performance (Cole & Parston, 2006; Karusena & Deng, 2012) or surveys of value inventories (van der Waal et al., 2008), but these efforts still leave much room for quantitative commitments to the measurability and appraisal of “value” (Williams & Shearer, 2011).

Public Value Theory and YOLO Capitalism 23

Part of the problem lies in PV’s discomfort in dealing with market concepts (Dahl & Soss, 2014), which also has to do with its attempt to move beyond its predecessor of New Public Management (Bryson et al., 2014), and its tenuous relationship with neoliberal marketization (see also review in Chohan, 2021). Chohan has cautioned that “clearly, a gargantuan entity lurks in the background of neoliberal societies: private interest, which is often a determining, if not the determining, agent in many issues of social substance,” adding that “sometimes the relationship between public managers and private interests may be cordial or even symbiotic, but it may often be highly contentious or even antagonistic” (2019, p. 141). Therefore, a gap still persists in terms of the measurement and appraisal of value co-creation (especially with or by civil society) in market terms. As such, given the need for research into civil society as driver of public value, and that too in a market-logic’s measurable and appraisable terms, the next section presents the GameStop short squeeze and the Reddit Rebellion as an example of civil society’s embodiment, (re)measurement, and (re)appropriation of value.

GameStop Short Squeeze and the Reddit Rebellion The GameStop short squeeze (GSS) was an event driven by an online community (sub-Reddit) known as r/WallStreetBets (WSB), which comprised members of civil society interested in investment strategies and investment news flow, with a penchant for discussing riskier stock transactions and meme stocks. As other chapters in this volume observe, most of the YOLO investors grew up in the shadow of the global financial crisis (GFC) of 2008, which was a supreme example of PV destruction or disvalue by private interest (see PV destruction in Spano, 2009; disvalue in Esposito & Ricci, 2015; Chohan, 2022b). In the subsequent era of bullish stock markets, these Redditors felt largely excluded from the gains, and also observed the brash and continued arrogance of Wall Street as an exclusionary public space. The rhetoric of Occupy Wall Street (see Calhoun, 2013) and other civil society movements remained fresh in their minds, and although this resentment bubbled over several years, there were few catalysts during this interim period which could galvanize the public at speak to its values regarding the hegemony of Wall Street. Other chapters in this volume correctly lay out the causal factors which led to the emergence of the GSS, some of which were accentuated by the Covid19 pandemic and its K-shaped recovery (Dalton et al., 2021; see also Chohan, 2022b; HCFS, 2021), but in January 2021, a casus belli emerged on the WSB forum in the form of an appeal to challenge GameStop’s excessive short interest, at about 140% of the company’s public float being sold short. Redditors on WSB correctly discerned that such an excessive position was untenable, and so small-scale retail investors collectively mobilized to buy GameStop shares to reverse (squeeze) the excessive short position. The collective push of so many YOLO investors put immense pressure on the main short-positioned players, who were hedge funds such as Melvin Capital and Citron Research. These

24  Usman W. Chohan

institutions had to undo (cover) their short positions under the pressure of wellmobilized civil society, and lost considerable amounts of money in the process. WSB’s YOLO investors treated this as a victory at multiple levels: a David versus Goliath triumph, an anti-establishment rebuke, a logical money-making opportunity, a social trend with group affinity, and a corrective market mechanism. However, as mentioned in the introductory section, one can in fact frame the GSS (and YOLO capitalism more broadly) in terms of three types of engagements with public value and values: (1) embodiment, (2) (re)measurement, and (3) (re)appropriation (see also Figure  2.1). This section proceeds systematically to assess each of these facets of engagement. Embodiment of Values

As grassroots members of civil society coalescing around common goals, the protagonists of the Reddit Rebellion also embody key public values, which are enumerated in Figure 2.4. These are values closely associated with the PV literature and its value inventories, such as equity, efficiency, and accountability, citizen involvement, freedom, and inclusivity (Stoker, 2006; Jørgensen & Bozeman, 2007; Bozeman, 2019; Chohan, 2021). For example, Stoker (2006, p. 49) contends Equity •YOLO investors yearn for a more level playing field in financial markets, where the asymmetries of power and the whims of large market par cipants do not damage the public interest. Efficiency •YOLO investors are making markets more efficient when resolving mispricing such as >100% short interest, and are using fundamental analysis and robust argumenta on to build the case for inves ng in certain companies. This is less true when they are using puni ve investment strategies of meme stocks. Accountability •YOLO investors are seeking puni ve financial remedies for the abuses of Wall Street (such as the 2008 GFC) in which the “banksters” went unpunished and their financial excesses were le unanswered. Inclusivity •YOLO investors seek a more proac ve and par cipatory role in the mechanisms of wealth crea on in society. They do not wish to remain excluded or relegated to the margins of the systems that govern wealth in society. Ci zen Involvement •Ci zens wish to be involved in the structures of power and decision-making but lack the wherewithal to do so. YOLO investors proac ve insert themselves into such structures (par cularly the equity markets). Freedom •Ci zens yearn for the capacity to act freely, and to take ac ons with liberty and empowerment. YOLO investors freely congregate and take free decisions with their capital.

Figure 2.4  Values of YOLO capitalism. Source: Authors’ research.

Public Value Theory and YOLO Capitalism 25

that “efficiency, accountability and equity” are three goals for which public value must still articulate its solutions, and they are cited often in exercises of value inventories (see example in Jørgensen & Bozeman, 2007). Citizen involvement refers to the participatory nature of engagement in public activities, and financial markets can be seen as a public activity in various ways, including the raising of equity, which is referred to as “going public” through “initial public offerings” (IPOs). This also echoes Samaratunge and Wijewardena’s observation that “citizens are no longer the passive beings willing to accept everything spelt out to them by their political representatives” (2009, p. 316), but rather want to be proactive co-creators of value in society (Chohan, 2019). Meanwhile, freedom is a quintessential human value that is deeply ingrained in the human psyche and is the subject of rich ethical enquiry across societies (Carter, 1995), but it is also a public value that can easily clash with other values (see Chohan, 2021). Freedom is also cognate with “independence” and “autonomy” that empower people to take actions that create value for themselves and the public at large. The same is true for inclusivity as ethical subject (Felder, 2018), and while it has alternative references in the PV literature (see “democratic participation” in Jorgensen & Bozeman, 2007, p. 370), it speaks to PV’s founder Mark Moore’s urging for “a public rather than the summation of individual aspirations” (Moore, 2014, p. 469). It is not just that YOLO investors hold the values presented in Figure 2.4, but also that they embody them and make them manifest through their actions. Their yearning for freedom, involvement, and inclusion is manifest in their collective and willful actions to change the values of instruments of wealth. Their desire for equity is matched by their banding together to attain a collective weight that levels the playing field (somewhat) against financial juggernauts. Their sense of injustice leads them to strike at hedge funds and Wall Street behemoths who went unpunished in previous episodes of egregious mismanagement and misconduct. They therefore act in a non-violent manner to attain a degree of accountability from what they perceive as transgressions that went unredeemed, and it is true that the Global Financial Crisis of 2008 saw very little recourse for the powerless and very lenient (if any) measures for the financial crimes of Wall Street (Pontell et al., 2014; Ocasio-Cortez, 2021). Furthermore, the YOLO investors deploy cogent financial arguments and use fundamental equity analysis to justify actions such as purchasing GameStop stocks when it is at 140% short interest. There is a logical basis for squeezing such excessive shorts, and the price discovery mechanism deployed by WSB analysts makes them the “smart money” as opposed to the well-heeled hedge funds taking excessive bets. In this regard, they are also agents of market efficiency by correcting excesses in the market. That said, the meme stocks element of the Reddit Rebellion has meant that, in some instances, the YOLO investors have acted without market rationality or fundamental analysis, out of spite for the Wall Street juggernauts. This leads to an interesting discussion about value conflict or value pluralism in the praxis of YOLO investors, to the degree that efficiency (market price

26  Usman W. Chohan

discovery) can clash with accountability and inclusivity (punitive financial mob behavior). Value conflict is a subject of keen interest in PVT and is seen as inherent to the reconciliation of oppositional or contradictory values that can simultaneously be held by the public (see Spicer, 2001; DeGraaf, 2015; Chohan & Jacobs, 2018). Insofar as WSB participants use fundamental analysis to squeeze hedge funds that have made poor bets, the Redditors are creating measurable value and are making markets more efficient. However, insofar as they may be truly “YOLO” and whimsical (in the levity of meme attitudes), or spiteful and antagonistic toward hedge funds (extracting gains at their expense), efficiency cannot be said to be the dominant value. It might, therefore, be more appropriate to point to value pluralism than conflict, since YOLO investors embody multiple values simultaneously, and the degree to which they exert themselves in any equity instrument can determine whether their actions can be judged as holding a pluralism of values or their actions encompassing conflicting values. Yet the key point is that they embody these values and make them manifest in their praxis. (Re)measurement and (Re)appropriation of Value

In deciding which stocks to purchase, YOLO investors are engaging in an activity with measurable value (in dollar terms), situated deep within the market logic of valuations, earnings, price volatility, and exchange. Therefore, unlike the normal challenges of “measuring” value (Chohan, 2019) in PVT, which is often deployed in more ambiguous performance assessment terms (Cole & Parston, 2006; Karunasena & Deng, 2012) or value inventories (van der Waal et al., 2008), the stock market initiatives of the Reddit rebels are quantifiable as market-based value. However, several of the stocks purchased by YOLO investors in 2021 were not necessarily bolstered by fundamental equity analysis, and instead spoke to sentimental connections of the public to the value propositions of these companies (e.g., GameStop, AMC, Blackberry). GameStop is a company whose stores were often visited by Reddit rebels to purchase video games and memorabilia during their childhood years. AMC owns the cinemas where the YOLO rebels sat in their childhoods, and Blackberries might have been the first multipurpose handheld devices (“smartphones”) that they bought in the mid-to-late 2000s. Such names therefore hold some sentimental value for YOLO investors, which speaks to PVT’s insistence on understanding “what the public values” (Benington, 2009, p. 233; see also Moore, 1995, Alford & O’Flynn, 2009). This also echoes notions of a comingling among material desires and emotional ends (Moore, 2014), in the sense that there may be an emotional appeal to invest in companies which transcends the material aspirations of YOLO Redditors to realize financial gains, and thus reinforces the aforementioned notion of value pluralism (de Graaf, 2015). The equity markets thus offer an interesting crossover in conceptions of value where the traditional ambiguities of PVT can be overcome to gauge quantifiable returns, gains, and transfers of value, but

Public Value Theory and YOLO Capitalism 27

at the same time harken back to multiple values inspired by factors including intangible attachments. The lens of this chapter therefore touches upon measurability of civil society PVT in a way that previous PV research has not. In addition, YOLO investors appropriate value that would have been either left on the proverbial table due to market mispricing as unrealized value potential, or alternatively appropriated by hedge funds in the process of market activities that might be excessive (such as short interest). This appropriation of value by civil society from private interests has so far been a question unexplored in PVT, but it offers an interesting vein for future research since it complements the question of embodying public values, and also bolsters the idea of measurable value gains by members of the public through their coordinated initiatives. Civil society is a proactive agent in this exercise rather than passive spectator of private wealth appropriation (short selling). Since PVT is a theory that also draws (primarily) on public managers as protagonists, it is important to gauge how politicians and public managers have engaged with the appropriation of civil society value from private interest.

Public Managerial and Political Responses PVT is premised on the co-interactions among three agents in society: politicians, bureaucrats (public managers), and civil society. It is of great peculiarity, as various authors have noted (Dahl & Soss, 2014; Chohan, 2020, 2021) that private interest is not one of the main agents in PVT (see Figure 2.2). Dahl and Soss argue that “a striking feature of the [PV] literature to date is how little attention is devoted to the state’s traditional role as a ‘countervailing power’ that constrains markets and limits powerful market actors” (2014, p. 498). Dahl and Soss thus contend that “the problem is that most public value scholarship ignores the other side of the coin,” which lies in “the desirable qualities that flow from a separation of powers and the importance of specifying how the state and the market would check one another” (2014, p. 499). Recent scholarship on public–private partnerships, cryptocurrency regulation, and digital taxation (Chohan, 2021) have sought to address this somewhat, but the point still persists that large market actors such as Wall Street “banksters” are not subsumed within the scope of PVT. For this reason, this section briefly examines the reaction of politicians and public managers to the Reddit Rebellion and WSB after the GSS occurred. Soon after the events of the GSS began to unfold, the political administration declared that public managers responsible for financial stability would be closely monitoring the situation (Reklaitis, 2021). The public managerial institutions most closely involved with oversight over the GSS were the US Treasury, the Securities and Exchange Commission, the Federal Reserve, and the Commodity Futures Trading Commission. Previous PV research has looked at the regulatory cooperation among these institutions and scored them highly on the PV strategic triangle in the domain of alternative financial regulation (Chohan, 2021, pp. 59–91), particularly the SEC.

28  Usman W. Chohan

In the GSS, the SEC’s detailed investigation into the GSS and “meme stocks” (SEC, 2021) absolved the YOLO retail investors and generally praised the financial system’s resilience despite the uniqueness of the GSS, thus concluding that “whether driven by a desire to squeeze short sellers and thus to profit from the resultant rise in price, or by belief in the fundamentals of GameStop,” either way, “it was the positive sentiment, not the buying-to-cover, that sustained the weeks-long price appreciation of GameStop stock” (SEC, 2021, p. 27). Congress also declared that they would review the situation, and the House Committee on Financial Services (HCFS, 2021) conducted hearings on the GSS (HCFS, 2021). This chapter only considers the first hearing (out of two), which was provocatively titled Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide (HCFS, 2021). This inquiry summoned stakeholders, including YOLO investors (Keith Gill), industry specialists, the CEO of Robinhood (trading app) Vlad Tenev, and the CEO of Citadel investments. In the course of the hearings, it became evident that the politicians on both sides of the aisle were sympathetic to the civil society initiative’s drive to participate in public value creation, but their bipartisan support was still framed through their respective ideological positions and values (with respect to the list of values in Figure 2.4). In other words, each political party framed the excesses of Wall Street and the GSS in their own ideological logic and the concomitant public values (see PV and politics in Chohan & Jacobs, 2017). Republicans framed the issues in terms of efficiency (market corruption), equity (access), and freedom (of citizens to participate in financial success); while Democrats emphasized values such as equity, inclusion, and citizen involvement, speaking therein to the plight of ordinary Americans through injustices, inequities, and inequalities perpetuated by the egregious excesses of private power on Wall Street, and the “cards being stacked against them” (Rep. Maxine Waters, as quoted in HCFS, 2021). Representatives of both parties agreed on and spoke to the need for accountability (HCFS). These values can be superimposed onto the points depicted earlier in Figure 2.4. Although the House Committee comprised many members, there were some points of public value rhetoric regarding YOLO investors which stood out (see PV rhetoric in Chohan  & Jacobs, 2018). Representative Maxine Waters highlighted the various issues to which the GSS spoke, including the “gamification of trading, potential harm to retail investors, and the business models of apps with retail investors as their users,” and insisted that the public felt that “the cards were stacked against them” (House Committee on Financial Services [HCFS], 2021). Republican Committee Ranking Member Patrick McHenry noted that this civil society movement was “investing in protest” (HCFS, 2021). Meanwhile, Representative Alexandria Ocasio-Cortez in a separate broadcast aptly described the GSS as a “collision of social forces” and “spontaneous digital community-action” (Ocasio-Cortez, 2021). The foregoing discussion of PV as rhetoric and PV in politics (Chohan & Jacobs, 2017, 2018) speaks to the multi-stakeholder PV diagram presented in

Public Value Theory and YOLO Capitalism 29

Figure 2.2. Civil society is placed at the center of the diagram, as drivers and co-creators of value (rather than mere customers), while politicians and public managers respond to their values. For public managers, the oversight and regulatory role is premised on ex post review based on their technical expertise, while for politicians as PV’s final arbiters of value (Moore, 1995, p. 38), the specific values through which they address PV problems might differ, but they nonetheless express solidarity with civil society. Large private interest is thus put on the back foot in ex post accountability, urged to explain its comingling with small-scale YOLO investors organized for collective action in financial markets.

Strategic Triangle The foregoing discussion can be framed in terms of Moore’s strategic triangle tool (Moore, 1995; Bryson et al., 2017), which is a “central symbol” in PVT (Alford & O’Flynn, 2009, p. 173). The components of the triangle are recognition of value, legitimacy, and operational resources; and the premise of the triangle is that, so long as these factors are present, public managers can co-create public value. However, in this chapter, the strategic triangle is superimposed onto YOLO investors as well, and both civil society and public managers are evaluated through the same prism, as is depicted in Table 2.1. For public managers in the financial oversight of mainstream and alternative financial spaces, recent work using the strategic triangle has considered their value proposition in detail (Chohan, 2021), arguing that stability and market integrity is deemed valuable, a legislative framework and civil structure confers legitimacy (aside from their technical expertise and investigative wherewithal), while significant operational resources (both monetary and non-monetary) make them “operationally very well-resourced to create and preserve value for Table 2.1 Strategic Triangle Strategic Triangle Element

Public Managers (Financial Regulators)

Civil Society (YOLO Investors)

Recognition of value

The need for financial stability and market structure creates value for the public (SEC, 2021) The legislative framework, civil structure, and expertise of the institutions confer legitimacy (Chohan, 2021, p. 74) Well-endowed organizations with multi-billion dollar budgets, highly qualified staff, and long-term oversight tools (Chohan, 2021, pp. 73–76) 3/3

Market efficiencies, participatory finance, knowledge base (financial literacy), and democratization of finance Congressional hearings, public managerial investigations, and public sympathy for the financial underdogs Trading apps (to trade quickly and cheaply), stimulus checks and savings (to deploy as capital), r/WallStreetBets and other platforms (to coordinate and inform) 3/3

Legitimacy

Operational Resources

Score

30  Usman W. Chohan

the public” (Chohan, 2021, p. 74). As such, institutions such as the SEC are well-positioned to create public value in financial markets. However, what is of greater interest to this chapter is the strategic triangle superimposed onto the YOLO investors, which is an extension of earlier theorizations centered on public managers (Bryson et al., 2017; Alford & O’Flynn, 2009; Moore, 1995). Do YOLO investors possess PV’s traditional endowments for public value creation? As Table 2.1 discusses, there are reasons to believe, in the aftermath of the GSS, that YOLO investors can present a case for the embodiment of public values and the reflection of strategic triangle endowments. First, there is a recognition of value premised on the discussions of earlier sections that YOLO investors create public value in terms of creating market efficiencies, engaging in participatory finance that spreads the gains of capital across a wider breadth of society, the development of a knowledge base through financial literacy, and democratization of finance for the public. Second, YOLO investors enjoy new operational resources which may not have existed in the past. Trading apps such as Robinhood allow for faster and more convenient trading online (although the value proposition of Robinhood itself is matter of contention, see HCFS, 2021). Excess savings and recent stimulus measures (associated with the Covid-19 pandemic) mean that surplus capital could be deployed by YOLO investors as a basis for participating in the financial markets. Furthermore, platforms such as WSB and Discord allow users to communicate, contemplate, and coordinate their trading strategies, thus building strength in numbers and making them a potent collective force. Third, there was a (perhaps unexpected) degree of legitimacy conferred on the YOLO investors in investigations by public managerial bodies and hearings by political officials. The documents that emerged from these oversight processes expressed a tacit (SEC, 2021), and at times overt (HCFS, 2021), sympathy for the “little guy.” The SEC report, for example, largely absolved the YOLO investors and praised the market structure despite the uniqueness of the GSS’s events (2021). Meanwhile, the study of the value discourse in the Congressional hearing suggests that many politicians from both parties (many of whom had constituencies with YOLO investors), expressed solidarity with the Reddit rebels (HCFS, 2021), and their discourses were couched in their respective political ideologies and thus spoke to different values (although there was unanimity on accountability). As such, experimenting with the strategic triangle in the context of YOLO investors suggests that there is a degree of applicability to civil society and not just public managers. This speaks to the contention of scholars that “public value emerges as an approach that is rooted in everyday practice and retains a nondidactic flexibility of application” (Williams  & Shearer, 2011, p.  1374, emphasis added), and that public value is characterized by a multiplicity and hybridity of definitions (van der Waal & van Hout, 2009). Future research can expand on the application of the strategic triangle to civil society contexts and draw meaningful lessons about the public’s values in the process.

Public Value Theory and YOLO Capitalism 31

Conclusion PVT was originally formulated as a pedagogic discourse for public managers (bureaucrats), and situated them in relation to politicians and civil society without explicitly considering private interest. As such, the initial theorization of PVT was severely limited in grappling with complex and interdependent problems in society. This has been addressed to some degree in the very recent literature that looks at the digital economy (Chohan, 2021, 2022a), but the avenues remain wide for the study of other agents in PVT. This chapter’s contribution was in framing civil society as the driver and main co-creator of value, and that too in the context of contemporary finance and its measurable market logic. YOLO investors have offered a fascinating lens to situate civil society at the center of value creation, and their engagement with public value and values advanced three concepts in the literature: embodying values, (re)measuring value, and (re)appropriating value. This is a considerable departure from existing research interest in PVT, which is why the chapter’s contributions are particularly salient. YOLO investors speak to the claim that “citizens are no longer the passive beings willing to accept everything spelt out to them” (Samaratunge  & Wijewardena, 2009, p. 316), and they instead exert agency as a collective of individuals who share values and interests. What completes the PV picture is the fact that politicians and public managers have also expressed support for YOLO investors (thus far), engaged in ex post oversight of the GSS, and sought to question large private interest’s role. This is thus a powerful PVT case study in the context of the GSS and YOLO investors. As the young man who first analyzed and posted about the market mispricing of GameStop, Keith Gill, reflected in his testimony on the fact that “it’s alarming how little we know about the inner workings of the market” (HCFS, 2021). Public value has not proactively grappled with private interest until very recently, and yet a “gargantuan entity lurks in the background of neoliberal societies: private interest, which is often a determining, if not the determining, agent in many issues of social substance” (Chohan, 2019, p. 140). The GSS offers a fascinating opportunity to ponder the nature of public value creation (and destruction), and this chapter has sought to seize this occasion to consider the importance of civil society as a driver and co-creator of value, and that too in the context of the digital economy and in opposition to powerful private interest. Other chapters in this volume apply still more lenses to contextualize the subject in a rigorous and rich, multifaceted manner.

Note 1 The terms “(re)measurement” and “(re)appropriation” are used instead of “measurement” and “appropriation” throughout this chapter due to the degrees of subjectivity involved in value appraisal and value appropriation.

32  Usman W. Chohan

References Alford, J.,  & O’Flynn, J. (2009). Making sense of public value: Concepts, critiques and emergent meanings. International Journal of Public Administration, 32(3–4), 171–191. Benington, J. (2009). Creating the public in order to create public value? International Journal of Public Administration, 32(3–4), 232–249. Best, B., Moffett, S., & McAdam, R. (2019). Stakeholder salience in public sector value cocreation. Public Management Review, 21(11), 1707–1732. Bozeman, B. (2019). Public values: Citizens’ perspective. Public Management Review, 21(6), 817–838. Bryson, J. M., Crosby, B. C., & Bloomberg, L. (2014). Public value governance: Moving beyond traditional public administration and the new public management. Public Administration Review, 74. Bryson, J. M., Sancino, A., Benington, J.,  & Sørensen, E. (2017). Towards a multi-actor theory of public value co-creation. Public Management Review, 19(5), 640–654. https:// doi.org/10.1080/14719037.2016.1192164 Calhoun, C. (2013). Occupy wall street in perspective. British Journal of Sociology, 64(1), 26–38. Carter, I. (1995). The independent value of freedom. Ethics, 105(4), 819–845. Cassinelli, C. W. (1962). The public interest in political ethics. The Public Interest, 24, 44–53. Chohan, U. W. (2019). Public value and budgeting: International perspectives. Routledge. Chohan, U. W. (2020). Reimagining public managers: Delivering public value. Routledge. Chohan, U. W. (2021). Public value and the digital economy. Routledge. Chohan, U. W. (2022a). Public value and citizen-driven digital innovation: A cryptocurrency study. International Journal of Public Administration, 1–10. Chohan, U. W. (2022b). Pandemics and public value management. Routledge. Chohan, U. W.,  & Jacobs, K. (2017). Public value in politics: A  legislative budget office approach. International Journal of Public Administration, 40(12), 1063–1073. Chohan, U. W., & Jacobs, K. (2018). Public value as rhetoric: A budgeting approach. International Journal of Public Administration, 41(15), 1217–1227. Cole, M., & Parston, G. (2006). Unlocking public value: A new model for achieving high performance in public service organizations. John Wiley & Sons. Dahl, A., & Soss, J. (2014). Neoliberalism for the common good? Public value governance and the downsizing of democracy. Public Administration Review, 74(4), 496–504. Dalton, M., Groen, J. A., Loewenstein, M. A., Piccone, D. S., & Polivka, A. E. (2021). The K-shaped recovery: Examining the diverging fortunes of workers in the recovery from the COVID-19 pandemic using business and household survey microdata. The Journal of Economic Inequality, 1–24. De Graaf, G. (2015). The bright future of value pluralism in public administration. Administration & Society, 47(9), 1094–1102. Esposito, P., & Ricci, P. (2015). How to turn public (dis) value into new public value? Evidence from Italy. Public Money & Management, 35(3), 227–231. Felder, F. (2018). The value of inclusion. Journal of Philosophy of Education, 52(1), 54–70. Hartley, J., Alford, J., Knies, E., & Douglas, S. (2017). Towards an empirical research agenda for public value theory. Public Management Review, 19(5), 670–685. House Committee on Financial Services (2021, February 18). Game stopped? Who wins and loses when short sellers, social media, and retail investors collide. Virtual Hearing. https://financialservices.house.gov/calendar/eventsingle.aspx?EventID=407748

Public Value Theory and YOLO Capitalism 33 Jørgensen, T. B., & Bozeman, B. (2007). Public values: An inventory. Administration & Society, 39(3), 354–381. Karunasena, K.,  & Deng, H. (2012). Critical factors for evaluating the public value of e-government in Sri Lanka. Government Information Quarterly, 29(1), 76–84. Leys, W. A. (1958). 4. Philosophy and the public interest. Political Research, Organization and Design, 2(1), 12–13. https://doi.org/10.1177/000276425800200104 Lippmann, W. (1955). Essays in the public philosophy. Transaction Publishers. Meynhardt, T. (2009). Public value inside: What is public value creation? International Journal of Public Administration, 32(3–4), 192–219. Moore, M. H. (1995). Creating public value: Strategic management in government. Harvard University Press. Moore, M. H. (2014). Public value accounting: Establishing the philosophical basis. Public Administration Review, 74(2), 465–477. Moore, M. H.,  & Khagram, S. (2004). On creating public value: What business might learn from government about strategic management. Harvard Kennedy School. www.innovations. harvard.edu/creating-public-value-what-business-might-learn-government-about-stra tegicmanagement Nabatchi, T. (2012). Putting the “public” back in public values research: Designing participation to identify and respond to values. Public Administration Review, 72(5), 699–708. https://doi.org/10.1111/puar.2012.72.issue-5 Ocasio-Cortez, A. (2021, January  28). Watch: AOC talk GameStop stock ban—livestream. CNET Highlights. www.youtube.com/watch?v=lgNQfCp1ViU Pontell, H. N., Black, W. K., & Geis, G. (2014). Too big to fail, too powerful to jail? On the absence of criminal prosecutions after the 2008 financial meltdown. Crime, Law and Social Change, 61(1), 1–13. Prebble, M. (2016). Is “we” singular? The nature of public value. American Review of Public Administration, 48(2), 103–118. Reklaitis, V. (2021, January 27). Biden administration “monitoring the situation” with GameStop’s stock, White House says. MarketWatch. Samaratunge, R., & Wijewardena, N. (2009). The changing nature of public value in developing countries. International Journal of Public Administration, 32(3–4), 313–327. Securities and Exchange Commission [SEC] (2021, October 14). Staff report on equity and options market structure conditions in early 2021. SEC. www.sec.gov/files/staff-report-equityoptions-market-struction-conditions-early-2021.pdf Spano, A. (2009). Public value creation and management control systems. International Journal of Public Administration, 32(3–4), 328–348. Spicer, M. W. (2001). Value pluralism and its implications for American public administration. Administrative Theory & Praxis, 23(4), 507–528. Stoker, G. (2006). Public value management: A new narrative for networked governance? American Review of Public Administration, 36(1), 41–57. van der Waal, Z., De Graaf, G., & Lasthuizen, K. (2008). What’s valued most? Similarities and differences between the organizational values of the public and private sector. Public Administration, 86(2), 465–482. https://doi.org/10.1111/j.1467-9299.2008.00719.x van der Waal, Z.,  & van Hout, E. T. (2009). Is public value pluralism paramount? The intrinsic multiplicity and hybridity of public values. International Journal of Public Administration Review, 32(3–4), 220–231. Vigoda, E. (2002). From responsiveness to collaboration: Governance, citizens, and the next generation of public administration. Public Administration Review, 62(5), 527–540. https:// doi.org/10.1111/puar.2002.62.issue-5

34  Usman W. Chohan Williams, I., & Shearer, H. (2011). Appraising public value: Past, present and futures. Public Administration, 89(4), 1367–1384. Witesman, E., & Walters, L. (2014). Public service values: A new approach to the study of motivation in the public sphere. Public Administration, 92(2), 375–405. https://doi. org/10.1111/padm.2014.92.issue-2 Yang, K. (2005). Public administrators’ trust in citizens: A missing link in citizen involvement efforts. Public Administration Review, 65(3), 273–285. https://doi.org/10.1111/ puar.2005.65.issue-3

3 Happier than Ever The Role of Public Sentiment in Cryptocurrencies, Meme Stocks, and NFTs Alesha Serada1,2 2021: Year of the NFT? In March 2021, the artist named Beeple publicly established the potential value of NFTs by selling the digital artwork Everydays: The First 5,000 Days for $69 million at Christie’s to his regular buyer and business partner Metakovan, who unexpectedly outbid another crypto billionaire Justin Sun. From the perspective of the art market, although the value of Everyday can be described as “a combination of its perceived rarity plus its perceived demand plus its perceived authenticity” (Charney, 2021), the simple business motivation of (quite literally) raising the stakes should not be discarded either (Castor, 2021). Just as with traditional art, financial value makes blockchain-based art worthy of investment, one might say; and again, just as with modern art, it opens endless opportunities for money laundering; complete with new possibilities to extract more money from buyers provided by both “smart” and “not-so-smart” contracts (see Lydiate, 2021 on possible abuse of “smart contracts” in digital art sales). As Jonathan Jones, the art observer for Guardian, wrote, “a purer form of capitalism has never existed” (Jones, 2022). The art world has always been a strange place, but that is the object of other studies (see, e.g., Feigenbaum & Reist, 2013 on provenance of traditional art in contemporary society regardless of blockchain; see Frey, 1997; David et al., 2013 on art as an investment vehicle). However, we also see the value of NFTs peaking in such projects as Bored Ape Yacht Club (BAYC), a limited collection of tokens that has come to symbolize wealth and celebrity status of its holders online. The beginning of 2022 was marked by the rap star Eminem purchasing a BAYC token, which demonstrates that the celebrity culture has now begun a significant embrace of NFTs. Consequently, the purchased Bored Ape was used in the music collaboration with Snoop Dogg, himself an early adopter of NFTs (Eminem  & Dogg, 2022), which may have been the true motivation behind the purchase. Eminem has never expressed interest in blockchain innovations before, unlike Snoop Dogg and many notable hip-hop stars, ranging from Akon to Jay-Z (Chan, 2022) and Ye (Napolitano, 2022). Predictably, the interest of individual investors in NFTs surged and was fueled by such news. Google Trends data shows an increase in interest after DOI: 10.4324/9781003351085-4

36  Alesha Serada

Beeple’s sale in March  2021 (see also Figure  3.1), which quickly surpassed the previous major peak of interest in NFTs in November 2017, which was due to the global launch of the first casual blockchain-based game Crypto­ Kitties (Axiom Zen, 2017). In December 2021, public interest in NFTs surpassed interest in Ethereum, which is still one of the major blockchain and cryptocurrency platforms that also holds popular NFTs such as CryptoKitties and BAYC. This increased public attention was driven by a particular type of positive fear, or FOMO (“fear of missing out”). New and emerging research suggests that FOMO is one of the most important factors for getting into cryptocurrency trading (Delfabbro et al., 2021) as well as novel and increasingly risky projects such as ICOs (Karkkainen, 2021)—Tatja Kärkkäinen even describes FOMO as a particular type of investor’s sentiment (see Chapter  9 of this volume). Even though cryptocurrency trading had a very eventful and rather rough 2021, the general public seems to have become much more interested in individual investment opportunities, or at least become aware of them, ever since the GameStop short squeeze in January 2021 (see Van Kerckhoven & O’Dubhghaill, 2021 for a detailed timeline)—and some might say that such opportunities are rarely connected to any kind of fundamental value in the real world (see, e.g., Umar, Gubareva, et al., 2021; Libich & Lenten, 2021). Some authors believe that this event signifies radical transformation of the market for individual investments that has taken place in the years after the

120

100

80

60

40

20

0 10/1/2017

10/1/2018 Cryptocurrency: (Worldwide)

10/1/2019

10/1/2020

Non-fungible token: (Worldwide)

10/1/2021 Ethereum: (Worldwide)

Figure 3.1 Comparison of trends in Google Search related to the topics of non-fungible token, cryptocurrency, and Ethereum from October 2017 to July 2022. Source: Google Trends.

Happier than Ever 37

financial crisis of 2007–2008. For example, Schroeder and Zwick explain this transformation through consumer adoption of “FinTech,” which they describe as “digital advances in financial activities” (Schroeder  & Zwick, 2021). So called DeFi, which means “decentralized finance” (see Chohan, 2021b), is the next advance of finance technologies that incorporates a variety of blockchains and cryptocurrencies, and often targets individual investors at the base level of its, quite frequently, rather “pyramidal” structures. On this new smorgasbord of financial offers, NFTs are among the most appetizing desserts; even if many of them look incredibly ugly, and one might say: rotten even before they were “baked.” In yet another ironic turn of things, GameStop, the company now best known due to the aforementioned “short squeeze,” has recently launched its own NFT marketplace (Needleman, 2022). The aim of this chapter, then, is to explain the surge of non-fungible tokens, or NFTs, in the recent past, as a part of YOLO capitalism. To that end, it looks at the changing role of affect and mood, as described by Mouffe (2018), in the spaces of stock trading, cryptocurrency trading, and, recently, in NFTs. Affect is emotionally charged attitude toward an object or a person. Unlike more universal feelings and emotions, the affective state is only characteristic of sentient beings, where it involves the mind and not just the body. Affective investment decisions are made based on subjective feelings, which affect or override logical reasoning that comes from the available information. Studies of affectionate, or “sentimental” (Baker & Wurgler, 2006) investors may involve measuring interest, sentiment, and mood. Measuring interest provides researchers with the simplest one-dimensional analysis of subjective attitude (e.g., changes in online search behavior). Sentiment is the next level of complexity: it is typically described in binary categories such as “positive/negative” or “fear/greed.” To make it even more complex, we speak of mood when there are more than just two categories for different feelings and emotions: for instance, working specifically with public sentiment expressed in social media, Bollen et al. measure six mood dimensions: calm, alert, sure, vital, kind, and happy (Bollen et al., 2011). However, “mood” and “sentiment” sometimes can be used interchangeably. Long et al. apply five categories—angry, fear, happy, sad, and surprise—in their analysis of Reddit sentiment during the GameStop short squeeze (Long et al., 2021). All these are also general examples of emotions, but their social dimension allows analyzing them through a wider affective theoretical prism. The perspectives of affect and mood are applied in this chapter to three interconnected phenomena: sentiment and mood in stocks and cryptocurrency trading (examining the existing research in that regard), the public discourse of NFT traders, and the celebrity culture that eventually absorbs both the overwhelmingly positive mood and the financial risks of trading NFTs. The remainder of this chapter is structured as follows. First, the updated theory of political affect in the late 2010s is given treatment. Second, the literature on mood and sentiment in stock trading is examined, with particular attention to the emergent trend of such research in cryptocurrency and NFT trading.

38  Alesha Serada

Finally, affect, sentiment, investment, and trading of NFTs are connected to celebrity culture, which mirrors and amplifies the overwhelming positivity of the NFT discourse.

Affect and Populism in Political Theory From today’s perspective, the financial crisis of 2007–2008 is sometimes interpreted as the crisis of the neoliberal hegemony at large (see also Chapters 11 and 13 in this volume). It may have contributed to new contours in democratic politics of the West as well as the rise of populism, as the influential political thinker Chantal Mouffe argues in her book For a Left Populism (2018). Mouffe’s work offers an updated theory of political affect that can help consolidate more powerful actors across all of the spectrum of ideological orientations, toward “a collective will that results from the mobilization of common affects in defense of equality and social justice” (Mouffe, 2018, p. 6). Mouffe describes the political–economic state of Western Europe after the financial crisis of 2008 as a “populist moment” that encompasses a variety of practices against the political and economic consequences of neoliberal hegemony. Economic turbulence is not seen as a solely destructive power: it opens up new opportunities for everyone. These opportunities emerge regardless of one’s place in the established relations of production that were taken for granted before that. Drawing from Laclau (2005, p. 87), Mouffe sees populism as a discursive strategy that polarizes society and positions “underdogs” against “those in power” (Mouffe, 2018, p. 11), or otherwise stated as the “people” and the “oligarchy” (Mouffe, 2018, p. 24). What is often overlooked, in her opinion, is that this rhetoric can be performed both within right-wing and left-wing politics. As this chapter shall explore, this is exactly what is happening with the discourse of decentralization on blockchain. To disrupt the stagnating political climate of the late 2010s, Mouffe boldly calls for “left populism.” In her words, the best answer to hegemony would be to adopt “a populist strategy, but this time with a progressive objective” (Mouffe, 2018, p. 35). The desired state is pluralist, or even “vibrant” democracy, where antagonism of radical political opinions is present and accepted for the sake of giving everyone a voice. In the context of the early 2020s, this image of productive populism is readily applicable to YOLO investors who are the main collective protagonist of this book (their interventions into the hegemonic crisis are thoroughly analyzed in Chapter 13). Interestingly, Schroeder and Zwick notice the same mood of liberation and democratization in the discussion of online investing and day trading in the 1990s (Schroeder & Zwick, 2021). For better or worse, the same kind of populism simmers in the community of dedicated blockchain adopters today (as well as in the YOLO capitalists writ large), although their initial collective political preferences were cognate to the right-wing discourse (Golumbia, 2016; Chohan, 2017). What is important, though, is that they also represent resistance to the crisis of financial capitalism, albeit through even more extreme, and often utopian, projects of economic

Happier than Ever 39

liberalism and/or democracy, now on blockchain. Some of these tendencies could adorn a somewhat extremist form, merging with the dark and disturbing side of accelerationism (Land, 2018), transhumanism, and eugenics (Swan, 2019). Still, the idea of financial decentralization and collective action against financial hegemony of traditional forms of capital is just as compatible with left-oriented thinking and feminism (Allon, 2018; Sotoudehnia, 2019). Reflecting on her autoethnographic study at a Canadian cryptocurrency start-up through the lens of “peer-to-peer work,” Maral Sotoudenia confirms that the emerging blockchain ethos promises both an accelerated form of capitalism and its alternative at the same time (Sotoudehnia, 2019). However, and here I draw from Mouffe, such paradoxical configuration should be seen as a productive conjuncture, not as much as a contradiction: “[A]n effective pluralism supposes the presence of an agonistic confrontation between hegemonic projects” (Mouffe, 2018, p. 35). Mouffe states that in post-democratic times, populist strategies can be used for the common goal of overturning the hegemony—and, as Mouffe implies, replacing it with a different one, although the very possibility of “good hegemony” is beyond the scope of this chapter’s discussion (but see Chapters 12 and 13 in this volume). According to her, the objective is to deconstruct or “disarticulate” the established “common sense” (in other words, the ideology) behind the present hegemonic formation and to establish “the nodal points of a new hegemonic social formation” through transformation of the existing social practicing and “instauration” of new ones (Mouffe, 2018, p. 44). This is still in line with the traditional Gramscian agenda (see Chapter 13), but the new ingredient of this social transformation is the shared affect, which is, in Mouffe’s perspective, the primary motivator for political action. Not surprisingly, Mouffe brings up the examples of artistic and cultural practices—and we are not surprised precisely because these fields are also the main testing grounds for blockchain projects now. In addition to that, one is obliged to go further and ask: what if the radical affective transformation is already happening in technology and finance?

A Pandemia of Fear and Greed: Sentiment, Mood, and Interest in Finance The role of emotions in the stock market has been consistently observed, measured, and found meaningful in a large body of academic studies that introduced a variety of affective variables, from the level of noise on the physical trading floor (Coval & Shumway, 2001) to sentiment on social media such as Twitter (Bollen et al., 2011). Baker and Wurgler (2006, p. 1647) provide one of the most convincing long-term observations on the stock market and how it is affected by investor sentiment (Baker & Wurgler, 2006). They conclude that stocks that are difficult to arbitrage or to value are most affected by sentiment, such as small or new companies. If we assume that cryptocurrencies do not have fundamental value, sentiment will be particularly important in trading them. One of the most cited theoretical studies here comes from Yermack (2013), who acknowledged the extremely high volatility of Bitcoin and argued that it

40  Alesha Serada

would be uncorrelated with traditional currencies (Yermack, 2013). In subsequent studies of Bitcoin volatility, authors come to the conclusion that, unlike stock markets, “the Bitcoin market returns are mostly internally driven by market participants” (Baek & Elbeck, 2015). This study found Bitcoin “26 times more volatile than the S&P 500 Index” within the time period from July 2010 to February 2014. It should be noted that it is generally agreed, and has been proven later on, that Bitcoin price is somewhat correlated with the S&P 500 Index (e.g., Baur et al., 2018): a point that became even more evident over the course of 2022. Common knowledge suggests that tech stocks are prone to higher risks of the same kind as cryptocurrencies (e.g., Pan, 2022). Our social experiences suggest that affect is contagious: sentient beings tend to pick up the mood from the ones with whom they communicate. This “virality” can be measured in blockchain studies as well. Drawing from investor interest, an interesting quantitative “epidemic” model has been suggested by Phillips and Gorse: they have demonstrated correlation between user activity on Reddit and prices of Bitcoin, Litecoin, Ethereum, and Monero. An unconventional technique was used, which had been previously applied to predicting influenza outbreaks, to determine whether the market is in an “epidemic state,” where “entry into an epidemic state is considered a buy signal, and exit from the epidemic state is considered a sell signal (to close the position and no longer hold the asset)” (Phillips & Gorse, 2017). Today, it would be extremely interesting to see similar studies on r/WallStreetBets and the GameStop incident, and future research should pursue this line of inquiry (see also Chapter 7 in this volume). The sentiment about NFTs would be a more difficult subject to tackle, though: most of discussions around them happen in chat rooms on Discord, often on closed servers. It is still possible to track “virality” of NFTs across public blockchains; a dataset for potential further analysis can be found in Nadini et al. (2021). So far, it looks as if affect, sentiment, and mood all may contribute more to the value of crypto assets than any other factors. Both proponents and opponents of blockchain technologies agree that this new class of assets demonstrates different behaviors and factors of value as compared to previous financial products. Still, as blockchain studies are relatively young, they need to rely on methods and results of previous studies of sentiment and stock prices, which may limit the potential for discovery. To illustrate this point, I here present the list of 30 peer-reviewed articles that have been most frequently cited in research of sentiment and mood in relation to cryptocurrencies and blockchain as of December 2021. This list has been obtained the Web of Science database, to which the following query was applied: ((“blockchain” OR “bitcoin” OR “cryptocurrenc*” OR “altcoin*”) AND (“sentiment*” OR “mood*” OR “emotion*”)) From the obtained 163 results, one paper was excluded, because it appeared to be a very thoroughly developed book review. Thereafter, all references from 162 papers were extracted, and different references to the same papers were

Happier than Ever

41

unified across the sample. The resulting selection of references was limited to 30 most cited papers which were cited at least 12 times within this selection of 162 papers (see Appendix 3.1) To find patterns in co-referencing, these 30 papers were mapped on a graph by use of Multidimensional Scaling PROXSCAL Method in IBM SPSS Statistics (version 26). A distance of 0.30 or less was used to determine clusters of co-cited and interconnected research (weak connections). A  distance of 0.25 was used to determine strongly co-cited articles that formed the core of such clusters or chains within the knowledge structure (strong connections). This methodology has been polished in a number of bibliometric studies on marketing literature (e.g., Chabowski et al., 2013; Samiee & Chabowski, 2021). Visualization of co-citation patterns has resulted in the knowledge structure presented in Figure 3.2.

Figure 3.2 The map of knowledge structure related to sentiment and Bitcoin/blockchain. Thin lines correspond to weak connections (0.30), thick lines correspond to strong connections (0.25). Source: Author’s research.

42  Alesha Serada

The most cited, but rather weakly co-cited, article is, of course, the initial white paper for Bitcoin by its primary developer known under the name of Satoshi Nakamoto (Nakamoto, 2008). This paper creates the center of the knowledge structure of Bitcoin studies, around which other research forms a spiral-like outward path toward more particular topics such as sentiment analysis and cryptocurrencies. Particular research groups also tend to cite within their own pool of authors; besides, more particular research questions and qualitative measures such as various classifications of moods are cited relatively less, and slide to the periphery of the knowledge structure. Probably, for this reason we do not see prevalence of previous literature on sentiment, or any other particular topics or methods. Instead, the resulting knowledge structure seem to crystallize around the explicit and implicit research questions that are asked (e.g., “Is Bitcoin a bubble?,” which is the implied research question of the largest cluster of co-cited articles). At the same time, more specific methods or concepts, such as investor sentiment and interest, take the marginal position in the knowledge structure; and older papers tend to lose the citation count competition to the newer ones. The ultimate reason for this particular structure may lie in the inherent difference between qualitative and quantitative research. Although many argue that studies on more qualitative aspects of cryptocurrency and blockchain are still much needed to understand the specific qualities of cryptocurrencies, it still may be easier, and sufficient enough for the goals such as looking for “bubbles,” to conduct quantitative studies that only include some, most basic, measurements of investor interest. As for qualitative research, it is absent from the list of most cited sources, as it, by its nature, does not allow to generalize itself to all kinds of cases. In the meantime, a more selective qualitative literature review demonstrates that, although still relatively underrepresented in academic studies, the discursive aspect of valuing Bitcoin and other cryptocurrencies has been in the center of blockchain studies from the beginning. One of the first studies that examined the correlation between social media signals and the price of Bitcoin has found several feedback loops which show how the rise of interest in Bitcoin has resulted in a surge of its price, such that “increasing Bitcoin prices create collective attention through search volumes, which in turn triggers word of mouth about Bitcoin, leading to higher prices,” and so “a similar loop exists with the amount of users in the Bitcoin economy” (Garcia et al., 2014). Also, spikes in total search volume often predict price drops, as traders react to negative events in the Bitcoin economy by looking up more information on them. The same drastic reaction on cryptocurrency-related news such as security breaches has been later observed by other researchers, such as Laskowski and Kim (2016). However, Kaminski and Gloor (2016) conclude that the market changes precede public mood changes, which means that Twitter emotionally reflects Bitcoin trading dynamics (although the feedback loop is also highly likely). In comparison, in the study of Glenski et al. (2019), sentiment did not play a major role and was unnoticeable for Bitcoin specifically (Glenski et al.,

Happier than Ever 43

2019). In comparison, Valencia et al. have studied price movements of Bitcoin, Ether, Ripple, and Litecoin, complementing the market data with the data from Twitter that contained cryptocurrency names as keywords. Of all machine learning tools, neural networks produced overall better results for market prediction. However, Ethereum price shifts could not be predicted by any of the methods (Valencia et al., 2019). Yet another problem is that studies on sentiment are hardly replicable, as the Internet evolves, online communities change all the time, and their participants learn to use social media to “pump and dump.” The role of sentiment is largely recognized in the practice of digital investors themselves. Besides, even more trading instruments take online mood into account, which further complicates the picture. For instance, the website Alternative.me collects emotions and sentiments from online sources and displays the result for everyone. It is presented in the form of one simple meter that displays Crypto Fear & Greed on the scale from 0 to 100—the simplest possible tool that is taken into consideration by many crypto investors (Tobieskrambs GmbH, 2022). Another popular free analytical service about cryptocurrencies, Coingecko, collects its own data on sentiment toward cryptocurrencies in a survey: a visitor of a cryptocurrency profile on Coingecko is asked how they feel about it today: good or bad? (CoinGecko, 2021). In general, there are several ways to conceptualize sentiment, and they are not necessarily colored as “good” or “bad.” In the broadest sense, investor sentiment is “a belief about future cash flows and investment risks that is not justified by the facts at hand” (Baker & Wurgler, 2006). While earlier studies focused on beliefs of professional traders, financial experts, and business representatives, today it is the public sentiment which is just as important, as shown during the GSS, and arguably even more so when there are uncountable individual digital investors out there in the wild. As mentioned in the introductory section to this chapter, probably the simplest way to forecast changes, or “nowcast” them (as termed by Kaminski & Gloor, 2016) on the trading market is to measure public interest in a particular topic online. The correlation intensifies when anyone who uses the Internet can potentially be, or might soon become, an individual investor. At the earlier stage of cryptocurrency adoption, the daily volume of the Bitcoin page views on Wikipedia was used as one of the variables to predict the changes in Bitcoin price (Cheah & Fry, 2015; Kristoufek, 2013). Another approach that remains useful today, and is used in the Crypto Fear  & Greed Index, is search data from Google Trends. In a heavily cited paper, Cheah et al. observed a notable peak in late 2013 in the Google Trends search index for the term “Bitcoin,” which preceded its growth (Cheah & Fry, 2015). In this case, online attention is measured quantitatively, but its emotional valence remains unknown. In a further development, natural language processing allows researchers to measure the mood of online messages and larger publications. In one such well-cited study, Paul Tetlock found the mood of a daily Wall Street Journal column to be correlated with the state of stock market: high level of optimism in the media predicted a temporary downward movement, and unusually high or low

44  Alesha Serada

pessimism predicted high market trading volume (Tetlock, 2007). It is quite telling, therefore, that the market reacted to intensity of affect (quantitative measurements of its presence on the market) rather than to its mode (positive or negative). It would be only logical to assume that positive sentiment drives buying while negative sentiment drives selling; this, however, is not selfevident and should be explored further in future studies. From the foregoing analysis, one can now turn to the emerging topic of NFTs. Although sentiment studies on NFTs are yet to come, such analysis has been applied to a somewhat similar topic of initial coin offerings (ICOs). In the golden age of ICOs (which did not last long, due to the deceptive nature of far too many of them, see Chohan, 2019), the positive language of Twitter messages about these blockchain ventures was observed to be linked with higher funding (Albrecht et al., 2020). This funding would come from individual investors who would purchase a share in the form of blockchainbased tokens, or “coins” (hence “initial coin offering”). Twitter was used “to signal effort, quality, and trustworthiness” of blockchain ventures to investors (Albrecht et al., 2020), although the fate of ICOs after they had been funded is not discussed in this study. Trust in ICOs was found to be driven by a rather complex sentiment of “fear of missing out” (FOMO) later (Karkkainen, 2021, see also Chapter 9 in this volume). In the future studies, one might surmise that a similar picture concerning NFTs will emerge.

Planet of the Apes: NFTs and the Celebrity Culture One of the most prominent features of discourse around NFTs is the overwhelmingly positive mood of its holders. First, it is baked into the agenda of most NFT projects, which almost always contain elements of a utopian manifesto. In popular media, the well-known scientific YouTuber and educator Dan Olson has described the mood of “toxic optimism” in invitation-only Discord servers where new NFTs are discussed, pushed, and “dropped.”3 The mood is almost cultish, and the slightest critique is perceived as toxic negativity (Roberti, 2021). Anecdotally, the author of this chapter has seen friends and colleagues gradually succumbing to NFT madness. In the process, they would become more and more optimistic, sometimes even euphoric, about the technology which did not always deserve the unconditional love and trust that they were granting it. Looking back at the history of trading and in particular at the dot-com bubble and its burst in 2000, Schroeder and Zwick describe a new type of a digital investor whose primary motivation for trading is fun (2021). The author labels this type “the kinematic investor”: he (or she, which is less likely) emerged in the late 1990s, “mesmerized by the experience of dynamism, action, and speed of being in the market” (Schroeder & Zwick, 2021). The market crash has somewhat curbed the enthusiasm of the typical kinematic investor, giving place to a rational “entrepreneurial investor,” motivated primarily by profit. The kinematic investor returns to chase “aesthetic experiences of thrill, speed,

Happier than Ever 45

and agency” (Schroeder & Zwick, 2021). In an alternative analysis, Liblich and Lenten describe two strategies that can be assigned to these two types of investors: “flight to safety” as opposed “flight to focal points” represented by “meme stocks” and other high-risk opportunities (Libich & Lenten, 2021). The “kinematic investor” is not an entirely new character on the global trading floor. However, now such investors have learned (the hard way) the basics of digital democracy and self-organization on social media platforms such as Reddit (see also Chapter 7 in this volume). The GameStop Squeeze remains one of the most successful precedents of such self-organization, even despite its many challenges (Van Kerckhoven & O’Dubhghaill, 2021). When sentimental investors stand united, brought together by the affect of “us versus them,” they might pose noticeable risks to the global financial system in the postdemocracy of the 21st century (see, e.g., Costola et al., 2021; Umar, Gubareva et al., 2021; Umar, Yousaf et al., 2021). This is a prevailing theme in this book’s exploration of Activist Retail Investors in New Financial Markets. In sum, the affective lens proposed by Chantal Mouffe does not only describe the “post-democratic situation” in which we find ourselves, but also offers possible pathways to new developments. Speaking of Google Trends, public interest is quite often also investor interest, and after all, anyone, can be an investor in this new environment of individual traders that emerged from public discussions on social media, communities of cryptocurrency adopters, and apps like Robinhood. Here we need to return to the paradox of NFTs, which have “disrupted the disruption” once again. In the eyes of their holders, the main appeal of NFTs is their symbolic certificate of digital ownership verified by cryptographic hash (Chohan, 2021a), which is to say, the appeal of some seemingly inalienable right to private property obtained at a peer-to-peer market and guaranteed by the technology-mediated consensus rather than force of law, and so it replaces the institute of law in a democratic state. These property rights are not recognized by the state without additional verification: “smart contracts” are not legal contracts (see, e.g., Low & Mik, 2020). Again, we can speak about postnational and post-democratic utopia, and just enough people believing in it to make it true. What is important is that philosophical and political views are just as important in adoption of blockchain solutions as the technology itself (see, e.g., Koens et al., 2021; Chohan, 2017). The true paradox of NFTs, however, is that the instruments for disrupting the existing economic unfairness and building a more democratic marketplace for artists and other creators end up in the hands of the wealthiest few, for example, celebrities, who accumulate this new form of value created through pumping up investor interest and sentiment. As we have already discussed, in a rather controversial move, Chantal Mouffe calls for the left to embrace populism as an appealing strategy of political affect. Even though “affective bonds with a charismatic leader” predictably meet criticism from disenchanted intellectuals, their potential for social mobilization can be immense, and it should be better used for good. But in today’s cultural climate, the role of such

46  Alesha Serada

charismatic personalities is taken by celebrities, from Elon Musk (see Ante, 2021) and Grimes to Snoop Doggy Dogg and Shaquille O’Neal—to name only the most notable traders and promoters of cryptocurrencies and NFTs. The point of being a celebrity is to be loved (and hated) by the masses; they replace charismatic leaders in post-democratic societies.

Conclusion In the end, what is the true value of NFTs? Active involvement of influencers and celebrities, known for their reliance on “attention economy” and open to immense affective investment from their fans (including countless retail investors), suggests that the true value of NFTs comes from rather “manufactured” than “true” authenticity. From this perspective, NFTs may become a powerful tool to convert affect to financial value. Most of the blockchain ideology has been lost in the process: although some celebrities such as Snoop Dogg and Timbaland actively participate in the social life of the NFT community, many others, such as Eminem and Post Malone, acquire breathtakingly expensive ape tokens through their PR and marketing representatives, contrary to the popular belief that blockchain-based economies “remove intermediaries” in some way. In the long run, such purchases appear to be related to promotional campaigns such as Eminem collaborating with Snoop Dogg (Eminem & Dogg, 2022). There is still hope for democracy, however, when we look back at Mouffe’s critique of populism. Naturally, economically minded participants of the NFT market immediately conjured up a number of ways to lend and co-own exclusive tokens, such as the Grey Boys project where up to 10,000 investors can share ownership rights to one Bored Ape or any other NFT. It remains to be seen how sharing the same Twitter avatar with tens, if not thousands, of other co-owning retail investors can change “perceived rarity” of the depicted item, even if demand is high and authenticity is still confirmed by blockchain. Same can be said about the imaginary situation when all 10,000 hypothetical shareholders of one particular token decide to attend a private physical celebrity event where only BAYC owners are invited. Whatever one might think of them, NFTs are likely here to stay as an alternative financial space for retail investors. They are a perfect example to apply one of the most important messages from Mouffe’s work: the goal is not to blame any actors in this (supposedly) most flamboyant investment bubble of our time, but to tap into the abundance of collective affects that they produce, for the liberating potential that is already there. One of the reasons why NFTs have succeeded, this chapter has argued, is that many people are very happy about them (see also Schroeder & Zwick, 2021; Chohan, 2021a), as this idea allows them to imagine better future potentialities not only for themselves, but also for society at large. Consider the notion of the “oligarchs” who decide how capital is allocated today, and then look at the “underdogs” creating their own valuable assets that nobody can take away from them (Chohan, 2021a). NFTs, and their value,

Happier than Ever 47

can be criticized in many ways, but one thing is for sure: holding an NFT can make its owner feel very happy and connected to a like-minded community with an overwhelmingly good and optimistic mood. For Mouffe’s notion of democracy, as well as for retail investors at large, we can only hope that this will result in more political parties, and not in quasi-religious cults. The figure of the emotional, “kinematic,” “sentimental,” or otherwise irrational investor is nothing new by itself: it has always been present on stock markets. What has changed, again, is democratization, decentralization, and public participation that grants unpreceded agency to self-proclaimed “apes” (Van Kerckhoven  & O’Dubhghaill, 2021). Direct access to financial tools online amplified the role of sentiment and mood on the existing financial markets and also expanded them to new territories of DeFi and NFTs. The role of affect, however, is often pushed to the margins of the knowledge structure related to cryptocurrency trading. Despite the abundance of data that can be harvested from social networks and public blockchains, we still do not see enough research on irrational factors that drive potentially self-sabotaging behavior. “Irrational,” however, does not mean “chaotic”: patterns observed on the margins of financial studies call for more qualitative research and theory-crafting. While particular emotions will remain the subject of psychology, finance scholars may find inspiration in a greater variety of emotions and moods (from “calm” to “surprise”), explore interdisciplinary and hybrid concepts such as FOMO (“positive” fear that stimulates buying behavior), and acknowledge celebrity “influencers” as new powerful forces on the global market. If such studies bring results that are convincing enough, the “affective turn” may revolutionize studies of finances in the same way as it has already advanced social sciences.

Acknowledgments This work has been supported by the Evald and Hilda Nissi Foundation under Grant 132/2.52/2021 for Ph.D. students engaged in studies of commerce.

Notes 1 School of Marketing and Communication, the University of Vaasa. 2 This work has been supported by the Evald and Hilda Nissi Foundation under Grant 132/2.52/2021 for Ph.D. students engaged in studies of commerce. 3 An NFT drop is an exclusive event when newly minted NFTs are distributed among cryptocurrency wallets of early “believers” and/or investors who are on the “white list” of wallet addresses and/or at the exclusive Discord server. At the next stage, NFTs enter the open market where the “whitelisted” owners can resell them for a much higher price if said NFTs gain traction.

References Albrecht, S., Lutz, B.,  & Neumann, D. (2020). The behavior of blockchain ventures on Twitter as a determinant for funding success. Electronic Markets, 30(2), 241–257. https:// ideas.repec.org/a/spr/elmark/v30y2020i2d10.1007_s12525-019-00371-w.html

48  Alesha Serada Allon, F. (2018). Money after blockchain: Gold, decentralised politics and the new libertarianism. Australian Feminist Studies, 33(96), 223–243. https://doi.org/10.1080/081646 49.2018.1517245 Ante, L. (2021). How Elon Musk’s Twitter activity moves cryptocurrency markets. SSRN Scholarly Paper ID 3778844. Social Science Research Network. https://doi.org/10.2139/ ssrn.3778844 Axiom Zen (2017). CryptoKitties. Dapper Labs. www.cryptokitties.co/ Baek, C., & Elbeck, M. (2015). Bitcoins as an investment or speculative vehicle? A first look. Applied Economics Letters, 22(1), 30–34. https://doi.org/10.1080/13504851.2014.916379 Baker, M., & Wurgler, J. (2006). Investor sentiment and the cross-section of stock returns. The Journal of Finance, 61(4), 1645–1680. https://doi.org/10.1111/j.1540-6261.2006.00885.x Baur, D. G., Hong, K.,  & Lee, A. D. (2018). Bitcoin: Medium of exchange or speculative assets? Journal of International Financial Markets, Institutions and Money, 54, 177–189. https://doi.org/10.1016/j.intfin.2017.12.004 Bollen, J., Mao, H., & Zeng, X. (2011). Twitter mood predicts the stock market. Journal of Computational Science, 2(1), 1–8. https://doi.org/10.1016/j.jocs.2010.12.007 Castor, A. (2021, March  14). Metakovan, the mystery Beeple art buyer, and his NFT/ DeFi scheme. Amy Castor. https://amycastor.com/2021/03/14/metakovan-the-mysterybeeple-art-buyer-and-his-nft-defi-scheme/ Chabowski, B. R., Samiee, S., & Hult, G. T. M. (2013). A bibliometric analysis of the global branding literature and a research agenda. Journal of International Business Studies, 44(6), 622–634. https://doi.org/10.1057/jibs.2013.20 Chan, W. (2022, June 17). Jay-Z’s bitcoin school met with skepticism in his former housing project: “I don’t have money to be losing”. The Guardian. www.theguardian.com/ music/2022/jun/17/jay-z-bitcoin-school-marcy-houses Charney, N. (2021). Lessons from the history of art crime: “Do NFTs mean the end of realworld art”? The Journal of Art Crime, 95–98. Cheah, E.-T., & Fry, J. (2015). Speculative bubbles in Bitcoin markets? An empirical investigation into the fundamental value of Bitcoin. Economics Letters, 130, 32–36. https://doi.org/ 10.1016/j.econlet.2015.02.029 Chohan, U. W. (2017). Cryptoanarchism and cryptocurrencies. Critical Blockchain Research Initiative (CBRI) Working Papers. CBRI. Chohan, U. W. (2019). Initial coin offerings (ICOs): Risks, regulation, and accountability. In Cryptofinance and mechanisms of exchange (pp. 165–177). Springer. Chohan, U. W. (2021a). Non-fungible tokens: Blockchains, scarcity, and value. Critical Blockchain Research Initiative (CBRI) Working Papers. CBRI. Chohan, U. W. (2021b). Decentralized finance (DeFi): An emergent alternative financial architecture. Critical Blockchain Research Initiative (CBRI) Working Papers. CBRI. CoinGecko. (2021). CoinGecko. www.coingecko.com/en/coins/bitcoin Costola, M., Iacopini, M., & Santagiustina, C. R. M. A. (2021). On the “mementum” of meme stocks. Economics Letters, 207. ArXiv:2106.03691 [Econ, q-Fin, Stat]. http://arxiv. org/abs/2106.03691 Coval, J. D.,  & Shumway, T. (2001). Is sound just noise? The Journal of Finance, 56(5), 1887–1910. https://doi.org/10.1111/0022-1082.00393 David, G., Oosterlinck, K., & Szafarz, A. (2013). Art market inefficiency. Economics Letters, 121(1), 23–25. Delfabbro, P., King, D. L., & Williams, J. (2021). The psychology of cryptocurrency trading: Risk and protective factors. Journal of Behavioral Addictions, 10(2), 201–207. https://doi. org/10.1556/2006.2021.00037

Happier than Ever 49 Eminem, & Dogg, S. (2022, June 24). Eminem & Snoop Dogg—from the D 2 the LBC [Official Music Video]. www.youtube.com/watch?v=RjrA-slMoZ4 Feigenbaum, G., & Reist, I. J. (2013). Provenance: An alternate history of art. Getty Research Institute. Frey, B. S. (1997). Art markets and economics: Introduction. Journal of Cultural Economics, 165–173. Garcia, D., Tessone, C. J., Mavrodiev, P., & Perony, N. (2014). The digital traces of bubbles: Feedback cycles between socio-economic signals in the Bitcoin economy. Journal of the Royal Society Interface, 11(99). https://doi.org/10.1098/rsif.2014.0623 Glenski, M., Weninger, T.,  & Volkova, S. (2019). Improved forecasting of cryptocurrency price using social signals. ArXiv:1907.00558 [Cs, q-Fin, Stat]. http://arxiv.org/abs/1907.00558 Golumbia, D. (2016). The politics of Bitcoin: Software as right-wing extremism. University of Minnesota Press. Google Trends. (2021, December). Google trends. https://trends.google.com/ Jones, J. (2022, January 4). The bored Ape NFT craze is all about ego and money, not art. The Guardian. www.theguardian.com/artanddesign/2022/jan/04/bored-ape-nft-art-eminem Kaminski, J.,  & Gloor, P. (2016). Nowcasting the Bitcoin market with Twitter signals. ArXiv:1406.7577 [Cs]. http://arxiv.org/abs/1406.7577 Karkkainen, T. (2021). FOMO in digital assets. SSRN Electronic Journal. https://doi. org/10.2139/ssrn.3814493 Van Kerckhoven, S., & O’Dubhghaill, S. (2021). Gamestop: How online “degenerates” took on hedge funds. Exchanges: The Interdisciplinary Research Journal, 8(3), 45–54. https://doi. org/10.31273/eirj.v8i3.805 Koens, T., Van Aubel, P., & Poll, E. (2021). Blockchain adoption drivers: The rationality of irrational choices. Concurrency and Computation: Practice and Experience, 33(8), e5843. https://doi.org/10.1002/cpe.5843 Kristoufek, L. (2013). Bitcoin meets Google trends and Wikipedia: Quantifying the relationship between phenomena of the Internet era. Scientific Reports, 3(1), 3415. https:// doi.org/10.1038/srep03415 Laclau, E. (2005). On Populist Reason. Verso. Land, N. (2018). Crypto-current: Bitcoin and philosophy. https://etscrivner.github.io/ cryptocurrent/ Laskowski, M., & Kim, H. M. (2016). Rapid prototyping of a text mining application for cryptocurrency market intelligence. SSRN Scholarly Paper ID 2798486. Social Science Research Network. https://papers.ssrn.com/abstract=2798486 Libich, J., & Lenten, L. (2021). Bitcoin, Tesla and GameStop bubbles as a flight to focal points. World Economics, 22(1), 83–108. https://ideas.repec.org/a/wej/wldecn/823.html Long, C., Lucey, B. M., & Yarovaya, L. (2021). “I Just Like the Stock” versus “Fear and Loathing on Main Street”: The Role of Reddit Sentiment in the GameStop Short Squeeze (SSRN Scholarly Paper ID 3822315). Social Science Research Network. https:// doi.org/10.2139/ssrn.3822315 Low, K. F. K., & Mik, E. (2020). Pause the blockchain legal revolution. International and Comparative Law Quarterly, 69(1), 135–175. https://doi.org/10.1017/S0020589319000502 Lydiate, H. (2021). Ways of working: Automatic for the beeple. Art Monthly, 451, 45. Mouffe, C. (2018). For a left populism. Verso Books. Nadini, M., Alessandretti, L., Di Giacinto, F., Martino, M., Aiello, L. M., & Baronchelli, A. (2021). Mapping the NFT revolution: Market trends, trade networks, and visual features. Scientific Reports, 11(1), 20902. https://doi.org/10.1038/s41598-021-00053-8 Nakamoto, S. (2008). Bitcoin: A peer-to-peer electronic cash system. Academic Press.

50  Alesha Serada Napolitano, E. (2022, June 1). Months after saying “stop asking me to do NFTs,” Kanye West is going to do NFTs. Fortune. https://fortune.com/2022/06/01/kanye-west-nfttrademark-application-deleted-tweet-crypto/ Needleman, S. E. (2022, January 6). GameStop entering NFT and cryptocurrency markets as part of turnaround plan. Wall Street Journal. https://www.wsj.com/articles/gamestopentering-nft-and-cryptocurrency-markets-as-part-of-turnaround-plan-11641504417 Pan, D. (2022, June 1). Bitcoin’s stock-market decoupling proves fleeting. Bloomberg.Com. www.bloomberg.com/news/articles/2022-06-01/bitcoin-s-stock-market-decouplingproves-fleeting-tron-gains Phillips, R. C., & Gorse, D. (2017). Predicting cryptocurrency price bubbles using social media data and epidemic modelling. 2017 IEEE Symposium Series on Computational Intelligence (SSCI), 1–7. https://doi.org/10.1109/SSCI.2017.8280809 Roberti, J. (2021, November  12). Dan Olson on the downside of the NFT hype machine. Benzinga. www.benzinga.com/markets/cryptocurrency/21/11/24062124/ exclusive-dan-olson-on-the-downside-of-the-nft-hype-machine Samiee, S., & Chabowski, B. R. (2021). Knowledge structure in product- and brand origin— related research. Journal of the Academy of Marketing Science, 49(5), 947–968. https://doi. org/10.1007/s11747-020-00767-7 Schroeder, J. E., & Zwick, D. (2021). Stock investing in the digital age. In The Routledge companion to digital consumption. www.ssrn.com/abstract=3947965 Sotoudehnia, M. (2019). Sticky Waddling: An autobiography of pregnant embodiment in Toronto’s crypto-economy. GeoHumanities, 5(2), 355–368. https://doi.org/10.1080/237 3566X.2019.1655660 Swan, M. (2019). Transhuman crypto cloudminds. In N. Lee (Ed.), The transhumanism handbook (pp.  513–527). Springer International Publishing. https://doi.org/10.1007/ 978-3-030-16920-6_33 Tetlock, P. C. (2007). Giving content to investor sentiment: The role of media in the stock market. The Journal of Finance, 62(3), 1139–1168. https://doi.org/10.1111/j.15406261.2007.01232.x Tobieskrambs GmbH (2022). Crypto fear & greed index—Bitcoin sentiment. https://alternative. me/crypto/fear-and-greed-index/ Umar, Z., Gubareva, M., Yousaf, I., & Ali, S. (2021). A tale of company fundamentals vs sentiment driven pricing: The case of GameStop. Journal of Behavioral and Experimental Finance, 30. https://doi.org/10.1016/j.jbef.2021.100501 Umar, Z., Yousaf, I., & Zaremba, A. (2021). Comovements between heavily shorted stocks during a market squeeze: Lessons from the GameStop trading frenzy. Research in International Business and Finance, 58, 101453. https://doi.org/10.1016/j.ribaf.2021.101453 Valencia, F., Gómez-Espinosa, A., & Valdés-Aguirre, B. (2019). Price movement prediction of cryptocurrencies using sentiment analysis and machine learning. Entropy, 21(6), 589. https://doi.org/10.3390/e21060589 Yermack, D. (2013). Is Bitcoin a real currency? An economic appraisal. www.nber.org/papers/ w19747

Appendix 3.1 Highly Cited References on Mood, Sentiment, Cryptocurrency, and Blockchain as of December 2021 (Source: Author’s Research)

What Is Discussed

Reference

Bitcoin, stocks, statistical analysis

Baek, C., & Elbeck, M. (2015). Bitcoins as an investment or speculative vehicle? A first look. Applied Economics Letters, 22(1), 30–34. https://doi.org/10.1080/1350485 1.2014.916379 Baker, M., & Wurgler, J. (2006). Investor sentiment and the cross-section of stock returns. The Journal of Finance, 61(4), 1645–1680. https://doi.org/10.1111/j.15406261.2006.00885.x Baker, M., & Wurgler, J. (2007). Investor sentiment in the stock market. Journal of Economic Perspectives, 21(2), 129–152. https://doi.org/10.1257/jep.21.2.129 Balcilar, M., Bouri, E., Gupta, R., & Roubaud, D. (2017). Can volume predict bitcoin returns and volatility? A quantiles-based approach. Economic Modelling, 64, 74–81. https://doi.org/10.1016/j.econmod.2017.03.019 Baur, D. G., Hong, K., & Lee, A. D. (2018). Bitcoin: Medium of exchange or speculative assets? Journal of International Financial Markets, Institutions and Money, 54, 177–189. https://doi.org/10.1016/j.intfin.2017.12.004 Böhme, R., Christin, N., Edelman, B., & Moore, T. (2015). Bitcoin: Economics, technology, and governance. Journal of Economic Perspectives, 29(2), 213–238. https:// doi.org/10.1257/jep.29.2.213 Bollen, J., Mao, H., & Zeng, X. (2011). Twitter mood predicts the stock market. Journal of Computational Science, 2(1), 1–8. https://doi.org/10.1016/j.jocs.2010.12.007 Bouri, E., Molnár, P., Azzi, G., Roubaud, D., & Hagfors, L. I. (2017). On the hedge and safe haven properties of Bitcoin: Is it really more than a diversifier? Finance Research Letters, 20(C), 192–198. Bouri, E., Gupta, R., Tiwari, A. K., & Roubaud, D. (2017). Does bitcoin hedge global uncertainty? Evidence from wavelet-based quantile-in-quantile regressions. Finance Research Letters, 23, 87–95. https://doi. org/10.1016/j.frl.2017.02.009

Investor sentiment, stocks, statistical analysis Investor sentiment, stocks, statistical analysis Bitcoin, statistical analysis

Bitcoin, stocks, statistical analysis Bitcoin, blockchain

Stocks, investor sentiment, statistical analysis Bitcoin, stocks, statistical analysis, hedging Bitcoin, stocks, statistical analysis, hedging

(Continued)

52  Alesha Serada (Continued) What Is Discussed

Reference

Bitcoin, statistical analysis, investor interest

Cheah, E.-T., & Fry, J. (2015). Speculative bubbles in bitcoin markets? An empirical investigation into the fundamental value of bitcoin. Economics Letters, 130, 32–36. https://doi.org/10.1016/j.econlet.2015.02.029 Ciaian, P., Rajcaniova, M., & Kancs, d’Artis. (2016). The economics of bitcoin price formation. Applied Economics, 48(19), 1799–1815. https://doi.org/10.1080/00036846. 2015.1109038 Corbet, S., Meegan, A., Larkin, C., Lucey, B., & Yarovaya, L. (2018). Exploring the dynamic relationships between cryptocurrencies and other financial assets. Economics Letters, 165, 28–34. https://doi.org/10.1016/j.econlet.2018.01.004 Corbet, S., Lucey, B., & Yarovaya, L. (2018). Datestamping the bitcoin and ethereum bubbles. Finance Research Letters, 26, 81–88. https://doi.org/10.1016/j.frl.2017.12.006 Corbet, S., Lucey, B., Urquhart, A., & Yarovaya, L. (2019). Cryptocurrencies as a financial asset: A systematic analysis. International Review of Financial Analysis, 62, 182–199. https://doi.org/10.1016/j.irfa.2018.09.003 Da, Z., Engelberg, J., & Gao, P. (2015). The sum of all FEARS investor sentiment and asset prices. The Review of Financial Studies, 28(1), 1–32. https://doi.org/10.1093/ rfs/hhu072 Dyhrberg, A. H. (2016). Hedging capabilities of bitcoin. Is it the virtual gold? Finance Research Letters, 16, 139–144. https://doi.org/10.1016/j.frl.2015.10.025 Dyhrberg, A. H. (2016). Bitcoin, gold and the dollar—A GARCH volatility analysis. Finance Research Letters, 16, 85–92. https://doi.org/10.1016/j.frl.2015.10.008 Garcia, D., Tessone, C. J., Mavrodiev, P., & Perony, N. (2014). The digital traces of bubbles: Feedback cycles between socio-economic signals in the bitcoin economy. Journal of the Royal Society Interface, 11(99). https://doi. org/10.1098/rsif.2014.0623 Kaminski, J. (2016). Nowcasting the bitcoin market with Twitter signals. ArXiv:1406.7577 [Cs]. http://arxiv.org/ abs/1406.7577 Karalevicius, V., Degrande, N., & De Weerdt, J. (2018). Using sentiment analysis to predict interday bitcoin price movements. The Journal of Risk Finance, 19(1), 56–75. https://doi.org/10.1108/JRF-06-2017-0092 Katsiampa, P. (2017). Volatility estimation for Bitcoin: A comparison of GARCH models. Economics Letters, 158, 3–6. https://doi.org/10.1016/j.econlet.2017.06.023 Klein, T., Pham Thu, H., & Walther, T. (2018). Bitcoin is not the new gold—a comparison of volatility, correlation, and portfolio performance. International Review of Financial Analysis, 59, 105–116. https://doi. org/10.1016/j.irfa.2018.07.010

Bitcoin, statistical analysis, investor interest, stocks Bitcoin, stocks, statistical analysis Bitcoin, stocks, statistical analysis Bitcoin, statistical analysis, investor interest, stocks Investor sentiment, stocks, statistical analysis Bitcoin, stocks, statistical analysis, hedging Bitcoin, stocks, statistical analysis, hedging, investor sentiment Sentiment analysis, Bitcoin, blockchain, investor sentiment Sentiment analysis, Bitcoin, investor sentiment Sentiment analysis, Bitcoin, investor sentiment Bitcoin, statistical analysis, Bitcoin, stocks, statistical analysis, investor interest

Happier than Ever 53 What Is Discussed

Reference

Bitcoin, statistical analysis, investor interest, stocks

Kristoufek, L. (2013). BitCoin meets Google trends and Wikipedia: Quantifying the relationship between phenomena of the Internet era. Scientific Reports, 3(1), 3415. https://doi.org/10.1038/srep03415 Kristoufek, L. (2015). What are the main drivers of the bitcoin price? Evidence from wavelet coherence analysis. PLoS One, 10(4), e0123923. https://doi.org/10.1371/ journal.pone.0123923 Nadarajah, S., & Chu, J. (2017). On the inefficiency of Bitcoin. Economics Letters, 150, 6–9. https://doi. org/10.1016/j.econlet.2016.10.033 Nakamoto, S. (2008). Bitcoin: A peer-to-peer electronic cash system. Tetlock, P. C. (2007). Giving content to investor sentiment: The role of media in the stock market. The Journal of Finance, 62(3), 1139–1168. https://doi.org/10.1111/ j.1540-6261.2007.01232.x Urquhart, A. (2016). The inefficiency of Bitcoin. Economics Letters, 148, 80–82. https://doi.org/10.1016/j. econlet.2016.09.019 Urquhart, A. (2018). What causes the attention of Bitcoin? Economics Letters, 166, 40–44. https://doi.org/10.1016/j. econlet.2018.02.017 Yermack, D. (2013). Is Bitcoin a real currency? An economic appraisal. Working Paper No. 19747; Working Paper Series. National Bureau of Economic Research. https:// doi.org/10.3386/w19747

Bitcoin, statistical analysis, investor interest, stocks Bitcoin, statistical analysis Bitcoin, blockchain Investor interest, investor sentiment, stocks, statistical analysis Bitcoin, statistical analysis, Bitcoin, statistical analysis, investor interest Bitcoin, blockchain

4 GameStop, WallStreetBets, and Capital as Power Tim Di Muzio1

Introduction The phrase, “there’s a sucker born every minute” is typically attributed to the American showman P.T. Barnum, and was made infamous since the mid19th century by gamblers, hucksters, and confidence artists (con men). On Wall Street, the “suckers” are supposed to be the “dumb money” retail traders who populate Main Street, as evidenced by a long string of capitalist crashes and public money bailouts to the champions of high finance, not to mention the recurrent fraudsters in three-piece suits stealing from investors like Bernie Madoff (see also Chapter 1 in this volume). The latter is said to have “madeoff” with US$65  billion through a long-running Ponzi scheme—most of it consisting of the life savings of his victims.2 But while some claim that there is nothing new under the sun, in an interesting turn of events during the last days of January 2021, some hedge fund managers on Wall Street became the “unusual suckers” losing billions of dollars by shorting the American gaming company appropriately named GameStop (Bloomberg, 2021). Short selling is a common tactic used by the lords of finance. But what happens if their value assessments are wrong and instead of plummeting, shares prices rapidly begin to increase? “Houston, we have a problem called the short squeeze,” would presumably be the short answer.

Box 1  Short Selling Step 1: A hedge fund manager borrows 1,000 shares in Company X from a broker at US$10 a share and immediately sells them, realizing US$10,000. The manager promises to give the broker the 1,000 shares borrowed at a specific point in time and will pay a fee to the broker for his part in the transaction. Step 2: The hedge fund manager waits to see if the share price goes down. Suppose it goes down to US$5 a share. The hedge fund manager can then acquire 1,000 shares in Company X for $5,000.

DOI: 10.4324/9781003351085-5

GameStop, WallStreetBets, and Capital as Power 55

Step 3: The hedge fund manager returns the shares to the broker and collects a profit of US$5,000 minus whatever fee/interest the broker takes.

Meet GameStop, a gaming merchandise retailer with over 5,000 brick-andmortar stores littered across the American landscape. On 8 January 2021, shares in GameStop were trading at US$17.69 and by 27 January, the price closed at US$357.51 for an increase of 1864%.3 That’s a lot of tendies!4 Yet this kind of share price appreciation happens very rarely and is typically attributed to a major event like a corporate merger or acquisition, a quarterly profit report that beats the expectations of investors, a new business model, the introduction of a new invention or product, or a once-in-a-century pandemic. Consider Amazon, whose shares were trading at US$1,846 just before the full weight of the pandemic hit and lockdowns became the norm. By 16 October  2020, shares were trading at US$3,293, for an increase of 78%. We can also consider the communications technology company Zoom. Just before the pandemic shares were trading at US$107.47 on 13 March 2020. Then, most of the world entered lockdown and with evermore people working from home and communicating with Zoom, the share price skyrocketed to US$559 on 16 October  2020, for a 420% increase in value. This, like the rise in Amazon shares, can be explained by a locked-down world due to the spread of Covid-19 and its variants and a change in the future expectations of investors in Zoom and Amazon. But GameStop’s share appreciation was of a different order of magnitude. How should we account for the moon-shot rise in GameStop? Did Americans all of a sudden demand more games? Did earnings expectations of GameStop improve that significantly? Can we ever know the “true value” of GameStop outside of the sociocultural determination of value (Fix, 2021; Grossberg et  al., 2014)? And furthermore, what can the GameStop phenomenon tell us about corporate capitalism, the rise of social media, the increasing prevalence of FinTech, and the future of trading faced with a changing global online financial culture? To address these questions, this chapter considers various aspects of the GameStop phenomenon spurred on by the sub-Reddit, r/WallStreetBets. I will argue that the rising use of social media and FinTech represents an important cultural development in the capitalist ecosystem of speculating on shares in corporate power and that we should be careful of analyses that see a true, real, or accurate valuation for a firm due to a number of sociocultural factors such as hype and the presence of online financial culture (Nitzan & Bichler, 2009, p. 188ff). To unpack this argument, I  have organized this chapter in the following way. First, I consider the link between social media and the rise of what I call “online financial culture” and the r/WallStreetBets excitement that surrounded GME. Second, I  consider some of the sociocultural dimensions that framed

56  Tim Di Muzio

the activity of r/WallStreetBets in January 2021. Third, I employ the capital as power framework to help us account for the meteoric rise in the share price of GameStop and why share prices in GME went far beyond the supposed “fundamentals” of the firm (Nitzan & Bichler, 2009). While a peculiar case, I will argue that this study has relevance for “critical valuation studies” (Grossberg et al., 2014) as well as critical political economy more generally.

Setting the Stage for the Surge Part of the explanation for the rapid and massive appreciation of GameStop stock can be attributed to social media platforms, in this case Reddit (Foster, 2021). Originally founded by Jaime Rogozinski in 2012, r/WallStreetBets had a modest 100,000 registered members by January  2017, but was fast developing its own subculture and gaining members, such that by October 2018, r/WallStreetBets tripled its membership to 300,000. But membership soared into the millions, reaching 8.1 million by early February 2021, as American and international retail investors rushed to the website on a sea of media buzz.5 As of May 2022, membership in the sub-Reddit is 12.2 million and counting. While the focus of this chapter is on the GME phenomenon, it should be noted that r/WallStreetBets is a discussion forum for retail investors seeking and providing due diligence advice on securities as well as celebrating stock market gains and sometimes posting losses (called loss porn in the WSB lexicon). Each day there is a “What are your moves” thread that, when clicked, takes you to the main discussion forum. This forum is divided into a number of threads. The first is DD or due diligence (sometimes also referred to as double down) where members post their research on companies and reasons for investing in or shorting a specific company. The second is a general discussion forum, while the third is “YOLO,” which is tailored to members who take big risks investing their money in a single stock or options trade rather than diversifying their portfolio. The fourth and fifth threads are for members who wish to post their gains or losses on a certain investment. While the site is ostensibly used for collective investment guidance, discussions about companies, and finance and economic trends, the moderators of r/ WallStreetBets are careful to point out to members that the website is not professional financial advice. Most members are self-deprecating and offer disclaimers when they recommend purchasing shares in a specific company. They label themselves “autists,” “apes,” “retards,” or “degenerates.” The idea that members of r/WallStreetBets are all self-effacing when it comes to investing is a near constant trope of the r/WallStreetBets subculture (see also Chapter 1 of this volume). Furthermore, it should be noted that r/WallStreetBets share a common vernacular of terms and emojis, and use memes to express any number of topics. The latter has given rise to the term “meme stock,” a term which denotes shares of companies that have undergone a recent surge in viral activity typically fueled by social media hype. The process begins by retail investors

GameStop, WallStreetBets, and Capital as Power 57

promoting what they believe to be undervalued stock with room for growth (this happened in the case of GME). These investors are known as the early adopters and they take a significant position in a stock, typically posting their purchase of shares or their calls. From there, other traders start to take notice creating greater demand and price appreciation for the stock. A third phase, called the FOMO (or fear of missing out) phase, sets in and investors rush to buy shares so that they don’t miss out on potential profits (see also FOMO in Chapter 9 of this volume). This is usually followed by a profit taking phase when the stock price is believed to have peaked and investors liquidate some or all of their position in the company to realize a monetary gain. The final phase is when the stock dips in value or starts moving sideways and mass interest wanes for the security. As we will uncover later, this is precisely the pattern GME stock followed as members of r/WallStreetBets hyped the company (more on this in the final section). But there is a parallel development alongside social media that helps to explain the rapid rise of GME shares, what I will term “online financial culture.” I define online financial culture or OFC as the ecosystem of financial transactions and verbal communications facilitated by the Internet, social media, and developments in financial technology (FinTech). One of the key developments here is the proliferation of easy-to-use platforms (apps) that claim to “democratize finance” like the popular apps: eToro, Stake, Superhero, and Robinhood, among others. To take one example, Robinhood, founded in 2013 by Vladimir Tenev and Baiju Bhatt, had half a million users in 2014, and grew to 13  million users by 2020. On 30 July, 2021, the company launched its initial public offering (IPO) and within the span of a few weeks the stock appreciated by 44% due to popular demand. In 2021, it was reported that Robinhood had 22.5 million active users (Statista, 2021). Many of the FinTech apps have boasted zero or lower commissions than their traditional bank counterparts. These apps facilitate buying and selling shares in companies directly or (depending on the app) through call or put options,6 allowing fractional purchases and real-time portfolio monitoring as well. Whether or not these apps are really democratizing finance is beyond the purview of this chapter’s main focus and is covered in other chapters of this volume, but that the number of users of these apps has grown cannot be doubted (Langley  & Leyshon, 2021). But to say something brief here, we should be aware that the apps have multiple gamification and social aspects that appeal to millennials (van der Heide  & Želinský, 2021). The apps also appear to be increasing or encouraging financial literacy among millions of users, but additional empirical studies would be needed to make this assertion outright (Dim, 2020; Panos  & Wilson, 2020; Petersen, 2021; Klein, 2021). Finally, the use of these apps are not confined to Americans but are used internationally just as there are many non-American members of r/WallStreetBets. For example, Superhero, an Australian app, allows users to invest in the ASX as

58  Tim Di Muzio

well as the American stock markets. This effectively deepens American capital markets by making it easier for retail investors to purchase shares listed on American exchanges.

The Gathering Storm We have to think of the links between social media and FinTech as an ongoing and novel human experiment with unpredictable outcomes for the political economy of global capitalism. Never has the world been so connected, and r/WallStreetBets is a perfect example of this connectivity and what it can do to corporate. During the GameStop phenomenon, an online army formed under the “this is the way” slogan, and during January 2021, all evidence suggested that no member wanted to break rank on pushing up GameStop share prices regardless of nationality, race, religion, skin color, gender, or creed.7 Reading the discussion forums, there is definitely a sense that members of r/WallStreetBets were all in this together and are fighting a war with Wall Street hedge funds.8 Moreover, there was undoubtedly a David versus Goliath “narrative structure” applied to the struggle over GME with many members posting memes of the Avengers (WSB) taking on Ultron (the Hedge Funds). The image of David or the Avengers one day beating Goliath or Ultron helped to shape the present decisions of WSB to buy shares in GameStop (Beckert, 2013, p. 220; 2016). As Beckert (2013, p. 221) suggests “it is the images of the future that shape present decisions” and WSB wanted to punish high finance (2013, p. 221). It is difficult to pinpoint an exact moment for the emergence of what we might call a decentralized democratic collective on r/WallStreetBets (see Chapters 11 and 12 in this volume), but its origins seem to go back to a video posted on YouTube by Roaring Kitty (Keith Gill). Gill can be considered the primary promoter or “early adopter” in the phases of “meme stocks” noted earlier and was lionized by many members of r/WallStreetBets that viewed him as some kind of a seer. The first promotes the idea of holding GME stock until the short squeeze is on, while the second is an abbreviation for “What Would DeepFuckingValue Do?” Gill’s analysis was very influential, but other members of r/WallStreetBets offered their own positive due diligence of GameStop, advancing the hype within the online subculture. It is true that r/WallStreetBets catapulted the value of GameStop shares into the stratosphere, but the rally in GameStop shares was not inspired by complete randomness, nor just a desire to stick it to Wall Street hedge funds (even if this is what it, in large part, became). Roaring Kitty’s examination of GameStop’s prospects was not without merit and definitely impacted the view of the company among the members of r/WallStreetBets. What Keith Gill (Roaring Kitty/DFV) noticed as early as mid-2020 was that more than 100% of GameStop shares were shorted. This meant that there are not enough shares available on the market for all the borrowers to return the shares they borrowed

GameStop, WallStreetBets, and Capital as Power 59

from a broker, a dangerous position to be in if shares start to rapidly appreciate in value due to demand. At its peak, short positions in GME were at 141% of the total float (Reuters, 2021). But how is this possible? It is possible because when short sellers sell their borrowed shares, the new owners can then lend out the newly acquired shares that were borrowed in the initial transaction. In other words, the same borrowed shares can be lent out multiple times but without the initial borrowers knowing immediately! If the share price starts to appreciate, this means that those in short positions bet the wrong way and in order to cover mounting losses, they are compelled to buy shares, further pushing up the price. This is the short squeeze that r/WallStreetBets pulled off in January, costing the most exposed short seller, Melvin Capital, to lose 53% of its investments of roughly US$4.5 billion under management (Umar et al., 2021). But was this a one-off phenomenon? The evidence would suggest some hesitation. The trouble for some hedge funds and Wall Street more broadly is that individual retail investors have realized that collectively they have incredible power to move markets and set prices for company shares. Any cursory glance of the r/WallStreetBets during this period reveals more solidarity and camaraderie than division or derision (see also Chapters  7 and 13 of this volume). Perhaps even worse for big institutional investors, new initiates have been learning about finance, many for the first time. There is little doubt that social media and anonymity have a lot to answer for extreme and divisive politics, but in the case of GME, r/WallStreetBets seemed to be an example of the multitude coming together to target big institutional investors and in the process make a profit and yes, for some, terrible losses if they bought at the height of the rally (Van Kerckhoven & O”Dubhghaill, 2021). In the future, the organized “diamond hands” may not even have to target short sellers but, simply by being organized, bid share prices up above their so-called fundamentals based solely on their desire to back one or many companies.9 That some individuals made a massive profit out of the stratospheric rise in GameStop cannot be doubted (many, perhaps more seasoned investors, have cashed in at the peak and broke rank), but it is unclear whether they were solely motivated by profit unlike their Wall Street counterparts. Whether it started as a political movement to challenge hedge funds and the men (and they are mostly men) that run high finance can be questioned, but there is considerable evidence that the political bent leant that way—perhaps a mission for an online army of organized retail investors sick of Wall Street taking advantage of Main Street and the destruction of jobs, communities, and families that often coincide with their financial practices of capitalization (Krier, 2009). In some senses, if this is not revenge of the nerds (and I say “nerd” in a kind way), it is revenge of the hopeful trampled over realizing the power of online organization facilitated by FinTech. One telling example is the following post by u/space-peanut on r/WallStreetBets that garnered 758 comments:

60  Tim Di Muzio

This is for you, Dad I remember when the housing collapse sent a torpedo through my family. My father’s concrete company collapsed almost overnight. My father lost his home. My uncle lost his home. I  remember my brother helping my father count pocket change on our kitchen table. That was all the money he had left in the world. While this was happening in my home, I saw hedge funders literally drinking champagne as they looked down on the Occupy Wall Street protestors. I will never forget that. My Father never recovered from that blow. He fell deeper and deeper into alcoholism and exists now as a shell of his former self, waiting for death. This is all the money I have and I’d rather lose it all than give them what they need to destroy me. Taking money from me won’t hurt me, because I don’t value it at all. I’ll burn it all down just to spite them. This is for you, Dad. 28 AMC 1/21/22 $22 calls10 Most of the replies to this thread share either support or similar stories and anger toward a rigged system in the United States that has seen the wealthy get wealthier and the poor, poorer not to mention ill. Another example of the solidarity being built around a desire for revenge against high finance is by u/lesmiserobert (responding to the previous comment): I feel your pain, brother. Reposting my similar shared experience in solidarity. We are in this together! I could not put a price tag on $GME. I will keep these shares until the day that I die. This isn’t about the money. The Great Recession of ’08 turned my life inside-out. I  lived with my single mother, who was a small business owner and part-time dental hygienist. She had just been diagnosed with breast cancer. Even through the chemotherapy, she continued to bust her ass every day to keep us from going under. She was fired from her part-time job for having cancer, and was struggling to keep up with the mortgage, car payment, medical bills, etc. My mother died in October of 2009 and the business, the house, everything went along with her. My mother did not get bailed out. I did not get bailed out. You and your parents did not get bailed out. You know who did? Wall Street. And on our dime. These hedge funds, like Melvin Capital Management LP, continue to manipulate and exploit working Americans like you and me, and they do so with relative impunity. The abhorrent avarice of Wall Street has earned my contempt, and I stand with you. Though only two posts, they are representative of many of the discussions on r/WallStreetBets, the solidarity members created against Wall Street online, and

GameStop, WallStreetBets, and Capital as Power 61

the ire for what they view as a rigged capitalist system. To be sure, not everyone on r/WallStreetBets is out to get the hedge funds. There are plenty of members who just want to make money, which is unsurprising given that this is the purpose of speculating on the share market.11 So some might consider it somewhat disingenuous to claim that r/WallStreetBets members are acting as a coherent social movement aimed at taking down some of the largest players on Wall Street.12 What is certain is that unlike the Occupy Wall Street movement that fizzled out for a variety of reasons (see Chapter 13 in this volume)—perhaps the largest one being the lack of cohesion over political and economic demands—r/WallStreetBets shows little signs of abating because its members have witnessed their own collective power and agency beyond marching in the streets with placards.13 During the lead up to the GME boom, members also bought advertising across the United States, including a giant electronic billboard in Time Squares, New York City, that read “$GMC GO BRRR”—a reference to another meme of a money printer going “BRRR” as it discharged new money by the Federal Reserve. So while there was and is considerable evidence that r/WallStreetBets members were using their platform to target high finance, it is far too early to label the subculture a sustained progressive political movement bent on challenging high finance (see also discussion in Chapter 11 of this volume). First, there is little doubt that members of r/WallStreetBets built up solidarity and there is much to be said for the supportive messages, educational practices, and rallying cries on the sub-Reddit, but as in any large group, there could (and likely will) be divisions that could threaten a united cause—indeed, some may be suggesting others hold shares in a company while they are secretly selling or dumping their position.14 Second, as it is an open forum, there is a danger that it could be used by institutional investors to ride along with the group or bet against the current or possibly post false or misleading information, including through bots. Third, at the time of the GME frenzy Robinhood halted buying in GameStop and other meme stocks targeted by r/WallStreetBets, claiming it did not have enough finance to facilitate the trades from its market maker/broker.15 Some large-scale and established investors sympathetic toward the YOLO capitalists, such as Mark Cuban, have argued that the group can be more powerful if they work together with a broker who has the capacity to handle their demand (and perhaps sale) volumes (Reddit, 2021). With these three things in mind, r/WallStreetBets remains an interesting and ongoing social experiment, and one that had much of the world’s attention in late January 2021. It is likely to do so again and did in fact succeed in boosting the share price of the American theater company, AMC, from US$2.14 on 8 January 2021 to US$59.26 on 18 June 2021, or an increase of 2,669%. Thus, had you invested US$1,000 in AMC in early January, by the peak in June, your shares would have been worth US$126,816 and some change. Keep in mind that the annualized rate of return of the Standard & Poor’s index was about 9% over the last 20 years (Aspach, 2022).

62  Tim Di Muzio

But while the mix of social media and online financial culture, combined with the minor celebrity status of Keith Gill (aka Roaring Kitty/DFV) and his initial analysis of GME, contributed to the GameStop phenomenon, it is important that we delve a bit deeper into the process of capitalization and, therefore, the valuation of firms. To do so, in the next section, I use the theoretical perspective of capital as power introduced by Jonathan Nitzan and Shimshon Bichler (2009) to discuss why GME’s share price became “unchained” from its so-called fundamentals.

Capital as (Social) Power In order to think about the rapid increase in the market valuation of GameStop, we need a little framing from the capital as power approach to political economy (Nitzan & Bichler, 2009; Di Muzio, 2013). This is largely because mainstream financial analysts and economists think that share prices should reflect the so-called fundamentals of a company’s financial statement and future earnings prospects. When things go awry as in the case of GME, they are shocked and label this market activity an “irrational deviation” from the true or real value of the firm. As we will see subsequently, the capital as power approach frees us from any such baggage since the approach admits we can never know the true or real value of a firm—indeed, most valuations fluctuate minute by minute and day to day (see also Fix, 2021). The magnitude of capitalization is of course linked to earnings, but also to additional factors, such as investor sentiment, social media, and FinTech, that are now involved in the process of determining value (see also Chapter 3 in this volume). But before we get to capital as power, we should summarize four common ways investors assess the value of a stock. It should be noted that there are no surefire ways to anticipate the value of a stock, but this doesn’t stop analysts and lay investors from trying to figure out the real value of a security. They often defer to a series of common metrics, including price-to-book, price-to-earnings, price-to-earnings growth, and dividend yield. Though no precise science, these are the common ways stocks are appraised. Behind them lies the idea that we can uncover a true, accurate, or real value for any corporation and that wild deviations from this “truth” will eventually come back down to earth. From the perspective of capital as power approach, the search for a real value for any one corporation is largely a red herring that denies the dynamic sociocultural aspects of capitalism and the pursuit of differential accumulation—the ability to exceed an average rate of return. The capital as power approach argues that capitalization is the most important act in capitalism (investing in an income-generating asset or holding claims on an income-generating asset). Capitalization involves investors discounting future flows of income into a present value adjusted for risk (Nitzan & Bichler, 2009; see also Levy, 2017). To be clear, capitalization is an imperfect science, but it remains a daily practice of investors.16

GameStop, WallStreetBets, and Capital as Power 63

What this means, when it comes to investing in the stock market, is that share prices are a strong indicator of the future expectations of investors regarding the future profitability of a corporation. In short, the anticipated future is priced into the present share prices by the act of discounting to find a present value for a future flow of income. Beckert (2013) calls these attempts to wrestle future uncertainty “fictional expectations” as the act of investing is not necessarily grounded in a concrete reality that will materialize in the future but exists in the mental representations held by investors regarding the potential future. Investors and speculators may be animated by an unrealizable fiction, but the monetary level of capitalization and share price movements remain important indicators that can tell us about the expected success or failure of a company. So, if the share price of a firm is decreasing, then we would expect that investors are losing confidence in that firm’s ability to use their power to garner greater profits relative to some benchmark like the S&P 500. This is what the hedge funds thought regarding GameStop—that the company was overvalued and that its share price would eventually plunge due to poor earnings prospects.17 If share prices are increasing, then we can assume that investors anticipate greater future profitability as in the cases of Amazon and Zoom we have already mentioned—but the exact future is unknown, and therefore company valuation is anyone’s guess. As Muniesa and Doganova note, “financial valuation simultaneously values and devalues the future” (2020, p. 98, see also Muniesa, 2017). But the capital as power approach goes a few steps further than this fairly straightforward recognition. From a theoretical point of view, the capital as power approach to understanding the corporate universe argues that what is being capitalized is the organized power of a firm to shape and reshape the terrain of social reproduction for the sake of their own differential profitability (and those of their investors/stock owners). What this suggests is that corporate earnings are not simply a matter of producing goods and services for the market, but result from a broad array of corporate strategies exerted over the legal, social, economic, cultural, and political fields. This power is rooted in ownership and exclusion (Veblen, 1904). In taking a roughly US$50,000 position in GME, Keith Gill and others were essentially betting that GameStop’s business model could be turned around, generating more earnings per share over time (a positive view of the future). With renewed earnings performance, Gill reasoned that investors would want to buy shares in GME, increasing the capitalization (market value) of the firm.18 In normal times (if there is such a thing), rising earnings or company profits mean that share prices (or ownership claims) will be bid up. Failing to meet or exceed a quarterly profit target is generally greeted with a sell-off. And here’s where it gets interesting. It would seem that GameStop’s earnings hardly warranted the share price skyrocketing to the levels it had achieved. In fact, the early February 2021 post on the company’s Investor Relations page noted the following: Total sales declined 3.1% driven by an 11% decrease in the company’s store base due to its planned de-densification strategy, temporary store closures

64  Tim Di Muzio

around the world due to government mandates and lower store traffic, particularly later in December, due to the significant impacts of COVID19. The company believed that the industry-wide traffic decline during the Holiday period adversely impacted comparable sales for the nine-week period in the high single-digit to low double-digit percentage point range. In addition, significant worldwide supply chain constraints impacted the ability to distribute products to customers across all sales channels. (Gamestop, 2020) Not the greatest news, to be sure. Yet the share price for GameStop shot up 1,864% in January. How can this be explained? There is little doubt that investors are greatly concerned about financial earnings, but the capital as power perspective suggests that a number of factors bear on earnings as well as the capitalization of firms. In part, we have already suggested social media and FinTech as well as group solidarity and a willingness to financially take on hedge funds all played a prominent role in the rise of GME’s valuation. But another factor to consider is the hype created by the “echo chamber” of r/WallStreetBets (Cinelli et  al., 2021). As Nitzan and Bichler argue (2009, pp. 191–192), it is difficult to quantify the “hype factor” in capitalization because this would mean we have knowledge of all the earnings projections of every investor in a firm. This, of course, is not possible. But what is possible is to consider the qualitative “hype” that was built up over time on r/WallStreetBets and as we somewhat uncovered earlier (see also Chapter 3 in this volume), it was considerable. The near consistent generation of hype by members of r/WallStreetBets, the fact that many are inexperienced investors and came to participate in reinforcing the shared narrative of an “epic battle” between good and evil, certainly contributed to the GME rally. In addition to this, there was an international dimension to the movement. Hundreds, if not thousands, of people from around the world interested in the crusade rushed to join the fight by buying and holding GameStop shares regardless of any so-called fundamentals. They just liked the “stonk” and in buying one or more shares in GME, became part of something larger than themselves. There are countless posts from people all around the world notifying their American counterparts of their foreign location and that they are joining the battle with their American brothers and sisters and have bought shares in GME that they will “diamond hand.” This international aspect of the subculture, again facilitated by social media and FinTech, almost certainly helped push up prices for shares in GME. A further event to consider in the hype of GME was the news that billionaire Chewy.com co-founder Ryan Cohen had bought a total of 9 million shares of GME by late 2020, making him the second largest shareholder in GME (Barrons, 2020). A share purchase of this size was a giant signal to r/WallStreetBets members. Moreover, there was a constant use of the rocket ship emoji to signal their expectations and members seem to have enjoyed posting that they will hold the

GameStop, WallStreetBets, and Capital as Power 65

stock “to the moon” or even “the outer edges of the universe.” This is obviously risky, but it did reinforce the camaraderie and the belief in their collective power on the platform. Moreover, and throughout January  2021, and a bit beyond, members of r/WallStreetBets continued to support holding and purchasing GameStop shares despite a steadily declining and yo-yoing valuation of the company’s shares. In fact, as the price graph of GameStop would indicate (see Chapter 1 of this volume), members (among others, likely) bought “the dip” in mid-February and realized huge gains again. What this also demonstrates is that no one has any idea what the real value of GameStop is (for a discussion on valuation and temporality, see Muniesa & Doganova, 2020). As suggested earlier, capitalization is the primary act of investors/capitalists and “true” value is anyone’s guess since a number of factors bear on the market value of firms beyond the so-called fundamentals. It is not possible to know how many WSB members lost money on GME as the stock price plummeted, yo-yoed, and went sideways from its heights, but we can be sure that many “set fire” to their money or are still holding stock below the value of their purchase price at the height of the frenzy. Only time will tell what will happen to GameStop or other companies targeted by r/WallStreetBets. The subculture remains incredibly active sharing their daily due diligence and trading activity. To be sure, observing the online financial culture of r/WallStreetBets, now with over 12  million members, will be an interesting act in the history of the political economy of corporate capitalism, institutional investors, and the rise of retail investors who now realize their collective power to move markets and have the tools to do so (for better or worse).

Conclusion This chapter has considered the spectacular appreciation of GME shares as it related to the activity of r/WallSteetBets in and around January 2021. I argued that the increasing use of social media and new and accessible FinTech apps represents a novel and significant cultural development in the capitalist ecosystem of speculating on shares in corporate power. Furthermore, using the capital as power approach to critical political economy, I suggested that we should be careful of analyses that see a true, real, or accurate valuation for a firm at any one point in time. This is largely due to a number of sociocultural factors that bear on capitalization such as hype and the online financial culture of solidarity, camaraderie, and information sharing as evidenced by the r/WallStreetBets community. To be sure, the community does not always act with one voice or purpose, but the GameStop phenomenon remains a powerful example of what I will call “collective financial action,” whereby the actions of a community build momentum in the pursuit of a financial goal. We would do well to take notice of this growing development as the earth may again be unchained from its sun: Who gave us the sponge to wipe away the entire horizon? What were we doing when we unchained this earth from its sun? Whither is it moving

66  Tim Di Muzio

now? Whither are we moving? Away from all suns? Are we not plunging continually? Backward, sideward, forward, in all directions? Is there still any up or down? (Nietzsche, 1974, p. 181)

Notes 1 Associate Professor, Faculty of the Arts, Social Sciences and Humanities School of Humanities and Social Inquiry, University of Wollongong. 2 Email correspondence with financial risk manager, Frances Cowell, recounting informal audience discussion of a presentation by Dan DiBartolomeo of Northfield Information Services at a London Quant Spring Seminar in London in May 2009. The biggest turkey was of course the SEC, which had, for at least ten years, ignored warnings by other market participants that the profits he boasted were infeasible, given prevailing market prices and the strategy he said he was pursuing. Informed sources also have it that, when as much money as possible could be received wreckage, less than half of the investors in the fund came forward to claim their share, suggesting that many decided that recovering their money would not be worth forfeiting their anonymity. . . . We note also that Madoff surrendered himself to the police, clearly figuring that he would be safer in their hands than anywhere else. 3 Unless otherwise stated, the quantitative data used in this chapter are from Google Finance. At its height, GameStop was trading at US$483 (see introduction for an overview of the volume and closing valuation). At the start of the pandemic, shares in GME were only US$4.59. 4 Tendies refer to chicken tenders and are used by the sub-Reddit r/WallStreetBets to refer to gains or profits. 5 A retail investor is typically known as a non-professional individual investor. 6 Call options are financial contracts that give the buyer the right, but not the obligation, to buy a security for a specific price within a certain time period. A put option, is the reverse, it gives the purchasers of the option the right to sell at a specific price at a specific time. 7 “This is the way” is the mantra of the warrior tribe the Mandolore in Disney’s The Mandalorian—a popular television series with many. 8 Full disclosure, I  am a member of r/WallStreetBets and have been following the site since November 2020. For an alternative view that suggests that many of the retail traders were engaged in predatory trading with high risk appetites, see Hasso et al. (2021). 9 Diamond hands is a phrase used on the r/WallStreetBets to mean an investment is profitable and they will be holding on to their investment for maximum value. Paper hands refers to the reverse. 10 AMC was also another stock targeted by r/WallStreetBets and eventually it too saw a meteoric rise in value, though not to the same extent as GME. 11 There is also little doubt that once word spread about GME and r/WallStreetBets, big institutional investors jumped on board for the ride. 12 But see contrasting perspectives in the second half of this volume. 13 See Chapter 13 in this volume for comparisons with Occupy Wall Street. 14 I thank Frances Cowell for this point who suggested those holding during a mass selloff might end up “the real suckers.” There is the total possibility that some members wittingly or unwittingly stoked a movement and exited, leaving many members of r/ WallStreetBets holding the proverbial bag. 15 Some have argued that Robinhood was pressured by Citadel to halt trading because it had an investment stake in Melvin Capital that was bleeding money due to its short position in GME.

GameStop, WallStreetBets, and Capital as Power

67

16 The basic formulation is Present Value = Expected Future Profit/Rate of Interest. 17 For them, GameStop was the new Blockbuster in a world of Internet streaming. 18 It is unclear how much of his position in GME was sold off during the demand frenzy, but it is reported that if he liquidated his entire position, Gill would have turned US$50,000 into roughly US$48 million.

References Aspach, D. (2022). Annual stock market returns by year. Thebalance.com. www.thebalance. com/stock-market-returns-by-year-2388543 Barrons (2020, December  24). Large GameStop investor Ryan Cohen buys more stock. Barron’s. www.barrons.com Beckert, J. (2013). Imagined futures: Fictional expectations in the economy. Theory and Society, 42, 219–240. https://doi.org/10.1007/s11186-013-9191-2 Beckert, J. (2016). Imagined futures: Fictional expectations and capitalist dynamics. Harvard University Press. Bloomberg. (2021, January 28). Hedge fund titans Steve Cohen and Dan Sundheim hedge funds lose big in GameStop short squeeze frenzy. Fortune.com. Cinelli, M., Morales, G., Galeazzi, A., Quattrociocchi, W., & Starnini, M. (2021). The echo chamber effect on social media. Proceedings of the National Academy of Sciences, 118, 1–8. https://doi.org/10.1073/pnas.2023301118 Dim, C. (2020). Should retail investors listen to social media analysts? Evidence from text-implied beliefs. SSRN. https://ssrn.com/abstract=3813252 or http://dx.doi. org/10.2139/ssrn.3813252 Di Muzio, T. (Ed.). (2013). The capitalist mode of power. Routledge. Fix, B. (2021). The ritual of capitalization. Real-World Economics Review, 97, 78–95. Foster, P. (2021). Unpacking the GameStop short squeeze. Rochester Business Journal, 36(48), 21–22. Gamestop (2020). Gamestop reports 2020 holiday results. https://news.gamestop.com/ news-releases/news-release-details/gamestop-reports-2020-holiday-sales-results Grossberg, L., Hardin, C., & Palm, M. (2014). Contributions to a conjunctural theory of valuation. Rethinking Marxism, 26(3), 306–335. https://doi.org/10.1080/08935696.201 4.895543 Hasso, T., Müller, D., Pelster, M., & Warkulat, S. (2021). Who participated in the GameStop frenzy? Evidence from brokerage accounts. Finance Research Letters, 1–11. https://doi. org/10.1016/j.frl.2021.102140 Klein, T. (2021). A  note on GameStop, short squeezes, and autodidactic herding: An evolution in financial literacy? Finance Research Letters, 1–8. https://doi.org/10.1016/j. frl.2021.102229 Krier, D. (2009). Speculative profit fetishism in the age of financial capital. Critical Sociology, 35(5), 657–675. Langley, P., & Leyshon, A. (2021). The platform political economy of FinTech: Reintermediation, consolidation and capitalisation. New Political Economy, 26(3), 376–388 https:// doi.org/10.1080/13563467.2020.1766432 Levy, J. (2017). Capital as process and the history of capitalism. Business History Review, 1–28. https://doi.org/10.1017/S0007680517001064 Muniesa, F. (2017). On the political vernaculars of value creation. Science as Culture, 26(4), 445–454. https://doi.org/10.1080/09505431.2017.1354847

68

Tim Di Muzio

Muniesa, F., & Doganova, L. (2020). The time that money requires: Use of the future and critique of the present in financial valuation. Finance and Society, 6(2), 95–113. Nietzsche, F. (1974). The gay science (W. Kaufmann, Trans). Vintage Books. Nitzan, J., & Bichler, S. (2009). Capital as power: A study of order and creorder. Routledge. Panos, G., & Wilson, J. (2020). Financial literacy and responsible finance in the FinTech era: Capabilities and challenges. The European Journal of Finance, 26(4–5), 297–301. https:// doi.org/10.1080/1351847X.2020.1717569 Pedersen, L. (2021). Game on: Social networks and markets. NYU Stern School of Business Forthcoming. SSRN. https://ssrn.com/abstract=3794616 or http://dx.doi.org/10.2139/ ssrn.3794616 Reddit (2021). Hey everyone, its Mark Cuban. www.reddit.com/r/WallStreetBets/comments/ lawubt/hey_everyone_its_mark_cuban_jumping_on_to_do_an/ Reuters (2021). Explainer: How were more than 100% of GameStop’s shares shorted? www.reu ters.com/article/us-retail-trading-shortselling-explainer-idUSKBN2AI2DD Statista (2021). Number of users Robinhood. www.statista.com/statistics/822176/number-ofusers-robinhood/ Umar, Z., Gubareva, M., Yousaf, I., & Ali, S. (2021). A tale of company fundamentals vs sentiment driven pricing: The case of GameStop. Journal of Behavioural and Experimental Finance, 30, 1–7. https://doi.org/10.1016/j.jbef.2021.100501 van der Heide, A.,  & Želinský, D (2021). “Level up your money game”: An analysis of gamification discourse in financial services. Journal of Cultural Economy. https://doi.org/ 10.1080/17530350.2021.1882537 Van Kerckhoven, S., & O’Dubhghaill, S. (2021). Gamestop: How online “degenerates” took on hedge funds. Exchanges: The Interdisciplinary Research Journal, 8(3), 45–54. Veblen, T. (1904). Theory of the business enterprise. Transaction Publishers.

5 Speculative Behavior and Expectations in Economic Turmoil A Keynesian View Ilker Aslan, Usman W. Chohan, and Sven Van Kerckhoven Speculators may do no harm as bubbles on a steady stream of enterprise. But the position is serious when enterprise becomes the bubble on a whirlpool of speculation. When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill done. (Keynes, 1936, p. 159)

Introduction Chapter 12 of the General Theory is one of the best essays to explain the driving forces and investment behavior acting within financial markets. Fluctuations are natural parts of financial markets: people invest in assets with the expectation of a yield which is “partly existing facts which we can assume to be known more or less for certain, and partly future events which can only be forecasted with more or less confidence” (Keynes, 1936, p.  147). While investment is undertaken with the expectation of positive value creation, the flip side of this coin is short selling. Short selling has become a powerful financial tool common among hedge funds as well as qualified individual investors, but short selling en masse is controversial because it triggers a sales spiral, hurting stock prices and damaging the economy. I focus on three of the critiques given in Chapter 12 of the General Theory, and project its key takeaways on the speculative GameStop short squeeze (GSS) of 2021, and on YOLO capitalism as a venue for anti-establishment financial disruption. Short squeezes hurt the short sellers because they are forced to buy back the stocks that they had sold, and this creates an increase in the stock price that is both cyclical and potentially significant. This short squeeze was a counteraction by decentralized investors organized on online social media and investment platforms who bet against the short sellers of GameStop (see also Chapters 4, 12, and 13 of this volume), which is a brick-and-mortar game store company, and has been struggling due to digital distribution. There are three goals as I  present the critiques: first, overt reliance of models (i.e., Value-at-Risk) is not only misleading in spotting Black Swan1

DOI: 10.4324/9781003351085-6

70  Ilker Aslan, Usman W. Chohan, and Sven Van Kerckhoven

occurrences, but also impacts those investors that have a reduced knowledge of what is actually happening in the companies because they are not involved in the daily management. Second, the proverbial animal spirits guide and fuel market behavior. This is particularly true in a high-speed trading environment where trading, including short selling, occurs by automation with very little human involvement and the trading algorithms use the same risk assumptions, and therefore compound the speed and spread of group psychology. Third, the experts do not know any better than average investors, because the market players use the same models (i.e., VaR, Black-Scholes, etc.) by convention. The implication for the retail investors and YOLO capitalism is that they act as reactionaries. They do not use such models: they band together forcefully in financial markets in a coordinated fashion and actively bet against these models.

Decline in Investors’ Relative Knowledge Proposition 1: There is a decline in the real knowledge of the investors because people who own the equity are not involved in the day-to-day management or have special knowledge of the circumstances.

In the modern financial world, there is a clear separation of ownership and management, which Keynes argued would facilitate investment but sometimes adds greatly to the instability of the system (cf. Keynes, 1936, pp. 150–151). It also provides a disincentive to the management to aim for long-term profits and future viability of the company. Instead, their focus is on short-term profits by generating fees for their services, which fuel exorbitant salaries and bonuses. This separation is more pronounced than in the early days of modern capitalism in the 19th and early 20th centuries (Means, 1931; Hilt, 2008). This does not mean that they are necessarily oblivious to day-to-day management either. There are two main factors as to why the investors are disconnected. First, the detailed minutiae across the markets is vast, where no single investor can absorb the circumstances on the ground in order to translate the results to financial investments. Second, it is exceedingly difficult, unless they are organized, for the vast number of small shareowners to control the Board of Directors (Daines et  al., 2021; Fernandes, 2016). The equity owners are large in number, yet often small in influence; therefore, their influence is largely limited in terms of having an influence of the management (cf. Ernst&Young, 2014; Fox & Forsch, 2012). (Fox & Forsch, 2012). Ownership of an enterprise consists of its shareholders, and by the statutes controlling corporate governance, the management of the company should ultimately be responsible to the shareholders for their actions. However, there is a growing disconnect between the shareholders and management, which is driven by the lack of knowledge on the side of investors about the daily management of their investments as they are unable to keep track of events and minutiae (cf. Maher & Andersson, 1999).

Speculative Behavior and Expectations in Economic Turmoil 71

The large number of small shareholders, which are negligible in influence, exacerbates this situation. The public bailouts of large lead to considerable apathy in the public’s eyes, whose tax money is used to bail out defunct “toobig-to-fail” corporations (see also Chapters 1 and 4 of this volume), which not only fail to penalize the poor management but continue to pay exorbitant sums to them despite their obvious and abject failure of their management (Louçã & Ash, 2018) (Street, 2018). While the management continues to receive large compensation packages at the same time that thousands of their workers are unemployed, and shareholders are too disenfranchised to curb the abuse of management power. While the perceived abuse of power by management is objectionable in the public’s view (see also Chapter 2 of this volume), the problem is in no small part a result of the incentive structure in corporate governance. The management is rewarded for the short-term gains by taking risks, which affect the long-term viability of the company and pose systemic risk to the economy as a whole. The bonuses and salaries are defined by using short-term targets, namely, by using monthly, quarterly, and yearly profits. In return, the management is compelled to ignore other factors. Second, the investors rarely have significant influence on the management decisions. Therefore, managers do not act as prudentially as they should in assuming risks (a principal agent problem). Third, it has become exceedingly hard for investors to follow every aspect of corporate decision-making, especially in the large firms. Their knowledge is often bounded by a specific area, and they are unable to attain minutiae of daily management that requires a prerequisite special knowledge of circumstances. The 2008 financial crisis triggered by the securitization of subprime mortgages is a notable example. Investors were misguided by the highly rated securities, which turned out to be false, and for two reasons. First, given that the credit rating agencies earned their fees from the very same companies they were rating caused a major conflict of interest. Second, the financial engineering used by the manufacturers of these securities made them very opaque from an investor standpoint, and they relied on the credit rating agencies to assess their riskiness (Ryan, 2012). The investors, as with everyone else in the market, bought these securities; and even if they were aware that these assets were risky, they relied heavily on the credit rating agencies to give them the independent guidance on the credit worthiness. The financial institutions quietly approved this practice and pushed them in the market, even though they were quite aware of the lack of quality of these financial products (Baily et al., 2008); however, they were enticed by the high returns and people’s willingness to purchase these investments. Mortgages were securitized and sold to investors who assumed prudential quality checks to exist and work, but they didn’t. The abuses of Wall Street had notable implications on the financial markets—particularly in laying the groundwork of a reactionary and anti-Wall Street culture where YOLO capitalism has emerged (see Chapter 14 of this volume). The YOLO investors had grievances to the prevalent Wall Street culture because they had grown in the shadow of the 2008 financial crisis as well as the

72  Ilker Aslan, Usman W. Chohan, and Sven Van Kerckhoven

Occupy Wall Street movement and witnessed the wealth decimation of their families and acquaintances (see also Chapter 13 in this volume). Such grievances of the investors who had been misled by the Wall Street firms were already present prior to the 2008 Financial Crisis; however, the investors did not have the tools and platforms to be able to organize effectively. The widespread use of social media (Twitter/instant messaging apps) and platforms (i.e., Reddit) has facilitated the rallying and effective organization of the activists YOLO investors. The goal of these investors was to get a retributive payback—not only to punish those bankers and ensure that the financial excesses are not left unanswered, but also beat them in their own game through organizing collective action. There are notable differences between YOLO investors and traditional investors. First, the primary concern of traditional investors is to make a satisfactory return on their investment depending on their risk appetite and time horizon. While making a profit is also important for the YOLO investors such as the Reddit traders of the GameStop stock, this motivation takes a back seat and plays a secondary role—their primary focus is to exact a revenge on the very system which has caused the 2008 financial crisis by short- and long-selling of meme stocks (i.e., GameStop). Second, YOLO investors rely on the power of collective action. No investor alone would be strong enough to counteract the Wall Street companies—therefore, through effective organization and channeling their efforts into a single point, the Reddit traders caused a US$5 billion loss to the hedge funds who had bet against GameStop (Nagarajan & Robertson, 2021). When we look at the 2021 short squeeze, four stocks are notable: GameStop, AMC Entertainment Holdings, Blackberry, and Nokia. A common feature of these stocks is that they used to be quite popular household brands in the 1990s and early 21st century until they had fallen out of favor due to the changes in technology and market conditions. The distinguishing feature of YOLO investors is that they attribute sentimental value to such stocks because they have grown with these brands in the earlier stages of their lives. On the other hand, they also embrace public values and practice them in their investment decisions, such as citizen involvement, freedom, accountability, efficiency, equity, and inclusivity (Jørgensen & Bozeman, 2007; Bozeman, 2019; Stoker, 2006; Chohan, 2021). The discussion of the public value theory is discussed extensively in Chapter 2 of this book, but there are a few points to add on the value of inclusivity, in particular to its role in corporate governance. YOLO investors demand a voice and active participation in the management. First, an inclusive culture in the industry, which tames the predatory actions of the Wall Street firms, will help to fix the corporate governance and address not only the grievances of YOLO investors but also the concerns in the general public who share the same sentiment. Second, this inclusiveness should certainly embrace, but not be limited to, considering the public interest in investment decisions and refrain from predatory actions (i.e., short selling). Such actions only benefit the few but occasionally force the companies to declare bankruptcy and lay off workers. Third, the retail investors should have a larger voice in corporate management and steering the decisions as well

Speculative Behavior and Expectations in Economic Turmoil 73

as decisions pertaining to senior management compensation (cf. Espinoza & Horne, 2022). As a constellation of individuals, then, the YOLO investors are engaging with notions of value and values in a multifaceted manner. They ascribe value to assets, which may have a strong element of sentimental value. They appropriate value that might have gone unrealized or appropriated alternatively by large private interests (as opposed to the public interest, see Leys, 1958). Yet they also embody public values and make them manifest in their financial praxis. The nature of these in the context of YOLO capitalism and the public shall be discussed later in this chapter. The emergence of a massive C-suite is also a source of resentment for retail investors. This resentment is due to not only how they are paid, but also directed at the C-suite’s power to set the pay levels in the company. Mishel and Wolfe noted that the “average pay of CEOs at the top 350 US firms in 2018 was $17.2 million—or $14.0 million using a more conservative measure” (2018). CEO compensation is very high relative to typical worker compensation (by a ratio of 278:1 or 221:1), adding that “in contrast, the CEO-to-typical-worker compensation ratio . . . was 20-to-1 in 1965 and 58-to-1 in 1989. CEOs are even making a lot more—about five times as much—as other earners in the top 0.1%” (Mishel & Wolfe, 2018). They also observe that “from 1978 to 2018, CEO compensation grew by 1,007.5%, far outstripping S&P stock market growth (706.7%) and the wage growth of very high earners (339.2%) at the same time that wages for the typical worker grew by just 11.9%” (Mishel & Wolfe, 2018). The alignment of interest between the executive compensation and company’s performance as well as the productivity of the typical worker is disconnected, and the resentment comes from the fact that C-suite compensation is not equitable because they are also diluting the shareholder’s equity value. Given that the retail investors are also shareholders, they have the capacity to wield power and capacity to enlist other shareholders to restrain managerial pay (Baker et al., 2019). Various proposals have been made to ensure the greater control over CEO pay, most notably an introduction of a tax policy to penalize corporations with excessive CEO-to-worker compensation ratio and boost the power to the bottom line. While individual investors are too small to be able to influence the corporate structure at their singular level, activist retail investors have found ways to organize online (Detrixhe, 2021). The case of GameStop provides a very useful case study in this regard, whose “chief executive George Sherman stepped down in the summer of 2021 with a $179 million windfall that dwarfs CEO salaries at many larger corporations” due to a “sweetheart deal that was turbocharged by furious meme stock rally in 2021” (DiNapoli, 2021) The goal of the activist investors was clear: drastic cost cuts and a management compensation structure more closely related to the creation of shareholder value in an environment where share prices were plunging and cash levels were declining (Bylund, 2020). This discrepancy between the success of the GameStop retail investors and the way the company handled

74  Ilker Aslan, Usman W. Chohan, and Sven Van Kerckhoven

that event is stark, and could inform a further narrative among Redditors, for example, allowing voting rights to fractional shares (Sim, 2022).

Animal Spirits Proposition 2: Animal spirits guide group psychology and cause wild fluctuations in the markets.

In the General Theory, Keynes argued that the mass psychology of the markets had the most influence on the professional investors, who are prone to mass hysteria driven by the group psychology of “animal spirits.” In such cases, investors rush to assets that are most liquid when there is a widespread panic in the market. Such mass psychology of large group of individuals is liable to change violently as the result of “a sudden fluctuation of opinion due to factors which do not make reference to the prospective yield” since they do not have strong foundations to maintain steady value (cf. Keynes, 1936, p. 154) and “the professional investor is forced to concern himself with the anticipation of impending changes, in the news or the atmosphere, of the kind by which experience shows that the mass psychology of the market is most influenced” (Keynes, 1936, p. 155). The market is subject to waves of optimistic and pessimistic sentiment where no solid basis exists for a reasonable calculation (see Chapter 4 in this volume), and the stock price is only a reactionary reflection of the conventional and collective assessment of the markets, as opposed to a reasonable and personal calculation unfettered by group psychology (Keynes, 1936, p. 156). There is a “tacit agreement in the markets, a convention so to speak,” which assumes that the status quo will “continue indefinitely as far as we have reasons to expect a change” (Keynes, 1936, p. 152). There is also an uncertainty factor here: given that no individual investor is able to attain all the pertinent information to make their investment decision completely accurate regardless of their sophisticated tools and resources, investors tend to prioritize the collective assessment of the markets above their own judgment and follow the animal spirits instead of following their own assessment (Akerlof & Shiller, 2009). However, in times of crisis, as Keynes has put it, “one forgets that there is no such thing as liquidity of investment for the community as a whole,” because while liquidity of individual investment is possible, the market becomes illiquid when every investor tries to liquidate their investment positions. Furthermore, in times of excess speculation, it is speculative finance that overtakes the real production in the economy as the main activity, and so the danger is even more acute because the investors are steered with animal spirits based on groupthink: what matters more for the individual investor is what the other investors think in the market. When speculation, fueled by “animal spirits” becomes the main economic activity, the risks of subsequent economic collapse increase.

Speculative Behavior and Expectations in Economic Turmoil 75

Actions of collective behavior and role of expectations in the stock market show that the investments on the stock exchange are driven by expectations, not by the actual value (cf. Keynes, 1936; Shiller et al., 1984; Malkiel, 2003), which Keynes identified as the “classes of investment [which are] governed by the average expectation of those who deal on the Stock Exchange as revealed in the price of shares,” rather than by the genuine expectations of professional investors. The global acceptance of these risk models perpetuates the group behavior and has a tremendous impact on the expectations in the stock market. In the General Theory, Keynes coined the term “animal spirits” to describe such emotions, which influences human behavior and play a role in the financial markets. Optimism and pessimism have cascading and multiplier effects in the markets, which “is a vital force that brings exaggerated booms and busts in a capitalist economy” (Akerlof  & Shiller, 2010). A  decrease in confidence reduces individual spending, affecting the spending and purchasing power of others. This was particularly the case during the Covid-era economic problems in Europe and the United States. Because consumer confidence was shaken by disruptions in the supply chain and a pessimistic view of the global economic outlook, individual spending plummeted. Businesses were forced to shut down causing widespread unemployment, people were confined to their homes to combat the pandemic, travel was curtailed to the bare minimum; all at a detrimental cost to the purchasing power, individual spending, and the overall economy, which has also deprived governments of tax revenue (Chohan, 2022). To fight against this tidal wave of economic distress, the United States and the EU have announced aid packages given that the private sector was unable to cope with this systemic crisis brought on by the Covid-19 pandemic. The United States has announced US$1 trillion, and the EU announced 2.4 trillion in relief efforts (The American Rescue Plan, 2021; Chohan, 2022). It is vital to address the role of new media and spread of information instantaneously due to the advent of the Internet since the 1990s, whose rise has given a new twist to the nature of financial speculation. The creation of 24-hour financial news cycles and social media platforms such as Twitter or Reddit have accelerated the real-time distribution of financial information. This has had three positive effects. First, retail investors are able to access the information easily and more conveniently. Second, they can organize themselves with likeminded people more efficiently. Third, they can channel their activist intent with greater precision, targeting specific stocks in large numbers. On the downside, however, the new media have facilitated the spread of speculative news, which often are taken by the audience at its face value and motivate them to buy/sell without fully understanding why they are buying and selling since these transactions are done by mass hysteria. Here the author would like to refer to the derisive comments about the Redditor activist retail investors in the mainstream business media and investment community, who have been labeled as “dumb money,” destined to lose against the highly compensated analysts and traders of Big Finance. Instead, it was Big Finance that ended looking like the “dumb money” (Phillips & Lorenz, 2021).

76  Ilker Aslan, Usman W. Chohan, and Sven Van Kerckhoven

The celebrated investor Warren Buffet has also warned investors against following daily news and trends, arguing that these often misinform and engender group psychology. Keynes also complained about the negative effects of speculation, as it would attract people with “insufficient knowledge” so that those with “superior knowledge could gain” (Keynes, 1910, p. 104). The influx of people with insufficient knowledge compounds the effect of animal spirits as their convictions about the future yields of an investment could become a self-fulfilling prophecy. This is analogous to Keynes’ beauty contest analogy in the Chapter 12 of the General Theory, where he addressed to the behavioral perspective of investment and noted: “You win not by picking the soundest investment,” but rather by “picking the investment that others, who are playing the same game, will soon bid up higher.” In the GameStop short squeeze, the “greater fool theory” may certainly apply: the stock price of GameStop was completely divorced from the company’s fundamentals because everyone recognized that the share price was moving due to a short squeeze. Once the squeeze is over, the price should revert to normal levels, based on the fundamentals of the company. Such short squeezes are certainly quite profitable so long as the investor gets the timing right; otherwise, the investor risks facing serious losses (Garrett, 2021). This is the reason why it is concerning that the conventional economic theory does not lay enough emphasis on “irrational exuberance” and pessimism (Minsky, 2008; Bucciarelli & Silvestri, 2013–2014). Given that markets are human structures and humans show emotional behavior, risks as a result of “animal spirits can never be mitigated by the ‘rational agents’ ” (cf. Keynes, 1936). Contrary to the neoclassical economic theory (cf. Samuelson, 1948; Friedman, 1957), one should factor that human beings are not entirely in charge of their choices. This is especially true in the context of financial markets, where people do not always invest on the basis of the fundamentals, but rather on the perceptions about the overall market. This emotive aspect also has consequences for YOLO capitalism in general. Antiestablishment financial disruption is becoming more vocal at every short bet against some of the stocks with increased connectivity, with decisions both consciously and unconsciously affected by the rumors in the media. These rumors, in return, shape their own unique perspectives on how the events will unfold in the marketplace. If everyone in the market is selling, then one is welladvised to sell as soon as possible, leading to self-fulfilling prophecies.

The Tyranny of Experts Proposition 3: Experts do not know any better than the average investor in the financial markets.

Popular risk models, such value-at-risk (VaR), market risk, or extreme value theory, are based on the assumption that future risk can be put to estimations

Speculative Behavior and Expectations in Economic Turmoil 77

insofar as past patterns might be indicative of the future performance (Crouhy et al., 2000; Lopez & Saidenberg, 1999). Friedman’s thought echoes this in its logic neoclassical theory (Friedman, 1953). From this point of view, markets eliminate irrational people who buy high and sell low, and also pave the way for prudent and rational investors to buy low and sell high. Through this Darwinian cleansing and Smith’s “Invisible Hand,” markets will end up comprising only rational investors, whose investment skills and fitness have been filtered, hence making markets more stable and agile. Here, we have Keynes’ famous analogy of stock markets and beauty pageants finds resonance: It is not the case of choosing those which, to the best of one’s judgment, are genuinely the prettiest, nor even those whose average opinion genuinely think the prettiest. We have reached the third degree where we devote our intelligence to anticipating what average opinion expects the average opinion to be. And there are some . . . who practice the fourth, fifth, and higher degrees. (Keynes, 1936, p. 154) In today’s financial markets, the situation is exponentially more difficult due to the emergence of high-frequency trading, which has the power to conduct trillions of trades per second. This overshadows human transactional speeds but can vastly accelerate erratic market behaviors and exaggerate its declines many times over, and that too at breakneck speed (Kirilenko et al., 2018; Gehrig, 2016). Furthermore, the opacity and complexity of financial products traded in the stock exchange and over-the-counter markets are far greater than in products handled before the 1990s (Capelle-Blancard, 2010/3). Collateralized debt obligations (CDOs) of dubious quality, which belong to debtors without proper credit history checks, are bundled together and marketed to unsuspicious investors with the fraudulent ratings given by credit rating agencies. In a marketplace where trading is largely automated by computers with little to no human involvement, any downswing has the potential to rattle the entire system and cascade into a larger issue for the global economy (Weatherall, 2014; Wasik, 2013; Walsh, 2021), the fundamental qualities of a firm (such as its future earnings potential) play a secondary role. Instead, speculative qualities are projected, where assets that can be easily flipped and sold at a premium. Thus, an erratic market psychology is computerized, and once a speculative wave hits, the prices suddenly fluctuate as a result of (often unfounded) rumors instead of the actual supply and demand of the real economy. Here, we must address the difference between gambling and speculation in the financial markets, two concepts that Keynes has distinguished. Keynes noted that “the businessmen must play a mixed game of skill and chance, the average result of which to the players are not known by those who take a hand” (Keynes, 1936, p. 150). In defining speculation, the reference point for Keynes was the possession of knowledge: “the essential characteristic of speculation is,

78  Ilker Aslan, Usman W. Chohan, and Sven Van Kerckhoven

it seems to me, the possession of superior knowledge” (Keynes, 1910, p. 93). Keynes observed that the speculators’ success could be attributed to their superior knowledge than the market average, whereas the gamblers do not have the knowledge and simply bet on trends. Keynes also differentiated between long- and short-term expectations in regard to assessing future yields. Speculators try to benefit from market fluctuations with a “short-term view” based on impulse and rumors, as well as on perceptions of how stocks are perceived by the other investors. Long-term investors, on the other hand, trade over an extended horizon, expecting that future yields will be “higher than the generality think” and they are not relying heavily on the short-term gains and losses. From this point of view, we can identify the Redditors as both short-term and long-term investors. They are short-term investors because they are reaping the benefits of group power and effective organization in their fight against the larger financial players, who have profited for so long unopposed. What makes the Redditors unique is that they are considered as “legitimate” players in the market given that they play, albeit disruptively, by the rules of the financial system as opposed to using more radical means (see also Chapter 13 of this volume). We should consider that the experts are also exposed to the same emotional and psychological impact as the average investor. Supposedly rational people take emotional and irrational decisions because they are under the influence of the same biases, non-conscious behavior. That is why businesses in the financial sector must establish close monitoring systems to ensure that irrational risks taken by seemingly rational expert individuals are mitigated. The rogue trading scandals Société Générale, UBS, JPMorgan Chase, and Archegos in 2008, 2011, 2012, and 2022, respectively, are among the more memorable examples. The author thinks that the risk management sector largely carries the blame for the financial meltdown and banking crises, because their risk assessment is not accurate to account for the systemic risk. When we contrast the large-scale investors and Redditors, it does not suffice to identify either one as “dumb money” or “smart money.” A more apt description might be that institutional investors can at times be “smart money,” while the Redditors can, at times, be the “smarter money.”

Conclusion The GameStop short squeeze has been a wake-up call to many as a sociocultural grassroots phenomenon of frustration with the excesses of the financial industry into a decentralized but coordinated form of investor activism organized around social media platforms and zero-fee trading apps. Prior to the pandemic, there was already a palpable antagonism toward the financial sector, which we have seen during the Occupy Wall Street movements and outcries against the excessive executive compensation packages, which have benefited senior management even if they had run their corporations to or

Speculative Behavior and Expectations in Economic Turmoil 79

over the brink of bankruptcies. This investor frustration was exacerbated by the stimulus spending going to the financial industry both prior to and during the pandemic. The activist investors have two main advantages. One, they form a formidable force by pooling their actions and knowledge together. Second, theirs is not a destructive revolution which argues that financial markets are “evil,” and ipso facto “should be attacked,” and to the contrary, they play it by the book and do not engage in any unlawful activities. The meme-stock revolution is a revolution within the capitalist system: the goal is to unrig the rules of the financial markets, and punish the financial institutions who have operated in the markets without being challenged. The YOLO capitalism and GSS are now showing us the rules of the game are not necessarily changing, but the playing field is visibly being leveled. This is an evolution of capitalism, where the influencing power is more democratized to a larger number of investors, whose voices were not heard before because they did not have the effective tools to organize and communicate. The large hedge funds can no longer expect to run untamed with their short predatory bets without expecting a backlash from other investors. The smaller investors, whatever their motivations are, have now tools to effectively organize against the big players with new technologies and social media platforms.

Note 1 A black swan is an unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences. Should they occur, they are characterized by their extreme rarity, severe impact, and the widespread insistence they were obvious in hindsight.

References Akerlof, G. A., & Shiller, R. J. (2009). Animal spirits: How human psychology drives the economy, and why it matters for global capitalism. Princeton University Press. Akerlof, G. A., & Shiller, R. J. (2010). Animal spirits: How human psychology drives the economy, and why it matters for global capitalism. Princeton University Press. The American Rescue Plan (2021, March 11). The American rescue plan. US Department of the Treasury. https://home.treasury.gov/policy-issues/coronavirus/about-the-americanrescue-plan Aslan, I. (2013). Macroeconomic foundations of financial analysis: A case study of Turkey as a monetary production economy. Department of Economics and Social Sciences. University of Fribourg. Baily, M. N., Litan, R. E., & Johnson, M. S. (2008). The origins of the financial crisis. Initiative on Business and Public Policy. Brookings Institute. Baker, D., Bivens, J., & Schieder, J. (2019). Reining in CEO compensation and curbing the rise of inequality. Economic Policy Institute. Bernanke, B. S. (2010). On the implications of the financial crisis for economics. Conference co-sponsored by the Center for Economic Policy Studies and the Bendheim Center for Finance. US Federal Reserve.

80  Ilker Aslan, Usman W. Chohan, and Sven Van Kerckhoven Bozeman, B. (2019). Public values: Citizens’ perspective. Public Management Review, 21(6), 817–838. Bucciarelli, E.,  & Silvestri, M. (2013–2014). Hyman P. Minsky’s unorthodox approach: Recent advances in simulation techniques to develop his theoretical assumptions. Journal of Post Keynesian Economics, 36(2), 299–324. Bylund, A. (2020, April 27). Activist investors ask gamestop for more changes, 2 board seats. The Motley Fool. www.fool.com/investing/2020/04/27/activist-investors-ask-gamestopfor-more-changes-2.aspx Capelle-Blancard, G. (2010/3). Are derivatives dangerous? A  literature survey. Économie Internationale, 67–89. Carabelli, A. M., & Cedrini, M. A. (2012). On the new appeal of Chapter 12 of the general theory: Complicating remarks on the Keynes-Hume connection and the presumed novelty of the analysis of financial markets in the General Theory. Universita di Torino, Dipartimento di Economia “S. Cognetti de Martiis”. Torino: Centro di Studi sulla Storia e i Metodi dell’Economia Politica. Chohan, U. W. (2021). Public value and the digital economy. Routledge. Chohan, U. W. (2022). The return of Keynesianism? Exploring path dependency and ideational change in post-covid fiscal policy. Policy and Society, 41(1), 68–82. Crouhy, M., Galai, D.,  & Mark, R. (2000, February). A  comparative analysis of current credit risk models. Journal of Banking & Finance, 24(1–2), 59–117. Daines, R., Xin, S. L., & Yang, C. C. (2021). Can staggered boards improve value? Evidence from the Massachusetts natural experiment. Contemporary Accounting Research, 38(4), 3053–3084. Detrixhe, J. (2021, May 21). Retail investors are finally poised to take on stratospheric CEO pay. Yahoo! Finance. https://finance.yahoo.com/news/retail-investors-finally-poised-strat ospheric-100043592.html?soc_src=social-sh&soc_trk=ma DiNapoli, J. (2021, April 21). How a sweetheart deal gives GameStop CEO a $179 mln goodbye gift. Reuters Finance. www.reuters.com/technology/how-sweetheart-deal-givesgamestop-ceo-179-mln-goodbye-gift-2021-04-21/ Ernst & Young. (2014). Short-termism in business: Causes, mechanisms and consequences. Ernst & Young. Espinoza, E., & Horne, C. (2022). Diversity, equity and inclusion: Key action areas for investors. Principles for Responsible Investment. www.unpri.org/download?ac=15712 Ewing, J. (2013, April 26). Southern Europe’s recession threatens to spread North. The New York Times. Fernandes, N. (2016). Beware of activist investors? International Institute for Management Development, IMD. Fox, J., & Forsch, J. W. (2012, July–August). What good are shareholders? Harvard Business Review Home, 90. Friedman, M. (1953). The case for flexible exchange rates. In M. Friedman (Ed.), Essays in positive economics (p. 175). University of Chicago Press. Friedman, M. (1957). Theory of the consumption function. Princeton University Press. Garrett, J. (2021, June  25). Short squeezes, GameStop and the implications for investing. MA Financial Group. https://mafinancial.com/insights/short-squeezes-gamestop-and-theimplications-for-investing/ Gehrig, T. (2016, May 25). Price discovery during anomalous market trading: The Lehman Brothers case. Vox EU CEPR. https://voxeu.org/article/anomalous-trading-priorlehman-s-failure

Speculative Behavior and Expectations in Economic Turmoil 81 Hilt, E. (2008). When did ownership separate from control? Corporate governance in the early nineteenth century. The Journal of Economic History, 68(3), 645–685. Jørgensen, T., & Bozeman, B. (2007). Public values: An inventory. Administration & Society, 39(3), 354–381. Jorion, P. (2006). Value at risk: The new benchmark for managing financial risk. McGraw-Hill. Keynes, J. M. (1910). 8 lectures on company finance and stock exchange. King’s College Library (Lent Term). Keynes, J. M. (1936). The general theory of employment, interest and money. Palgrave Macmillan. Keynes, J. M. (1971–1989). Economic articles and correspondence: Investment and editorial. In J. M. Keynes, E. Johnson, & D. E. Moggridge (Eds.), The collected writings of John Maynard Keynes (Vol. 12). Macmillan. Kirilenko, A. A., Kyle, A. S., Samadi, M.,  & Tuzun, T. (2018). The flash crash: Highfrequency trading in an electronic market. Journal of Finance, 72(3). Leys, W. A. (1958). Philosophy and the public interest. Political Research, Organization and Design, 2(1), 12–13. Lopez, J. A., & Saidenberg, M. A. (1999). Evaluating credit risk models. Federal Reserve Bank of San Francisco. Louçã, F., & Ash, M. (2018). Shadow networks: Financial disorder and the system that caused crisis. Oxford University Press. Maher, M., & Andersson, T. (1999). Corporate governance: Effects on firm performance and economic growth. Organisation for Economic Cooperation and Development. Malkiel, B. G. (2003, April). The efficient market hypothesis and its critics. CEPS Working Paper, Princeton University. www.princeton.edu/~ceps/workingpapers/91malkiel.pdf Means, G. C. (1931). The separation of ownership and control in American industry. The Quarterly Journal of Economics, 46(1), 68–100. Minsky, H. P. (2008). Stabilizing an unstable economy. McGraw Hill. Mishel, L.,  & Wolfe, J. (2018). CEO compensation has grown 940% since 1978. Economic Policy Institute. Nagarajan, S., & Robertson, H. (2021, January 29). These hedge funds have gotten torched by the Wall Street bets army that targeted their short positions in GameStop. Business Insider. https://markets.businessinsider.com/news/stocks/hedge-funds-torched-wall-street-bets-gamestopshort-squeeze-reddit-2021-1-1030016596 Phillips, M.,  & Lorenz, T. (2021, January  27). “Dumb money” is on GameStop, and it’s beating wall street at its own game. The New York Times. Retrieved April  2022, from www.nytimes.com/2021/01/27/business/gamestop-wall-street-bets.html Pilbeam, K. (2010). Finance & financial markets. Palgrave Macmillan. Quiggin, J. (2012). Zombie economics: How dead ideas still walk among us. Princeton University Press. Rebonato, R. (2007). Plight of the fortune tellers. Princeton University Press. Ryan, J. (2012, January). The negative impact of credit rating agencies and proposals for better regulation. Research Division EU Integration, Stiftung Wissenschaft und Politik. German Institute for International and Security Affairs. Samuelson, P. (1948). Economics. McGraw Hill. Shiller, R. J., Fischer, S.,  & Friedman, B. M. (1984). Stock prices and social dynamics. Brookings Papers on Economic Activity, 1984(2), 457–510. Sim, B. (2022, April 5). This startup wants to do for activist investing what GameStop did for stocks. Financial News. www.fnlondon.com/articles/meet-the-startup-that-turns-retailinvestors-into-activists-20220405

82  Ilker Aslan, Usman W. Chohan, and Sven Van Kerckhoven Skidelsky, R. (1992). John Maynard Keynes—The Economist as saviour 1920–1937. Macmillan. Skidelsky, R. (2009). The return of the master. Penguin Books. Stoker, G. (2006). Public value management: A new narrative for networked governance? American Review of Public Administration, 36(1), 41–57. Street, P. (2018). Empire’s new clothes: Barack Obama in the real world of power. Routledge. Thomson Financial News (2008, March 24). Bear Stearns ratings upgraded to ‘AA-/A-1+’ by S&P, outlook stable. Forbes. Retrieved December  1, 2010, from www.forbes.com/ feeds/afx/2008/03/24/afx4807106.html Walsh, J. (2021). Investing with Keynes: How the world’s greatest economist overturned conventional wisdom and made a fortune on the stock market. Pegasus Books. Wasik, J. (2013). Keynes’s way to wealth: Timeless investment lessons from the great economist. McGraw Hill. Weatherall, J. O. (2014). The physics of wall street: A brief history of predicting the unpredictable. Mariner Books. Wray, R. L. (2011). The dismal state of macroeconomics and the opportunity for a new beginning. Levy Economics Institute, Bard College.

6 Memes as Cultural Artifacts YOLO Investors, Degeneracy, and the Memeified Economy Sean O’Dubhghaill1 and Sean Winkler2

Introduction In a previous work, we examined the peculiar predicament of the “GameStop short squeeze,” hereafter GSS, to determine how it is that “YOLO investors” balance the competing desires of taking umbrage with GameStop’s reputation and the larger concerns with vulture and hedge funds gutting companies that have a nostalgic connotation for these investors (see Van Kerckhoven & O’Dubhghaill, 2021). This chapter aims to advance the view that this entire event, which took the world by storm in January  2021, has fundamentally altered the relationship between economics and memes, leading to the creation of “meme stocks.” At the time of writing, worries over meme stocks loom large, in relation to Bed, Bath, and Beyond and AMC, with commentators saying that a repeat of the GSS is not on the cards, not just yet at least (McGabe, 2022). To that end, this work attempts to examine the GSS in relation to the world of memes and memetics more generally. Beginning with the anthropological conviction that microcosms are indicative of broader macrocosms (Eriksen, 2010), we begin by examining statements made by one of the GSS’s instigators, before proceeding to a more general consideration of memes (according to the thinker who coined the term) and evolution by examining what memes teach us (or attempt to teach us) about the difference between authentic and inauthentic people and investors. The chapter closes with a reminder to remain critical of memes, on the basis of their near omnipresence, but also to be attentive to the common, but perhaps too uncharitably framed, position of “degenerate” or YOLO investors.

“I Am Not a Cat”: Behind the Scenes at r/WallStreetBets One of the investors who is thought to have been the ringleader, Keith Gill, believed that the likelihood of GameStop’s bankruptcy could have been re-leveraged against what he referred to in a hearing in February of 2021 as an undervaluing of a “legacy company.” The term legacy company has been incorporated into many examinations of narrative economics, in which the narrative involved in investing in the company weighs more heavily on the decision than conventional algorithmic DOI: 10.4324/9781003351085-7

84  Sean O’Dubhghaill and Sean Winkler

thinking (Schiller, 2019). Narrative economies are also heavily informed, and motivated, by virality, which is commonly associated with the epidemiological analogy that memes possess (see also Chapter 7 in this volume). Gill, who adopts the moniker “RoaringKitty,” is also viewed in a memetic way (see Chapter 4 in this volume), and even took the opportunity to separate himself from his memetic identity, stating comically that he is not a cat. Gill (and the broader WallStreetBets community) is widely considered to have pioneered the idea of meme stocks. Meme stocks are famously, or rather infamously, unstable, and Gill showed documentation of a $53,000 investment exponentially acquiring $48  million worth of value. The 100-fold rise in GameStop share prices, coordinated in a near-identical way to a Wall Street-led short squeeze, took the world by surprise. The common perception of a failing brick-and-mortar games company is what led certain hedge fund operators to target it for a “short squeeze” and this caused a Newtonian counter-swing. This was one of the most significant upswings in a stock’s price in the New York Stock Exchange’s history, and while it is interesting to observe the reasons why the short squeeze ground to a halt, which we will do in the conclusion, there are a great many lessons to be taken from the “memetic” part of meme stocks (La Morgia et al., 2021). We might begin by asking what exactly the role played by memes among YOLO investors is. Well, r/WallStreetBets is a breeding ground for the diffusion of memes, detailing stories that are both negative and positive (rather than exclusively positive) and this candor is commonly believed to be a part of the reason why this group can supersede common problems endemic to groupthink, such as mutual mistrust and suspicion (see Chapter 7 of this volume). This helps people to go along with the crowd, while also opposing the crowd (Lyócsa, et al., 2022). There are broader ramifications here that also trouble different economic assumptions, such as the collective action problem (as examined in Van Kerckhoven & O’Dubhghaill, 2021). Memes, sentiment, and the sharing of experiences are what sets r/WallStreetBets apart and are exactly what make the GSS so rich a phenomenon (Long et al., 2021; Umar et al., 2021). What has been less commonly scrutinized, almost certainly on the basis of their near ubiquity, are the YOLO investors themselves and their chosen communicative vehicle: memes. We intend to advance the view that YOLO investors (despite the recklessness attached to the term “YOLO”) are experts in diffusing memes, discussing meme stocks, and carry memetic avatars that contribute to what has been called the “mementum” of stock movement (Woodworth, 2018; Costola et al., 2021). Our concern is that the academic community has lagged behind somewhat in earnestly examining the exact meaning and composition of memes, preferring tentative definitions first offered by Richard Dawkins over 50 years ago to understand a cultural form that has become all but endemic in online milieus, such as r/WallStreetBets. This piece proceeds by outlining what memes are, what characterizes them, and what similarities they share with “common sense,” another intuitive cultural system that varies from context to context.

Memes as Cultural Artifacts 85

Our analysis then proceeds by examining instances in which memes are understood and viewed by academic practitioners, become brittle or are negative in tone or outlook, become conduits for the (frequently outlandish) personal expression of the worldview of larger entities than just a group from one socioeconomic milieu (such as billionaires, virality-seeking recruitment marketers, and even the European Union). We close by drawing attention to the view that these self-styled “degenerates” share a great deal more in common with conventional investors than is commonly realized, and categorically separating them from others on the basis of their usage of memes alone is unwise. Let us begin by turning our attention to the, at this point five-decade-old, definition of memes that is commonly relied upon in analyses thereof, often more out of habit than the abiding relevance of the concept itself, at least as it was originally termed. We contend that memes, the closest comparator to which is genes, are a vehicle in which culture-specific knowledge can be transmitted through intra- and intergroup contact. However, what we add is that drawing simple and straightforward distinctions between imitator (in memes) and original (genes and genetic pathways) is not academically prudent.

The Meaning of Memes What exactly is a meme? While the answer to this question may appear obvious, a genealogy of the term reveals a much more complicated notion than our common understanding of it today (Coyne, 1999; Chiu & Yahya, 2021); namely, as an image, a melody, or a phrase circulated on the Internet often via social media. In fact, the term predates the development of the Internet by some seven years and the development of social media by some two decades. The concept of the meme was coined by English biologist, Richard Dawkins in his book, The Selfish Gene back in 1976, as a response to a prevailing belief among biologists that cultural evolution could be explained in terms of biological evolution; that is, that the emergence and transmission of cultural forms such as arts, languages, political institutions, rituals, etc., could be explained by the degree to which they were biologically advantageous (1976, p. 189). Contrary to this position, Dawkins asserts the following: [a]s an enthusiastic Darwinian, I have been dissatisfied with explanations that my fellow-enthusiasts have offered for human behavior. They have tried to look for “biological advantages” in various attributes of human civilization. . . . These ideas are plausible as far as they go, but I find that they do not begin to square up to the formidable challenge of explaining culture, cultural evolution, and the immense differences between human cultures around the world. (Ibid, 190–191) For Dawkins, then, the dissemination of cultural forms seemed to behave in such a way that it could not convincingly be explained in terms of biological

86  Sean O’Dubhghaill and Sean Winkler

advantage. There are immediate parallels here between large, established hedge funds (those with a preternatural biological or genetic advantage on the basis of their longevity) being challenged by r/WallStreetBets (those with a memetic advantage); rather than being viewed as a subculture or subgroup though, opting to refer to themselves as “degenerates” is telling, it is as though they are genuine investors who have access to top-of-the-line equipment and intelligence, as well as a loose social media entity, that were on an equal footing, at least where the GameStop short squeeze is concerned (Mosenhower et al., 2021). Questions of the propriety of the original come to the fore when it is impossible to determine who possesses the advantage and who does not. More than just a “David versus Goliath” narrative, what seems more problematic is the indissociability of the two entities in this pursuit; both follow similar, but not identical, motives and the entity thought to be “David” can bridge the gap in investment through brokerage services like “Robinhood” (Jacobsen, 2021). What this means, if we are to follow Dawkins’ line of reasoning, is that advantages can be accrued either through technical acumen or imitation; if the technical acumen can be imitated or simulated, though, what makes the original not, somehow, also mimetic? Dawkins proceeds by arguing that cultural evolution should not be explained in terms that are reducible to biological evolution (in terms of genetic succession, fitness, and advantage), but rather in terms that are analogical to it. To capture this analogy, he states that if biological evolution proceeds by the replication of genes, then cultural evolution proceeds by the means of, what he calls, “memes”; this is a term which he derives from the Greek word mimeme, meaning “something which is imitated,” which he then shortens to be monosyllabic like its analogue (192). Among the many examples of memes that Dawkins provides, we find everything from architecture, to art, catch phrases, ceremonies, customs, engineering, diets, fashions, music, pottery, technology, etc. (190, 192). In principle, the notion of a meme is indefinitely expansive; effectively any form of cultural production can be a meme if it can be circulated. There is also no size restriction to a meme; they can be as grandiose as Beethoven’s 9th Symphony or as miniscule as an image of a cat refusing to be fooled by a laser pointer. Now, like genes, memes are subject to a certain principle of “survival of the fittest”; they compete for existence with other memes, endeavor to adapt to a suitable environment, and so on. In this way, we might observe the ecosystem of investment marketing as being populated not exclusively by those “in the know,” but by those interested in competing. Just as genes replicate in the process of reproduction, so too do memes replicate through the process of an original being copied. This lends a certain degree of conservatism to cultural development, save for the fact that meme replication does not always mean an exact identity between original and copy, as replication is always susceptible to the appearance of mutations, and these mutations need not be inferior to an original. If a mutation can persist, then a new meme is born, and cultural evolution has taken place (Álvarez, 2004). Dawkins remarks that one should not treat this

Memes as Cultural Artifacts 87

explanation as implying some kind of animism, as though memes possessed agency to carry out this process. Rather, this is simply what they do. The basic criteria that determine a meme’s survival value are its longevity, fecundity, and copying-fidelity; these criteria are concrete enough, but are also sufficiently vague, since what facilitates longevity, fecundity, and copying-fidelity in any context differs (194). Rather than fetishizing cosmetic differences between a degenerated version of investment brokerage and a proper or original one, we might claim that YOLO investors are a culturally evolved version of Wall Street brokers, on condition that we understand that evolution does not carry the same perceived superiority as Darwin’s model suggests (van der Heide & Želinský, 2021). To illustrate his hypothesis, Dawkins explores the example of the idea of God, perhaps the quintessential meme, given its endurance for millennia (longevity), adaptability to different contexts (fecundity), and its relative stability over time (copying-fidelity). As he writes: Consider the idea of God. We do not know how it arose in the meme pool. Probably it originated many times by independent “mutation”. In any case, it is very old indeed. How does it replicate itself? By the spoken and written word, aided by great music and great art. Why does it have such high survival value? Remember that “survival value” here does not mean value for a gene in a gene pool, but value for a meme in a meme pool. The question really means: What is it about the idea of a god that gives it its stability and penetrance in the cultural environment? The survival value of the god meme in the meme pool results from its great psychological appeal. It provides a superficially plausible answer to deep and trouble questions about existence. (Ibid, 192–193) For Dawkins, then, the survival value of the idea of God has little to do with factors like faith or reason as such, but with its reproducibility and adaptability (Blackmore, 2000). To the extent that faith or reason does play a role in the survival value of the idea of God, these too should be seen as memes that have longevity, fecundity, and copying-fidelity of their own. Dawkins’ example is especially useful for defending his claim that cultural evolution is irreducible to biological evolution, to the extent that the defense of such things as nationalism, political ideology, religious beliefs, etc. oftentimes stand at odds with survival. Dawkins identifies the example of exercising celibacy among the clergy of particular religious faiths: celibacy, of course, being advantageous to the perpetuation of memes, but not at all for the perpetuation of genes (198). One might also turn to the example of people’s willingness to put themselves in harm’s way or even to lay down their lives for memes like one’s nation, political ideals, religious beliefs, etc. One’s willingness to die for such principles makes little sense from the perspective of biology, but one can explain it rather clearly from the perspective of culture. At this point, we might also make a

88  Sean O’Dubhghaill and Sean Winkler

point in YOLO investor’s favor that often gets overlooked: there is something oddly admirable about being able to capitalize on something in a significant manner, but then desisting from doing so in order not to resemble too closely the mainstream professionals of finance. In a sense, if we view cultural behavior as “second nature,” then we can see that this is what is being championed in these accounts (Lucchini et al., 2021). They are acutely aware of the stakes of their endeavors, but it does not compel them to act in any conventional way. Now, we should note that Dawkins does not claim to have provided a comprehensive theory of cultural production; he simply intends to posit one possible way of understanding the circulation of ideas (Boyd & Richerson, 1985). With that caveat in mind, though, in its effort to distance itself from biological reductionism, meme theory strangely appears to fall into its own kind of reductionism, according to which ideas are nothing more than information. It may provide an interesting account of how ideas are circulated at a general level, but it is difficult to imagine how it can be used to explain the genesis and circulation of any given particular idea, and while this certainly need not be explained in biologically reducible terms, it is unclear why it needs to be reduced to information either. This is quite staggering when we think of how commonly we encounter a wide, seemingly ever-expanding litany of memes, seldom if ever seeing identical memes more than once (Kassim, 2022). To defend Dawkins’ theory, he would need to provide clear criteria for discerning what is essential and what is accidental to an idea. The idea of God, for instance, can be further specified into the idea of God in the Christian faith, to the one in the Protestant faith, to the one in this particular parish, to this particular person, to this particular person at different moments of his/her life. While Dawkins imagines that the idea of God can be easily extricated from these particularities, the lived experience of religious belief attests to a much greater difficulty to separate these elements without turning an idea into something different altogether. Once one delves into these more concrete aspects of an idea, it becomes harder and harder to not venture into discussing matters beyond ideas themselves. It may be that, for example, the idea of communism had a certain longevity, fecundity, and copying-fidelity, but how can one explain these factors without discussing peoples’ genuine lived experience of being exploited as a laborer, of having their homeland ravaged by imperial conquest, and of course, eventually the discussion of communist states’ own use of propaganda, violence, etc. Stated more broadly, the moment one begins asking why one meme has greater appeal over others, it becomes difficult to see how explaining factors like longevity, fecundity, and copying-fidelity do not resort to, say, survival, lived experience, the pursuit of meaning, socioeconomic conditions, political power, technological development, environment, etc. Dawkins’ theory rests on this assumption that certain ideas could not possibly be believed in any rational way, so they must perpetuate themselves on the basis of the idea itself. This is the odd paradoxical position in which the YOLO investors find themselves and while it might defy common sense to

Memes as Cultural Artifacts 89

some, common sense is typified by cultural variation (and has a near-identical structure to memes), something as we have observed by now is something that Dawkins cannot account for (Cao  & Liu, 2022). In order to better understand memes, and their common sense appeal, the section that follows further explores the implementation of memes.

Memes and Common Sense While Dawkins defined memes through transmission and imitation, in a manner analogous to evolution proper, this overlooks the logic that underpins the desire to become involved in a shared social context through the sharing and consumption of memes. Memes have a common sense appeal, in both that they are largely uncomplicated and that the baseline templates have a limited number of steps or panels (often fewer than 6) with some simply favoring one or two images in total. Common sense, as Geertz has argued (1975), is a cultural system that has evolved over time in a way that is not unilinear. What is common sense to me might not be common sense to you, depending on your worldview, place of birth, etc. However, what different views on common sense might share is that they involve an inductive finding of fact and involve an investigation into adequation and propriety. Common sense, then, has more to do with a kind of efficacy and capability than with any specific outcome: When we say someone shows common sense we mean to suggest more than that he is just using his eyes and ears, but is, as we say, keeping them open, using them judiciously, intelligently, perceptively, reflectively, or trying to, and that he is capable of coping with everyday problems in an everyday way with some effectiveness. (Geertz, 1975, p. 8) Memes take this level of common sense as a presupposed given. Put otherwise, memes require a kind of unspoken baseline, or even a desire to understand the meme in terms that might even exceed the meme generator’s intended meaning, and this guarantees a mutual interpretability in memes. When common sense is misapplied at the memetic level, memes are shown in all of their brittleness, like a typographical error in a sentence that can cause readers to go so far as to question the author’s reputability on any matter at all. Common sense is, or can be, codified in much the same way as Dawkins describes memes doing. Aphorisms or words of wisdom serve exactly this function and are not necessarily borne out of an individual’s insight, but instead have a time-tested intuitive value, such as “a stitch in time saves nine” and countless others. What troubles this assertion, and even troubles Dawkins’ contentions, is that while memes and sayings and home-spun aphorisms all become part of our lexicon, we often forget entirely that which gave rise to them in the first place. Much like we might be unfamiliar with a meme’s source, but are familiar with the accompanying text’s meaning, we can find ourselves questioning whether the phrase “Clothes

90  Sean O’Dubhghaill and Sean Winkler

maketh the man” comes from Shakespeare or the Bible. We might question further whether there is a necessity at all to know the precise provenance of a meme’s image, if the message can be understood in full without it. In terms of copy-fidelity, there is something interesting here in that memes are brittle and breaking their central foil is something that strikes the memeviewer immediately, at this common sense level (and as Geertz has stated, on condition that the viewer understands the cultural code at work). Altering the intended register, not purpose, of a meme strikes at the intuitive perception of the meme. The inversion of the propriety of the meme is at odds with the accompanying text which does not resemble the syntactical form of this meme as it is commonly presented. Here we need to concern ourselves with whether or not this meme is viewed as degenerate, misapplied, or contrary to the entire purpose of the (somewhat minimalist) necessity to work within pre-established confines in order to lend a certain sensibility to your actions. However, while this brief section has aimed to show what happens when memes frustrate our common sense effort to understand them, they have still been propagated within various disciplines as a way to combat this effort, and serve as an intergenerational bonding experience.

Memes Bridge Divides This section aims to trace the appeal (and parenthetical analytical usefulness) of memes according to Dawkins’ perspective, within anthropology: from its earliest days of outright rejection to a warmer, softer approach to memes as a pedagogical tool (given their popularity among digital native) or as a conceptual metaphorical shorthand for the transmission of ideas. Sperber (2001), Bloch (2001), and Kuper (2001) offered stringent rejections of memes right at the beginning of the 2000s, with a view to their concern that human behavior and the transmission of knowledge would be pigeonholed into models of original and derivatives, removing any legitimacy from an operation that deviates to too significant an extent (or even at all) from an original. We contend that this critical backlash to the idea, which was an attempt to scientize the discipline of anthropology in the service of Darwinian evolutionary biology, has given way to an all too uncritical treatment of memes in the present. An example of this can be found in Iloh (2021) in which the author claims that memes are all but indispensable to bridging the age gap between students and teachers. To begin with, and following the previous discussion of Dawkins’ work, it might be first beneficial to examine Dawkins’ own view about how his original coinage of the term “meme” has become distorted to such a significant degree that Dawkins himself insisted in 2013 that we distinguish between a “meme proper” (that which accords with his own definition) and an “internet meme” which is a hijacked, bastardized version thereof (Dawkins, 2014). Memes did not evolve from Dawkins’ work, then; only the name did. What we understand as memes is not at all what Dawkins had in mind and this analogy is far more

Memes as Cultural Artifacts 91

interesting for our purposes than the content of the original argument, even though practically every article on memes begins with a protracted, and often totally counterintuitive, examination of Dawkins’ work. The discipline of anthropology dug in its heels, much like any overprotective discipline might, at efforts made by thinkers such as Dawkins to carve away part of the preserve of anthropology (determining how culture transmits itself and is interpreted in a swathe of different cultural groupings) as totally overlooking that memes can be transmitted in one, undifferentiated manner, like “common sense.” Anthropology teaches that tradition is invented (Hobsbawm & Ranger, 1983 [2012]) and that communities are imagined (Anderson, 1983) and so imagining an intergenerational time span involving, or worse still being necessitated by, the straightforward, timeless imparting of facts and figures seems an impossibility. Rejecting the epidemiological and analogous interpretations of memes frees us up to embrace greater ambiguity and allows us to ask: Where does novelty come from if memes are only inherited? At what point would we be permitted to put our own spin on these inherited, gene-like things? It is quite difficult to think of memes in any other context than a variation on a theme, but within Dawkins’ register it retains the old binary of original over and against any permutations of the original that jeopardize the sacrosanct character of the original (Wired, 2013). This is a view postulated in Walther Benjamin’s The Work of Art in the Age of Mechanical Reproduction (1969), in which the sacred character of, say, a work of art is guaranteed to retain its originality in what Benjamin referred to as “the aura of sacrality,” the specific cultural instance in which it finds itself (Benjamin, 1969); put otherwise, it is troublesome to some to claim that they saw the Mona Lisa without visiting the Louvre, given that the Mona Lisa both draws its sacrality from and divests its sacrality to the Louvre. For memes, the opposite is true. How plastic and pliable a given meme is serves as a testament to its power, adaptability, and sacrality. We need to only think of the recent employment of memes by recruiters looking for young people to join firms or the use of Drake, in the Hotline Bling video, to advertise the EU’s commitment to pushing universal, type-C chargers. Anthropology is replete with examples of such instances in which authentic and inauthentic become melded and in which seemingly paradoxical turns of phrase exist in everyday life, from a cover version of a song being superior to the original to a counterfeit bag serving to close the gap in conspicuous consumption between the real and the imitator. YOLO investors are viewed as imitators, trying their hand at the stock market in such a reckless fashion that Robinhood eventually took the privilege away, although this is a topic to which we will return further subsequently. Anthropology has always advocated for a broader understanding of individuals’ subject positions that evade and eschew uncharitable understandings, such that the first-on-the-scene deserves the mantle of authentic original, and that every other contributor or collaborator thereafter gets labeled as inauthentic. Another example is that provided by Georg Simmel in Fashion (Simmel, 1957 [1905]) which underlines much the same point. Because fashion is an

92  Sean O’Dubhghaill and Sean Winkler

enterprise governed by trends and its parenthetical “emulative conformity,” differentiation and power structures are guided by the degree to which a person can afford “haute couture” or an ersatz knock-off derivative, depending on their particular position in the social hierarchy. Curiously, Simmel reverses the positions, claiming that the real innovator is interested in going against the trends, not as a “degenerate” but as a pioneer: The imitator is the passive individual, who believes in social similarity and adapts himself to existing elements; the teleological individual, on the other hand, is ever experimenting, always restlessly striving and he relies on his own personal conviction. (1957 [1905], p. 543) However, this is not necessarily as negative as it might initially appear, and Simmel acknowledges an interpersonal consideration by saying that if a society fetishes one mode of engagement over others (Wall Street versus YOLO investors), then it is the individual who seeks out similarity that is the more rebellious. Those who steer clear of fashion also do so in order to diminish the likelihood of also being viewed as a mimetic pretender. The dividing lines between original and copy can also become inverted in amusing ways. Consider Balenciaga’s 2017 venture that closely resembled an all-too-common household staple. The two-strap oversized bright blue bag (rrp $2,175) was almost indiscernible from a common “frakta” IKEA bag (rrp €1). Seeking to capitalize upon the comparisons being drawn, IKEA released a tongue-incheek guide to ensure that consumers would be able to identify their bags as the “original” frakta bag (Business Insider, 2019). In this way, the preferential binary was flipped in the so-called imitator’s favor. One step beyond the tension evident in mimetic behavior, and the original/ copy distinction, is that of counterfeiture, given that even the hint of a counterfeit calls the object proper’s relationship with other objects into question. This is a similar view as the one held by Dawkins concerning memes and their actual scientific value. Baudelaire’s Counterfeit Money is an excellent portrayal of this in which a man offers a sizable counterfeit coin to a vagrant, only to have the main character castigate the man who proffered the coin for becoming caught up in the operation of mimetic counterfeiture: I then saw clearly that his aim had been to do a good deed while at the same time making a good deal; to earn forty cents and the heart of God; to win paradise economically; in short, to pick up gratis the certificate of a charitable man. Here, the coin by virtue of borrowing and undercutting the idea of an originary thing also causes the very notion of charitability to become suspect. Think, for example, of the common misconception that imitation is motivated by an intention to deceive or to devalue an original. Crăciun (2012) states that those

Memes as Cultural Artifacts 93

in the humanities and social sciences need to elide or critique those understandings that reduce, or worse actively castigate and otherize, this empirically borne-out complexity; instead, we might think of the inauthentic thing as an equally true representation of any given phenomenon: The fake is seen as a copy that does not hide its true nature. . . . The common notion of a fake implies an intention to deceive: the fake is produced with the intention of making someone believe that it is indiscernibly identical with another object. (Crăciun, 2012, p. 847) This is similar to the observation made previously with respect to counterfeiter, which does indeed seek to deceive, but this is not universalizable. The reason it is not universalizable is precisely the same reason that memes cannot be universalizable and so now all we must do is underscore the manner in which we can move forward by suspending the distinction between “degenerates” and “real traders.”

Conclusion It is curious to think of the evolution of humans for a sustained period, but doing so will invariably give rise to questions of cause and effect: What happens if we had never evolved in this way or if my biological parents became betrothed to other people? What kinds of differences would this give rise to? What would have happened with the GameStop short squeeze if Robinhood had not halted trading? On the morning of 28 January, the CEO of Robinhood (Vlad Tenev) received a letter from the National Securities Clearing Company (NSCC) asking for a demonstration that the company had $3  billion on hand in order to guarantee that business could continue to proceed seamlessly, particularly in response to the unprecedented spike and the likelihood of an imminent collapse in stock prices (Cabral, 2021). Robinhood, an investment brokerage firm founded with a view to becoming a layperson’s investment broker (Tan, 2021; Welch, 2020), shuddered in response to this requirement, because of a lack of liquid capital and Tenev attempted to bargain with the NSCC to lower the threshold so that Robinhood could continue to operate. The damage was done, though, and the YOLO investors, who had come to depend on the accessibility afforded to the layperson, found their positions altered and were only able to sell their positions, totally unable to open new ones. It seems improbable that these investors would continue to be referred to as YOLO investors or refer to themselves as “degenerates” if a larger coup had taken place, if Robinhood had continued trading. To circle back to our original discussion, we can draw a parallel between an old genetic system becoming overwhelmed by memetic influences in the example of the GSS, but that is not to say that the imitators are inferior, particularly on the basis of their success; the GSS was a worldwide sensation that championed the underdog. The chosen

94  Sean O’Dubhghaill and Sean Winkler

vernacular of the YOLO investor is the meme and only if we demonstrate and maintain a critical attitude to precisely what is meant when we invoke the term meme, while simultaneously relaxing our view of the distinction between new and old investors, can we communicate effectively with and about them.

Notes 1 Brussels School of Governance, Vrije Universiteit Brussel. 2 Loyola Marymount University.

References Álvarez, A. (2004). Memetics: An evolutionary theory of cultural transmission. Sorites, 15, 24–28. www.sorites.org/Issue_15/alvarez.htm Anderson, B. (1983). Imagined communities: Reflections on the origin and spread of nationalism. Verso Books. Benjamin, W. (1999 [1969]). Illuminations (H. Zohn, Trans. and H. Arendt, Ed. and Intro.). Pimlico. Blackmore, S. (2000). The meme machine. Oxford University Press. Bloch, M. (2001). A  well-disposed social anthropologist’s problems with memes. In R. Aunger (Ed.), Darwinizing culture: The status of memetics as a science (online ed.). Oxford University Press. https://doi.org/10.1093/acprof:oso/9780192632449.003.0010 Boyd, R.,  & Richerson, P. (1985). Culture and the evolutionary process. The University of Chicago Press. Business Insider (2019). Balenciaga designer reveals why he famously made a $2,000 version of an Ikea bag. Business Insider. www.businessinsider.com/balenciaga-ikea-bag-inspirationdesigner-says-2019-2?r=US&IR=T Cabral, S. (2021). Robinhood, Reddit, and GameStop: What happened and what should happen next? Markkula Center for Applied Ethics at the University of Santa Clara. www.scu.edu/ ethics/focus-areas/business-ethics/resources/robinhood-reddit-and-gamestop-whathappened-and-what-should-happen-next/ Cao, H., & Liu, S. (2022). The consideration of meme stock: Case study of Gamestop saga. Advances in Economics, Business and Management Research, 648, 211–214. Chiu, V.,  & Yahya, M. A. (2021). The meme stock paradox.  Corporate and Business Law Journal, 3(1), 51–101. https://ssrn.com/abstract=3918506 Costola, M., Iacopini, M.,  & Santagiustina, C. R. M. A. (2021). On the “mementum” of meme stocks. Economics Letters, 207, 110021. ISSN 0165–1765. https://doi. org/10.1016/j.econlet.2021.110021 Coyne, J. (1999). The self-centred meme. Nature, 398, 767–768. https://doi.org/ 10.1038/19677 Crăciun, M. (2012). Rethinking fakes, authenticating selves. Journal of the Royal Anthropological Institute, 18, 846–863.  https://doi.org/10.1111/j.1467-9655.2012.01795.x Dawkins, R. (2006 [1976]). The selfish gene (30th anniversary ed.). Oxford University Press. Dawkins, R. (2014). What’s in a meme? https://richarddawkins.net/2014/02/whats-in-a-meme Eriksen, T. H. (2010). Small places, large issues: An introduction to social and cultural anthropology (3rd ed., pp. 1–9). Pluto Press. Geertz, C. (1975). Common sense as a cultural system. The Antioch Review, 33(1), 5–26. https://doi.org/10.2307/4637616

Memes as Cultural Artifacts 95 Hobsbawm, E., & Ranger, T. (Eds.). (1983 [2012]). The invention of tradition (Canto Classics). Cambridge University Press. https://doi.org/10.1017/CBO9781107295636 Iloh, C. (2021). Do it for the culture: The case for memes in qualitative research. International Journal of Qualitative Methods. https://doi.org/10.1177/16094069211025896 Jacobsen, T. (2021). WallStreetBets on wall street an empirical analysis of the market power of WallStreetBets [Masters thesis, Norwegian School of Economics]. https://openaccess.nhh.no/ nhh-xmlui/handle/11250/2774809 Kassim, E. (2022). The anthropological significance of memes as cultural artefacts. www.yoair.com/ blog/the-anthropological-significance-of-internet-memes-as-digital-artefacts/ Kuper, A. (2001). If memes are the answer, what is the question? In R. Aunger (Ed.), Darwinizing culture: The status of memetics as a science. Oxford University Press. https://doi. org/10.1093/acprof:oso/9780192632449.003.0009 La Morgia, M., Mei, A., Sassi, F., & Stefa, J. (2021). The doge of Wall Street: Analysis and detection of pump and dump cryptocurrency manipulations. http://arxiv.org/abs/2105.00733 Long, C., Lucey, B., & Yarovaya, L. (2021). “I just like the stock,” versus “fear and loathing on main street”: The role of Reddit sentiment in the GameStop short squeeze. SSRN. Lucchini, L., Aiello, L. M., Alessandretti, L., Morales, G. D. F., Starnini, M., & Baronchelli, A. (2021). From Reddit to Wall Street: The role of committed minorities in financial collective action. http://arxiv.org/abs/2107.07361 Lyócsa, S., Baumöhl, E., & Výrost, T. (2022). YOLO trading: Riding with the herd during the GameStop episode. Finance Research Letters, 46, 102359. McGabe, C. (2022, August 13). Meme-stock investors are back! Sort of, anyway. Wall Street Journal. www.wsj.com/articles/meme-stock-investors-are-back-sort-of-anyway-11660380307 Mosenhauer, M., Newall, P. W. S.,  & Walasek, L. (2021). The stock market as a casino: Associations between stock market trading frequency and problem gambling. Journal of Behavioral Addictions, 1–13. https://doi.org/10.1556/2006.2021.00058 Schiller, R. J. (2019). Narrative economics: How stories go viral and drive major economic events. Princeton University Press. Simmel, G. (1957 [1905]) Fashion. The American Journal of Sociology, 62(6), 541–558. Sperber, D. (2001). An objection to the memetic approach to culture. In R. Aunger (Ed.), Darwinizing culture: The status of memetics as a science. Oxford University Press. https://doi. org/10.1093/acprof:oso/9780192632449.003.0008 Tan, G. K. S. (2021). Democratizing finance with Robinhood: Financial infrastructure, interface design and platform capitalism.  Environment and Planning A,  53(8), 1862– 1878. https://doi.org/10.1177/0308518X211042378 Umar, Z., Gubareva, M., Yousaf, I., & Shoaib, A. (2021). A tale of company fundamentals vs sentiment driven pricing: The case of Gamestop. Journal of Behavioral and Experimental Finance, 30, 100501. van der Heide, A.,  & Želinský, D. (2021). “Level up your money game”: An analysis of gamification discourse in financial services.  Journal of Cultural Economy,  14(6), 711– 731. https://doi.org/10.1080/17530350.2021.1882537 Van Kerckhoven, S., & O’Dubhghaill, S. (2021). Gamestop: How online “degenerates” took on hedge funds. Exchanges: The Interdisciplinary Research Journal, 8(3), 45–54. Welch, I. (2020). The wisdom of the Robinhood Crowd. NBER Working Paper Series. www. nber.org/papers/w27866 Wired (2013). Richard Dawkins on the internet’s hijacking of the word “meme”. Wired. www.wired.co.uk/article/richard-dawkins-memes Woodworth, A. (2018). My body is ready: Best practices for using memes on library social media. Reference & User Services Quarterly, 58(2), 87–90. www.jstor.org/stable/26588783

Part 2

Retail Investors as Activists, Renegades, and Disruptors

7 Narrative Economics and YOLO Investors r/WallStreetBets and the GameStop Short Squeeze Sven Van Kerckhoven1 and Sean O’Dubhghaill 2 Introduction Hedge funds and traditional stockbrokers have been challenged by the emergence of a new “kid on the block” since 2021, as individual retail investors have taken to the Internet and have been able to organize themselves. These smallscale investors have always participated in financial markets, but have seldom had any real impact on prices and volumes in the past, due to their relatively small holdings. Financial markets are, instead, dominated by larger players such as hedge funds and financial institutions. The start of 2021 bore witness to the emergence of a novel type of retail investor, just as Covid-19 led to global lockdowns and pushed economic and social life online: what we might term the “YOLO retail investor.” Unlike traditional retail investors, YOLO investors do not have a long-term time horizon, are much less risk averse, and worry less about stock fundamentals and more about the emotional narrative. These emotional narratives are generated on online forums such as r/WallStreetBets (WSB), a sub-Reddit on the Reddit platform on which people discuss risky bets with potentially high payoffs. The effect of emotions on investment decisions is quite well documented (Kahneman & Ripe, 1998; Gambetti & Guisberti, 2012). Similarly, the effect of social media on investment decisions has been well-established (Tetlock, 2007; Azar & Lo, 2016).3 More recent research has also looked into the role played by sentiments in the GameStop short squeeze (GSS) which was the first time that YOLO investors started to attract popular attention and interest. Umar, Gubareva et al. (2021) use Twitter tweets as a proxy of investor sentiment and have argued that Twitter investor sentiments might indeed have positively affected GameStop’s price, even though this was not the case with traditional news outlets. Similarly, Long et al. (2021) add to this by studying the tone of the comments made on WSB, where fear and sad seem to be the most commonly employed tones (see also affect/mood in Chapter 3 of this volume); this is in line with an emotional, rather than technical, approach. The arrival of online outlets that have the ability to contest large institutional investors has yet to be studied in detail, hence the value of the chapters in this volume. Van Kerckhoven and O’Dubhghaill (2021) were one of the first to DOI: 10.4324/9781003351085-9

100  Sven Van Kerckhoven and Sean O’Dubhghaill

make attempts to get a better grasp on how online outlets can solve the collective action problem. We add to this literature by specifically focusing on the narratives that generated the January 2021 short squeeze on GameStop (and other stocks), as well as the role these fora can play in bringing decentralized investors together. The informational and disciplinary role that can be exercised by online outlets, such as r/WallStreetBets, is key to our present analysis. Even though these platforms cannot instill a military-grade discipline and coordination as such, they have been seen to be able to solve the typical collective action problem through the use of a particular vocabulary and narrative. These “degenerates,” as YOLO investors’ often call themselves, in being able to work together, rocked the stock market by emulating the behavior of large hedge funds, thereby creating significant issues for the latter, some of which found themselves seeing red in January 2021 due to the short squeeze. Online fora and YOLO investors are certainly a new force to be reckoned with for large investors, and the GameStop short squeeze (GSS) is proof. We begin this chapter with a discussion on how the YOLO investor first emerged before discussing the concept of narrative economics (see Schiller, 2019), which is then applied to YOLO investors and to online fora more generally. This will allow us to study the role played by an information provider of online outlets in greater depth, as well as their ability to apply the necessary coordination among decentralized individuals. We will then look at the regulatory challenges that GSS and online outlets might have raised. Concluding remarks then follow.

The Arrival of the YOLO Investor The beginning of 2021 saw the emergence of a new type of investor: the “YOLO” investor. A “YOLO” investor is an individual retail investor that lacks many of the typical characteristics associated with the traditional retail investor. Typically, retail investors are rather risk averse, prefer safe investments, tend to have a long-term horizon, conduct a low volume of trades, have a diversified portfolio, are somewhat dispassionate about the investments made, and trade in small amounts. Over time, the importance of these retail investors has declined substantially. While retail investors owned over 90% of US corporations in the 1950s, they only owned about 2% by 2009, as institutional investors grew and became the most active participants in the stock market (Evans, 2009). However, with the YOLO investor’s arrival, retail investing made the headlines once again and even started to pose a serious threat to some institutional investors. The “YOLO” investor came about in the midst of the global pandemic, following the outbreak of Covid-19. Social and economic life graduated online during the pandemic, by and large, as lockdowns and restrictions were imposed by governments all around the world in order to curtail the spread of the virus (Chohan, 2022). As a consequence, this meant that people started to seek entertainment and excitement online. At the same time, some individuals were able to save more money as typical outlets, in which spending on entertainment occurs, closed down.4 Spurred on by the arrival of brokerages without

Narrative Economics and YOLO Investors 101

commission fees, such as Robinhood, the stock market became more of an entertainment outlet, rather than a long-term investment venue. Indeed, the arrival of commission-free brokerage attracted a new, large group of potentially less well-educated investors who have profoundly affected the stock market landscape (Van der Beck & Jaunin, 2021). “YOLO” investors engage in either extremely risky trades with a short time limit or seek out riskier financial instruments, often buying on the margin (where the investor increases their leverage),5 in which a negative outcome can lead to margin calls that can make an investor lose more than their initial buy-in, as well as using options trading (see also Chapter 4 in this volume). These instruments can lead to substantial payoffs, even with a low initial investment, but are extremely risky. Building on their affinity with the “you only live once” motto, the YOLO investor thus aims to generate a substantial payoff with “bets” on volatile or contested stocks, at the risk of losing the entire sum invested. They often neglect diversification, by putting all their eggs (and hopes) in one basket, whereby the movement of one asset results either in windfall profits or complete disaster. The YOLO investor tends to focus on a specific set of companies. Most companies that attracted significant attention during the build-up to the short squeeze on the sub-Reddit r/WallStreetBets (more on both of which will be discussed later) tend to be companies that have some nostalgic value, such as GameStop, AMC Entertainment Holdings, Nokia, Blackberry, etc. These companies might have been struggling with the changing business environment, and faced high short interest in some cases, but were still fondly reminisced about by the YOLO investors who might have enjoyed their products and services in their teenage years. The pandemic had a strong negative impact on the stock market generally, but on the aforementioned companies in specific. Historically, low stock prices meant that there were significant opportunities for new investors, but the “YOLO investor,” as stated earlier, does not really have a longterm investing horizon. Rather than investing in solid companies, the “YOLO investor” seeks out distressed stocks, or stocks with a particular nostalgic affinity. In comparison with traditional retail investors, YOLO investors typically rely much less on traditional assessments of stock prices. It has already been argued that traditional retail investors are rather uninformed and make mistakes when selecting equity investments (Barber & Odean, 2008).6 This is true to an even greater degree with YOLO investors, given that these investors do not rely on traditional outlets, such as financial newspapers and professional magazines, to gather information on the basis of which to assess investment decisions; instead, they take to social media (Twitter, for example) and other online fora (such as Reddit) for both input and advice (Umar, Gubareva et al., 2021). At the same time, YOLO investors have foregone traditional assessment methods, such as P/E ratios, in favor of due diligence on these online outlets. This has given rise to the now well-known GameStop short squeeze. These YOLO investors came to the fore of the global stage at the beginning of 2021 as a number of heavily shorted stocks, most notably GameStop

102  Sven Van Kerckhoven and Sean O’Dubhghaill

(a brick-and-mortar video games store) but also other stocks such as AMC Entertainment (a movie theater suffering from the lockdowns imposed by Covid-19), Blackberry Limited (a smartphone producer, the products of which have come and gone out of fashion), and others, saw a stark increase in their stock price. As hinted at earlier, we should note that all of these companies used to be big in the 1990s, thereby earning them some nostalgic affinity from the YOLO investors in these so-called meme stocks. However, the seed for the short squeeze was planted much earlier. In August  2020, YouTuber “RoaringKitty” (also active on the sub-Reddit r/WallStreetBets under the name u/deepfuckingvalue) posted a video stating his case for why GameStop was undervalued at $5 a share, and its potential to increase tenfold.7 He argued that this stock experienced an exorbitant amount of short positions that had been initiated by hedge funds who eventually would have to close their position. An increase in the share value would then force these hedge funds to close their positions at a higher value, which could even lead to a further increase in GameStop’s share value. Soon thereafter, Ryan Cohen, investor and former CEO of chewy.com, purchased 10% of GameStop’s shares. He eventually joined GME’s Board on 12 January 2021, thereby leading to a share price increase of up to $20.8 Later that month, the now-infamous short squeeze happened with the share price of a single GME share moving above $420 as short positions were covered and more YOLO investors wanted to get in on the action. Some hedge funds lost significant sums by having to cover their outstanding short positions at a higher price. Melvin Capital, one of the hedge funds that had heavily bet against GameStop, lost 53% of its value in January 2021, eventually shutting up shop in May 2022 citing the fact that they never recovered from the GME short squeeze. Other hedge funds, such as Citron Research and White Square Capital, also suffered substantial losses. YOLO investors’ immense success in the GSS then quickly spread through other online forums, such as r/WallStreetBets (see later), where YOLO investors were quick to identify other stressed stocks with significant outstanding short interest. Even though these stocks failed to replicate the unprecedented upward movement witnessed in the case of GameStop stock, some of the other meme stocks’ share prices also saw a noticeable upswing. The section that follows provides an overview of the methodology used to assess the role played by social media forums in the build-up to the GameStop short squeeze.

Narrative Economics and Meme Stocks Going Viral Academic research has recently started to pay more attention to the power of viral stories and narratives that end up having a substantial impact on economic outcomes. Studying narratives that affect individual and collective behavior allows us to study how markets move when stories go viral, for example, in

Narrative Economics and YOLO Investors 103

greater depth. This field of inquiry has been coined “narrative economics” (Schiller, 2019). The idea behind narrative economics is to study how ideas spread, in the form of narratives and stories, as well as how they drive major economic events. Some narratives might find a quick footing (such as the Laffer curve, or more recently, the stories about crypto investors “getting rich quick”), but might then cool down, often rather quickly, while others build up slowly over time and have a long-term impact (lower taxes spurring greater entrepreneurship is one such narrative). The GSS and the arrival of the YOLO investor can also be assessed in that same light. In order to assess how a narrative spreads, one can build upon some of the following concepts that, in turn, build upon the mathematical theory of disease epidemics, namely, the SIR (susceptible, infectious, or recovered) or compartmental model (Kermack  & McKendrick, 1927, and its application in Schiller, 2019). In this model, a percentage of the population is made up of people who are susceptible (S), namely, people who have not yet been “infected” but who are vulnerable to becoming so. There is also a percentage of the population that is “infected” (I), namely, people who are actively spreading the infection, and a percentage of people who are recovered (R), people who have been infected but are no longer infectious or susceptible to becoming so. There is then a contagion parameter (c), whose product with the infected population and the susceptible population indicates the spread of the infection. There is also a recovery rate (r). This gives rise to the following equations:9

dS = -CSI dt dI = cSI - rI dt

dR = rI dt These parameters will be discussed in greater detail in the following section when we study the roles and functions online forums have provided in the remarkable GameStop short squeeze. In terms of this specific event, we can argue that the susceptible population consisted of people who knew about the short squeeze, the infected population then included people who actively participated in the short squeeze, whereas the recovered part of the population is made up of people who liquidated their position, either with gains (often significant) or with losses (often substantial ones). We argue that these narratives played two major roles with regard to the GameStop short squeeze, namely, they enabled the spread of information regarding the short squeeze, and they instilled discipline in participants.

104  Sven Van Kerckhoven and Sean O’Dubhghaill

Online Fora as Information Distributors Covid-19 led to an increased interest in investments, accompanied by the rise of online communities discussing investments strategies. Online communities such as r/WallStreetBets provide decentralized communication. They are open to the general public and everyone can freely follow (or participate in) the discussion threads. Such outlets are not new, but traditionally focused more on value investing, in particular with the rise of the FIRE movement (Financial Independence, Retire Early). However, novice and more experienced investors found their way to forums such as r/WallStreetBets seeking an exciting pastime during a worldwide lockdown, whereby the focus was more about risky “gambles” on volatile or stressed stock companies. These investments might result in a substantial, quick payoff but might also result in significant losses. The GSS was enabled by both the ascent of information technology and the increased usage of social media channels for both business and pleasure (see also Chapter 10 of this volume). The Internet has enabled the rapid spread and accessibility of information to the general public. Whereas professionals might benefit from earlier and more detailed information previously, this advantage is less commonly encountered nowadays. Social media has also increased the amount and the speed at which information flows spread, reaching both retail and professional investors. However, accessibility does not necessarily mean that retail and institutional investors have the same capability to do something with that information (see also Chapter 4 of this volume). Online communities can aid in this effort by aggregating the widely available data, and by applying some structure to it. This “due diligence” is then discussed on these fora, which might increase the information’s usability and visibility. This process allowed YOLO investors to rally themselves behind a common sentiment, which introduced noise in the valuation of companies (De Long et al., 1990). This is not only observable with GME, but can also be observed in the valuation of almost every single investment vehicle, albeit to a less pronounced extent. Online forums such as the sub-Reddit r/WallStreetBets, but also other channels such as YouTube and Twitter, have enabled the spread of information regarding financial assets and the underlying reason to invest in them. r/WallStreetBets in particular brings people together to talk about the market, to share memes (see also memes in Chapter 6 of this volume), and to supply one another with both teasing and support. Certain members engage in due diligence of some stocks and put their analyses online; these individuals are also called “non-professional social media investment analysts” (Klein, 2021). The GSS is the best example of the role played by these analysts and shows the power of instances in which enough community members agree with their recommendations. In so doing, online fora were paramount in making the GSS a reality. Fellow investors put forward due diligence that would support claims, such as the ones made by RoaringKitty on YouTube, on message boards, fora, and on social media. YOLO investors also make ample use of these outlets to share

Narrative Economics and YOLO Investors 105

the numbers of shares or options they acquired. They also commonly post their successes or losses (the so-called gain or loss porn). Even more people were attracted to this forum once both traditional and specialized media started to look into the remarkable event. In the terminology applied in the previous section, online forums were thus able to increase both the section of the population vulnerable to infection (S) and those infected (I).10 The stark growth of the r/WallStreetBets sub-Reddit is testament to this assessment, which had about 2  million subscribers on 22 January  2021, but grew exponentially as the GSS unfolded, reaching about 9.2 million subscribers one month later.11 It came as no surprise that more people started to look into GME (and other meme stocks) and the short squeeze shortly after, as more and more people found their way to the social forum. Figure 7.1 indicates the strong spike in interest in GameStop, as measured by web searches through the Google Search engine. It should be borne in mind that the numbers on the Y-axis are relative; numbers represent search interest relative to the highest point on the chart for the given region and time. A value of 100 is the peak popularity for the term, whereas a value of 50 means that the search term was half as popular, for example. Similarly, Figure 7.2 shows similar data for the search term WallStreetBets. Interestingly enough, the GameStop saga also pushed people to read more and to learn more about short squeezes (see Figure  7.3). Klein (2021) has shown that the GSS has increased financial literacy, due to self-education taking place that bore witness to an increase in the understanding of basic market speculation mechanisms. All of these figures indicate a stark rise in interest in this event, as well as a strong rise in the interest in the social media network that was purported to GameStop: (Worldwide interest) 120 100 80 60 40

0

2020-06-21 2020-07-19 2020-08-16 2020-09-13 2020-10-11 2020-11-08 2020-12-06 2021-01-03 2021-01-31 2021-02-28 2021-03-28 2021-04-25 2021-05-23 2021-06-20 2021-07-18 2021-08-15 2021-09-12 2021-10-10 2021-11-07 2021-12-05 2022-01-02 2022-01-30 2022-02-27 2022-03-27 2022-04-24 2022-05-22

20

Figure 7.1  GameStop (worldwide interest). Source: https://trends.google.nl/trends/explore?date=today%205-y&q=GameStop

106  Sven Van Kerckhoven and Sean O’Dubhghaill r/WallStreetBets: (Worldwide interest) 120 100 80 60 40 20 2020-06-21 2020-07-19 2020-08-16 2020-09-13 2020-10-11 2020-11-08 2020-12-06 2021-01-03 2021-01-31 2021-02-28 2021-03-28 2021-04-25 2021-05-23 2021-06-20 2021-07-18 2021-08-15 2021-09-12 2021-10-10 2021-11-07 2021-12-05 2022-01-02 2022-01-30 2022-02-27 2022-03-27 2022-04-24 2022-05-22

0

Figure 7.2  r/WallStreetBets (worldwide interest). Source: https://trends.google.nl/trends/explore?date=today%205-y&q=%2Fg%2F11j8_7q6wl

Short Squeeze: (Worldwide interest) 120 100 80 60 40 20 2020-06-21 2020-07-19 2020-08-16 2020-09-13 2020-10-11 2020-11-08 2020-12-06 2021-01-03 2021-01-31 2021-02-28 2021-03-28 2021-04-25 2021-05-23 2021-06-20 2021-07-18 2021-08-15 2021-09-12 2021-10-10 2021-11-07 2021-12-05 2022-01-02 2022-01-30 2022-02-27 2022-03-27 2022-04-24 2022-05-22

0

Figure 7.3  Short squeeze (worldwide interest). Source: https://trends.google.nl/trends/explore?date=today%205-y&q=short%20squeeze

have made the GSS possible, thereby strongly (but briefly) ensuring that the GSS and WSB went viral; this, in turn, indicates the abiding informative value of the latter, as well as related other social media outlets, and even traditional media more generally.

Narrative Economics and YOLO Investors 107

As argued by Schiller (2019), celebrity endorsement helps to make an event go viral. What this view overlooks somewhat is the fame that is actually generated by actors involved in something as momentous as the GSS. Initially, the GSS did not benefit from real celebrity endorsement, but soon RoaringKitty, the poster child of the initial video on the valuation of GME on YouTube and active WSB member, outgrew the fame that he received on the sub-Reddit and actually earned global recognition. Online fora could spur more speculative moves, compared to traditional venues, given that they create content for a 24-hour news cycle with no factual research underlying the positions taken. YOLO investors that are active on these social media outlets follow a different strategy, as RoaringKitty’s due diligence exemplified (on YouTube and Reddit). Major investors use standard models to assess a stock’s valuation. However, the analysis of stocks on these forums often takes different forms, whereby one indicator is, for example, the amount of time that a certain stock was mentioned on the forum. As such, investors seek to find more information about other people’s investment decisions, not because of their fundamental analysis, but because this could indicate when the share price would move up (“go to the moon”). This phenomenon is not new, but has become much more prevalent with the rise of online forums. Lyócsa et al. (2022) found evidence that the discussions that take place on r/WallStreetBets certainly affected the volatility of the meme stocks. They further found evidence for the “herd effect”; herding involves investors gravitating toward stocks with similar characteristics. Social media and online fora allow for the spread of information as well as enable mimicking trading behavior (Spirou, 2013). This “rallying around the flag” approach on online outlets is more attractive to inexperienced investors, as aggregated information eases their decisions on stock selection. New YOLO investors are, thus, particularly prone to copy each other’s trading behavior (see also Chapters 9, 11, and 12 in this volume). This enforces the groupthink found on these social media platforms, where investors would react aggressively to posts debunking their own due diligence, posts, or positions. In so doing, WSB forms an outlet that naturally only attracts a certain type of investor. Humor, “degenerate” comments, and financial advice go hand in hand in this sub-Reddit. Members engaging in conversations that are deemed to be too serious are either called “boomers” or are told to go to more serious sub-Reddits. This is also helped by the development of their own linguistic style, with jargon that is typical for WSB. However, this also creates the possibility for a pump and dump scheme, whereby some investors try to persuade others to also invest in a certain stock that they might be holding, so as to offload their shares upon these investors. Of course, this behavior leads to inflated prices (bubbles) when successful, but is very risky as corrections and future price directions are often difficult to predict within the traditional focus on stock fundamentals. This is particularly troublesome when a stock is completely dissociated from their fundamentals, which means that the stock will return to its normal expected share price,

108  Sven Van Kerckhoven and Sean O’Dubhghaill

based on the underlying business fundamentals, after some time (generally a matter of hours). If one can get the timing right, short squeezes or pump and dump schemes can be hugely profitable, but getting that timing right is incredibly difficult, and if an error is made, it can lead to substantial losses. Online outlets and the different sub-fora’s size and strength, such as subReddits on specific assets, also help YOLO investors to know which assets to consider for their investments. Lively sub-Reddits that engage potential investors with due diligence and humor, in the forms of memes, for example, provide focal points for YOLO investors. As such, one can think of the same concepts as before, such as susceptible population and infection rates, and can apply these to different outlets that discuss different stock or assets. The groupthink could increase the infection rate as people might find the amount of support for a certain stock appealing, but can also strengthen the disciplinary role played by these forums. This topic is the subject of the following section.

Online Forums as a Disciplinary Tool The rise of these online outlets has led to an increase in the dissemination and divergence of news and information at an ever-increasing speed. The GSS event provided the first observation of a hitherto unprecedented event: social media coordinated trading actions of decentralized retail investors, who chose to go long on stocks (or use options), most outspokenly on GME, and thus directly provoked a confrontation with hedge funds and short sellers, as well as the broader Wall Street system. This event’s novelty does not reside in the rapid price appreciation or in the impact that it had on hedge funds, but rather in the decentralized coordination that was observable on online forums by retail investors. In line with what is commonly observed on these platforms, it is clear that r/WallStreetBets also showcased some tendency in the self-enforcing direction, whereby members tended to rally behind a single narrative, allowing recovery (R) to be postponed and supporting infection (I) as well as enlarging the susceptible population (S). This groupthink then allows the decentralized members to concentrate their efforts. YOLO investors’ involvement with each other on online outlets has also allowed them to instill some discipline, which allowed them to come out as big as they did with the GSS. YOLO investors engage in online communities to discuss strategies, but these forums do not offer professional advice, and discussion mostly revolves around quirky statements and memes. Instead, and more importantly, they can instill a certain direction for participants through the usage of an extensive (and somewhat exclusive) glossary of terms, and the creation of a narrative around it, where memes and humor are key to promoting in-group cohesion among members. Losses are deemed normal on WSB, while wins are mostly attributed to the YOLO investors’ self-diagnosed “autism.” Nevertheless, members refer to themselves and to others as “degenerates,” “autists,” or “retards,” whether they post wins or losses; the amount of “retardedness” just refers to the size of the

Narrative Economics and YOLO Investors 109

sum, irrespective of whether its color is green or red. This increases the feeling that all are equal, regardless of whether one is successful or is losing their life savings. The reflex of approaching wins and losses in an identical manner assures members that no division will be created, thereby strengthening the community feeling. This has allowed r/WallStreetBets to solve the collective action problem faced by YOLO investors (Van Kerckhoven & O’Dubhghaill, 2021). Collective action problems generally arise when there is a potential to free ride on the effort of others aimed at the provision of a public good. As aptly described by Olson (1965), this involves a social dilemma or situation in which individuals would be better-off if they had cooperated but they fail to do so because of conflicting interests between them which discourage joint action. In short, what Olson shows is that failure to cooperate can still be prevalent even if everyone’s interests are aligned. However, free riding was less of an issue in the case of the YOLO investor, given that there was no provision of a public good. Indeed, the benefits accruing from engaging with YOLO investments require an initial investment and are personal when realized (but see Chapter 2 of this volume). There is the potential for a substantial return on investment if enough other investors flock to the YOLO investor’s stocks. This could even result in exorbitant returns in the case of options and leveraged investments. However, the financial reward, even though presumably a driving force for some of these YOLO investors, was frowned upon by the YOLO investors community on r/WallStreetBets. In order for a short squeeze to be successful, traders would need to secure the ability to buy into the stock, and to hold onto it as its price continues to rise. However, a rising stock price provides individual traders with an incentive to reassess their position and to capitalize on the gain. Forfeiting short-term gains in order to force hedge funds to acquire their shorted stock at a higher price is particularly difficult when the underlying stock has increased 20-fold in selling price.12 In contrast with what could be expected, stories of great stock picks and huge gains in the case of the short squeeze were appreciated in an “only lukewarm” manner. In this case, stories of life-changing luck were not applauded more than stories about people losing their life savings. Indeed, one of r/WallStreetBets leitmotifs relates to “HODL” (hold on for dear life) and “Diamond Hands”: these encourage investors to keep their investments, and in so doing holding the line so that the short sellers were forced to cover their shorts at an elevated price. This approach put these investors into stark contrast with investors with “paper hands” who would “sell out” for personal gain. Such observations and comments spurred discipline on social fora. Even though the holding of shares could not be enforced, these statements and the following that they gathered in the form of memes and comments were sufficiently powerful to instill discipline among the YOLO investors. Even though these concepts proved able to instill some discipline, they have mostly been used with regard to the short squeeze or in terms of other

110  Sven Van Kerckhoven and Sean O’Dubhghaill

seriously distressed stocks. The underlying narrative here is not to make some quick financial gains (even though “going to the moon” does get mentioned), but instead to see some legacy companies emerge from the ashes, as members of WSB and similar outlets began to see the humor (“for the lulz”) of doing this in light of their deteriorating positions in the market. Even more outspoken than the “lulz” is the strong identification of a group of small investors sticking it to massive hedge funds. This “us versus them” narrative is not new and had previously attracted attention with the Occupy Wall Street movement after the financial crisis of 2008–2009. However, the actions taken in order to address the financial crisis’ impact on the general public fell short in reinstating confidence in large companies and in the government (Wouters & Van Kerckhoven, 2011). The general public still feels that public stimuli were unfairly distributed toward those who caused the crisis to begin with, rather than supporting those affected by it (Chohan, 2021). Fondly remembered by the current YOLO investors, who saw how this crisis was handled and how large companies came through the crisis largely unscathed, the GSS gave them the ability to show that they do wield some power when they are able to coordinate themselves. While assuring a return on their investments is a substantial ambition for YOLO investors, this motivation takes a back seat and plays a secondary role; their primary focus is to exact revenge on the very system that caused the 2008 financial crisis by engaging with substantially shorted meme stocks (i.e., GameStop).

Regulatory Reactions to Online Outlets GameStop, and the coordinating role fora like r/WallStreetBets play, has caused investors and the financial community to engage in further discussions regarding short selling and about the democratization of stock markets. In response to the GSS, r/WallStreetBets went private, meaning the general public could no longer access the sub-Reddit if they did not join the sub-Reddit. This was explained as follows: We are experiencing technical difficulties based on unprecedented scale as a result of the newfound interest in WSB. We are unable to ensure Reddit’s content policy and the WSB rules are enforceable without a technology platform that can support automation of this enforcement. WSB will be back. The same happened to r/WallStreetBets’ discord server. This further showcases the extent to which these outlets came to the spotlight in the aftermath of the GSS. Moreover, serious questions have been raised with regard to the functioning of these types of outlets, whereby every individual, with minor oversight from

Narrative Economics and YOLO Investors 111

voluntary moderators, can post whatever they want. Additionally, the Securities Exchange Act of 1934, Section 9, stipulates that it is illegal to induce the purchase or sale of any security registered on a national securities exchange by the circulation or dissemination of information to the effect that the price of any such security will or is likely to rise or fall because of the market operations of any one or more persons conducted for the purpose of raising or depressing the price of such security. In that light, the discussion on the r/WallStreetBets (as well as many other professional financial newspapers) could be deemed to occupy a gray area of the law. Similarly, Robinhood also halted trading in meme stocks for some time, and is currently named in a lawsuit whereby it is stated that Robinhood breached the terms of its agreement with customers and violated various non-contractual obligations (e.g., the duty of good faith and fair dealing).13 Most importantly, YOLO investors’ actions have raised serious questions about the practice of naked selling as well as about the ability of traditional investment vehicles to predict price movements. Indeed, whereas the traditional fundamentals such as E/P ratio are broadly applied in investment analysis, these fundamentals were not able to predict the behavior of YOLO investors or the subsequent stock price movements. YOLO investors did not base their decisions on fundamentals, but on the narratives developed within their own online fora. Hence, a significant divergence and contestation of the right valuation of the underlying meme stocks took place, whereby a large number of small investors were able to challenge a small number of large institutional investors. While institutional investors built their analysis upon GME’s weak fundamentals and weak performance in recent years, and anticipated a further decline in price, the YOLO investors disagreed and, at least in the short run, proved that their metrics might fail to address the new reality they were hoping to bring about. The GME saga has clearly showcased a fundamental vulnerability in the financial system to the general public, but it was also highly disruptive for financial markets: fire sales and price-mediated contagion can cause significant spillover effects spreading across the whole stock market (on how this would play out, see Jotikasthira et al., 2012; Braouezec & Wagalth, 2019; Cherneneko & Sunderam, 2020). Umar, Yousaf et  al. (2021) have found evidence that the push toward GameStop by YOLO investors transmitted between different stocks, even in unrelated sectors, increased the risk of market instability. Congress officially tasked the SEC with increased scrutiny of short sales through the enactment of the Dodd-Frank Act after the 2008 financial crisis. The SEC proposed rules in February  2022 that would require institutional investment managers, with significant short positions, to make monthly disclosures to the SEC if the new rule is adopted.

112  Sven Van Kerckhoven and Sean O’Dubhghaill

Governments are currently looking more deeply into the practice of short selling, but are also concerned with excess volatility, as price movements (such as with the GSS) that are completely cut loose from their fundamentals, and are supported by online fora and a meme like culture (see also Chapter 6 in this volume) are bound to happen again. Concerns that have been raised previously, such as whether the SEC is the right tool for an institutionalized market (see, for example, Evans, 2009), have been raised once again and might influence future financial market reforms.

Conclusion The GSS saw YOLO investors grabbing international headlines. In this chapter, we have assessed the role played by online outlets, the sub-Reddit r/WallStreetBets in particular, in coordinating individual retail investors. The Reddit platform’s underlying campaign, to address the high level of naked short positions toward GME (and other companies thereafter), created an entirely new vocabulary. It showed the power of retail investors even in financial markets dominated by huge institutions and pushed members to hold onto long positions in light of the high volume of short positions, which eventually needed to be covered. We have focused on the role played by outlets in providing information and instilling discipline on its members in this chapter, given that narratives forums play an important role on these. In the case of the GSS, this was done very successfully and a tremendous disruption of financial markets might be on the cards for the stock market if many small individual investors continue to emulate the behavior of large hedge funds. This has also raised some questions with regard to the regulation of stock markets, of course. In the absence of a concentrated online presence, an event such as the GME short squeeze would never have happened. Their role in bringing together, aligning, and coordinating retail investors from everywhere in the world, albeit in a non-hierarchical “soft” manner, is unprecedented and demonstrates the ability of YOLO investors to steer price action.

Notes 1 Brussels School of Governance, Vrije Universiteit Brussel. 2 Brussels School of Governance, Vrije Universiteit Brussel. 3 The same holds true for cryptocurrencies, one of the other favorite investment classes of the YOLO investor, see Kraaijeveld and De Smedt (2020). 4 This only applies to people who did not suffer economically from the impact of the global pandemic, of course. 5 Record low interest rates might also have fueled such behavior. 6 Some authors suggest otherwise, see, for example, Boehmer et al. (2021). 7 www.youtube.com/watch?v=alntJzg0Um4&ab_channel=RoaringKitty 8 www.gamespot.com/articles/pet-food-billionaire-joins-gamestops-board-of-direc tors/1100-6486157/ 9 Note that there is no algebraic solution to this model, only approximations (Carvalho & Gonçalves, 2016).

Narrative Economics and YOLO Investors 113 10 Even though the original works on which the model builds (Schiller, 2019) assume that S + I + R should equal the total population, we can relax that assumption here, given that a subset of the population might never have been at risk (so they start out in the recovered part of the population from the outset), as a significant number of people do not invest, and even those who invest might have steered clear from the (rather risky) bets that were being made during the GSS. 11 https://frontpagemetrics.com/r/WallStreetBets. 12 It was not only hedge funds and short sellers that paid the price. Several of the YOLO investors participating in the short squeeze also had to endure significant losses when the price appreciation reversed. 13 Nelson v. Robinhood Financial LLC, No. 1:21-cv-00777-JMF.

References Azar, P. D., & Lo, A. W. (2016). The wisdom of Twitter crowds: Predicting stock market reactions to FOMC meetings via Twitter. Journal of Portfolio Management, 42(2), 123–134. Barber, B. M. &  Odean, T.  (2008).  All that glitters: The effect of attention and news on the buying behavior of individual and institutional investors. Review of Financial Studies, 21, 785–818. Boehmer, E., Jones, C. M., Zhang, X., & Zhang, X. (2021). Tracking retail investor activity. The Journal of Finance, 76(5), 2249–2305. Braouezec, Y., & Wagalath, L. (2019). Strategic fire sales and price-mediated contagion in the banking system. European Journal of Operations Research, 274(3), 1180–1197. Carvalho, A. M., & Gonçalves, S. (2016). An Algebraic solution for the Kermack-McKendrick model. https://arxiv.org/abs/1609.09313 Chernenko, S., & Sunderam, A. (2020). Do fire sales create externalities? Journal of Financial Economics, 135(3), 602–628. Chohan, U. W. (2021). Counter-hegemonic finance: The Gamestop squeeze. Critical Blockchain Research Initiative Working Papers. CBRI. Chohan, U. W. (2022). The return of Keynesianism? Exploring path dependency and ideational change in post-covid fiscal policy. Policy and Society, 41(1), 68–82. De Long, J. B., Schleifer, A., Summers, I. H., & Waldmann, R. J. (1990). Noise trader risk in financial markets. Journal of Political Economy, 98(4), 703–738. Evans, A. D. (2009). A requiem for the retail investor. Virginia Law Review, 95(4), 1105–1129. Gambetti, E., & Guisberti, F. (2012). The effect of anger and anxiety traits on investment decisions. Journal of Economic Psychology, 33(6), 1059–1069. Jotikasthira, C., Lundblad, C., & Ramadorai, T. (2012). Asset fire sales and purchases and the international transmission of funding stocks. Journal of Finance, 67(6), 2015–2050. Kahneman, D., & Riepe, M. W. (1998). Aspects of investor psychology. Journal of Portfolio Management, 24(2), 52. Kermack, W. O., & McKendrick, A. G. (1927). A contribution to the mathematical theory of epidemics. Proceedings of the Royal Society, 115(772), 701–721. Klein, T. (2021). A note on GameStop, short squeezes and autodidactic herding: An evolution in financial literacy?. Finance Research Letters, 46, 102229. Kraaijeveld, O., & De Smedt, J. (2020). The predictive power of public Twitter sentiment for forecasting cryptocurrency prices. Journal of International Financial Markets, Institutions and Money, 65, 101188. Long, C., Lucey, B., & Yarovaya, L. (2021). “I just like the stock”, versus “Fear and Loathing on Main Street”: The role of Reddit sentiment in the GameStop short squeeze. SSRN.

114  Sven Van Kerckhoven and Sean O’Dubhghaill Lyócsa, S., Baumöhl, E., & Výrost, T. (2022). YOLO trading: Riding with the herd during the GameStop episode. Finance Research Letters, 46, 102359. Olson, M. (1965). The logic of collective action: Public goods and the theory of groups. Harvard University Press. Schiller, R. J. (2019). Narrative economics: How stories go viral and drive major economic events. Princeton University Press. Spirou, S. (2013). Herding in financial markets: A review of the literature. Review of Behavioral Finance, 5(2), 175–194. Tetlock, P. C. (2007). Giving consent to investor sentiment: The role of media in the stock market. Journal of Finance, 62(3), 1139–1168. Umar, Z., Gubareva, M., Yousaf, I., & Shoaib, A. (2021). A tale of company fundamentals vs sentiment driven pricing: The case of GameStop. Journal of Behavioral and Experimental Finance, 30, 100501. Umar, Z., Yousaf, I., & Zaremba, A. (2021). Comovements between heavily shorted stock during a market squeeze: Lessons from the GameStop trading frenzy. Research in International Business and Finance, 58, 101453. Van der Beck, P., & Jaunin, C. (2021). The equity market implications of the retail investment boom. Paper No. 21–22. Swiss Finance Institute Research. Van Kerckhoven, S., & O’Dubhghaill, S. (2021). Gamestop: How online “degenerates” took on hedge funds. Exchanges: The Interdisciplinary Research Journal, 8(3), 45–54. Wouters, J., & Van Kerckhoven, S. (2011). The EU’s internal and external regulatory actions after the outbreak of the 2008 financial crisis. European Company Law, 8(5), 201–207.

8 The Behavioral Biases of Cryptocurrency Retail Investors Lessons from ICOs Frédéric Tronnier1, Peter Hamm2, and David Harborth3 Introduction In the middle of 2017, a true worldwide gold-rush arose in the area of cryptocurrencies. The rapid increase in the prices of Bitcoin and other cryptocurrencies not only dominated the media landscape but also led to a higher awareness of cryptocurrencies among the population. Retail investors speculated— seemingly lacking any understanding or awareness of the risk involved—with cryptocurrencies in pursuit of fast and high returns, hoping that this would give them access to potentially disrupting companies and technologies. In addition to buying well-known currencies such as Bitcoin on relatively established crypto exchanges, new tokens that were introduced in the cryptoecosystem, through so-called initial coin offerings (ICOs) gathered substantial interest. The ICO is the first public offering of a crypto token (Chohan, 2019), which allows retail investors to come on board, similar to an initial public offering (IPO) at the stock market. The fundraising company then offers newly created tokens in exchange for fiat currency or for existing cryptocurrencies to fund the financing of the company (see Fridgen et al., 2018). In 2014, the cryptocurrency Ethereum raised money through a specific ICO process which became the technological standard for future ICOs. ICOs became known to the wider public in 2017 with the strong increase in Bitcoin and other token prices (Adhami et al., 2018) raising about $11.4 billion in 2018 with the United States ranking first, both in total number of ICOs and in the amount raised (Pozzi, 2019). In contrast to other asset classes and funding methods, ICOs are hardly regulated and thus posed legal uncertainty for investors, who face increased fraud potential. Comparisons can be drawn here to Special Purpose Acquisition Vehicles (SPACs) which have also gathered increasing traction in recent years as an easy way to list a company on the stock exchange. While the ICO-operating companies are looking for investors and therefore act more or less transparent and provide—sometimes falsified (Hornuf et al., 2022)—information, there is, to the best of our knowledge, hardly any information about the investors they attract, their motivation, and their investment behavior. Research on ICOs is mainly being conducted from a regulatory DOI: 10.4324/9781003351085-10

116  Frédéric Tronnier, Peter Hamm, and David Harborth

perspective (Dell’Erba, 2017; Chohan, 2019) or in order to evaluate investment performance (Chanson et al., 2018). Only Fisch et al. (2019) are focus on ICO investors and find that technological motives are more important for investors than financial or ideological motives, although investors are found to be a highly heterogeneous group. More research is not only needed due to the sheer size of the market (see also Chapter 14 in this volume), but also to provide insights on market participants and to inform regulatory practices that could help to protect retail investors from potential frauds and scams. In this chapter, we study retail investors’ satisfaction with their investments and evaluate whether retail investors exhibit behavioral biases (BB) that influence their satisfaction, potentially leading to non-optimal investment decisions. Additionally, we investigate whether investors exhibit specific personality traits (PT) that might foster BB. Such analyses may enable investors to become aware of potential biases and critically reflect on their investment behavior. Therefore, the research question is the following: How do behavioural biases and personality traits influence the satisfaction of retail investors with their ICO investment? Section 2 introduces the heuristics and biases that influence investor behavior, the decision-making process of investors, as well as potential effects of these biases on investment. Section  3 elaborates on personality traits and the link toward investment-specific results. The methodology of this work, a quantitative survey, is outlined in Section 4. The analysis of the results is subsequently described in Section  5 and discussed in Section  6. Section  7 then links the insights generated from this work toward the main topic of this volume, meme stocks and the investment behavior of retail investors for comparable (new) asset classes. Lastly, Section 8 concludes this chapter, with Section 9 pointing out the limitations and opportunities for future work.

Heuristics and Biases Behavioral finance emerged as a response to the traditional economic theory of the rational investor (Wahren, 2009) and the efficient market hypothesis (EMH) developed in 1970 by Eugene Fama. The EMH requires agents to make rational decisions, meaning new information is complete, processed correctly, and that choices and behavior are normatively correct and reflected immediately in the valuation of the underlying asset (Fama, 1970). However, as empirical evidence demonstrates, individuals do not generally behave rationally and their actions, often based on heuristics, are not optimal as information is not correctly interpreted and acted upon (Barber & Odean, 2013). Heuristics are defined as rules or strategies to process information without requiring great effort which lead to fast but not necessarily optimal results (Goldberg  & Von Nitzsch, 2004). These heuristics, also called biases, are being studied in behavioral finance to determine how and why individuals make certain suboptimal financial decisions (Daxhammer  & Facsar, 2017).

The Behavioral Biases of Cryptocurrency Retail Investors 117

In cryptocurrencies for instance, emotional trading was found to be associated with Bitcoin trading volume and return volatility but not with future Bitcoin returns (Ahn & Kim, 2021). In this study, we assess the impact of such biases for retail investors that invest in ICOs. Many heuristics and biases interact with each other, making their identification and categorization difficult. However, the literature roughly differentiates between a set of heuristics and biases summarized in Table 8.1. Table 8.1 Heuristics and Biases from the Behavioral Economics and Finance Discipline Description Availability bias (A)

Herding behavior (H) Representativeness bias (R)

Mental accounting (M)

Overconfidence bias (O)

Confirmation bias (C)

Disposition bias (D)

Definition: Information that is not readily available will be neglected in the decision-making process; instead, individuals remember information from their personal experience, preferences, or recent events (Tversky & Kahneman, 1974) Outcome: Systematic misjudgment of probabilities and a distortion of perception by the individual (Tversky & Kahneman, 1974) Definition: Herding can be described as “buying (selling) simultaneously the same stocks as others buy (sell)” (Lakonishok et al., 1992, p. 23) Outcome: Non-optimal decision-making and excessive trading Definition: Probabilities are subjectively assessed. It is defined as “a tendency to assess the similarity of outcomes, instances and categories on relatively salient and even superficial features, and then to use these assessments and similarity as a basis of judgement” (Gilovich, 1991, p. 18) Outcome: Misjudgment of probabilities. Individuals tend to evaluate the future performance of a stock based on its historical performance, disregarding other variables Definition: Individuals categorize their assets depending on their purpose, investment time frame, or source of income (Pompian, 2006; Thaler, 1999). Through mental accounting, the different investments are separated or integrated mentally into one another to maximize the perceived joy about their investment decisions Investment-specific result: Non-optimal investment decisions and a decrease in diversification Definition: Individuals are more confident in their own abilities, knowledge, or judgment than what is objectively accurate Outcome: A lack of planning and the tendency to invest into assets that they know too little about (Belsky & Gilovich, 2010). In IPOs, overconfidence is found to be associated with negative returns for retail investors (Neupane & Poshakwale, 2012) Definition: Tendency to only confirm one’s beliefs regardless of whether these beliefs are objectively true or not (Armstrong & Plous, 1994) Outcome: The individual exclusively searches for additional information that supports his own hypothesis and avoids evidence that would contradict their belief in order to find support for past decisions and to avoid emotional “pain” due to wrong decisions (Albarracín & Mitchell, 2004) Definition: Investors are risk averse when it comes to profits and risk seeking when it comes to losses (Shefrin & Stratman, 1985) Outcome: People value gains differently than their losses, selling profitable assets too early and holding non-profitable assets for too long (Kahneman & Tversky, 1979)

118  Frédéric Tronnier, Peter Hamm, and David Harborth

In this chapter, we hypothesize that ICO retail investors are subject to all of these biases.

Personality Traits Personality is described as the characteristic patterns and differences of thinking, feeling, and behaving of individuals (Encyclopedia of Psychology, 2000). While individuals differ in their personality, certain traits or dimensions of personality are measured and defined in order to study the difference in individuals and personality types. The Big Five personality traits defined by Norman (1963) are among the most popular in academic research. In Table 8.2, we define the five traits—openness, extraversion, agreeableness, neuroticism, and conscientiousness—and assess their links to investment-specific behavior. Table 8.2  Personality Traits and Their Relation to Financial Behavior Description Openness (OP)

Extraversion (EV)

Agreeableness (AG)

Neuroticism (NE)

Conscientiousness (CC)

Definition: Openness relates to general curiosity, an interest and appreciation to new experiences, emotions, art, adventures, and new ideas (Costa & McCrae, 1992) Investment-specific result: Openness is linked to high-risk acceptance in successful professional traders (Fenton-O’Creevy et al., 2011) and in long-term investing (Mayfield et al., 2008) Definition: Extraversion describes the tendency to be outgoing and sociable (John & Srivastava, 1999). Individuals that score high on extraversion may seek the attention of others Investment-specific result: Extraversion is linked to short-term investing (Mayfield et al., 2008) and to overconfidence (Durand et al., 2013) Definition: Agreeableness is seen as being compassionate and trusting toward other people. A low score on agreeableness may show competitive behavior Investment-specific result: Agreeableness is found to be related to risk aversion (Dohmen et al., 2011) and associated with a decreased likelihood of investing in higher risk investments, for example, shares (Brown & Taylor, 2014) Definition: Neuroticism is the tendency to experience negative emotions and being stressed out easily. Low scores on neuroticism relate to a high control over the individual’s emotions Investment-specific result: Oehler et al. (2018) found that neuroticism in business students leads to a less risky investment portfolio. Similarly, high neuroticism is linked to being less able to manage money (defined as budgeting, saving, and investing) compared to highly conscientious individuals (Donnelly et al., 2012) and is linked to frequent trading (Durand et al., 2013) Definition: Conscientiousness describes the tendency to be orderly, responsible, and dependable (John & Srivastava, 1999) Investment-specific result: Donnelly et al. (2012) showed that conscientious individuals have a more positive financial attitude and future orientation

The Behavioral Biases of Cryptocurrency Retail Investors 119

Personality traits have been used in behavioral finance to find and explain differences in the financial behavior of individuals. Durand et al. (2013) studied the relationship of investor behavior and personality and found that “personality is the wellspring of investors’ behaviour.” Rizvi and Fatima (2015) showed in an exploratory study that all personality dimensions had a significant impact on stock market investment and linked them to sociodemographics. Personality traits are not completely separated from each other and various correlations between traits exist (Gnambs & Batinic, 2012). In this work, we aim to investigate personality traits of ICO retail investors to investigate whether personality traits of individuals investing in an ICO differ from those of more prudent investors. Moreover, we aim to analyze whether personality traits influence behavioral biases and ultimately affect investor satisfaction. While we hypothesize that behavioral biases have a negative influence on investor satisfaction, such a hypothesis cannot easily be assessed for personality traits given their interconnectedness. Thus, we rather aim to explore whether there exists a link between personality traits and biases and the effect of personality traits on investor satisfaction.

Methodology We conducted a quantitative online survey in order to obtain information on retail investors’ investment behavior in ICOs as well as their personality traits. To avoid cluster risk within the group of individuals who have invested in at least one ICO, a questionnaire was published in various online communities on different platforms, including Reddit, Facebook, LinkedIn, and forums such as Bitcointalk.org over the course of January 2019. We aimed to find respondents who have already invested in at least one ICO, thus targeting our survey at specific groups in forums, on Facebook or on LinkedIn that focus on ICOs specifically. We further questioned respondents’ knowledge of cryptocurrencies, ICOs, and their process of gathering information before conducting an investment. We adapted the questions for behavioral biases (BB) from existing behavioral finance literature (Pompian, 2006) as well as from literature focused on the investment behavior of equity investors (Alrabadi et  al., 2018; Anum et  al., 2015; Chandra & Kumar, 2011; Mishra & Metilda, 2015). Questions originally designed for stock market investments by Alrabadi et al. (2018) regarding the seven BBs have been adapted to ICO investments and were redesigned based on the information on BB seen in Table 8.1. Due to the seven biases that are tested and the many different facets of each bias, each item tested for one specific aspect of a bias, with three or two questions per bias. This is best explained by looking at the overconfidence bias (O) that was tested for using three items. Item O1 (“I feel that I can, on average, predict future token prices worse than others”) tests for the “better than average” effect, while the remaining two items on this bias test for the “illusion of control” (O2: “I attribute my investment success to my knowledge and understanding of

120  Frédéric Tronnier, Peter Hamm, and David Harborth

the crypto market”) effect. Both effects are summarized in the overconfidence bias and have been studied in previous surveys (Glaser & Weber, 2007). Personality traits were surveyed using the enlarged BFI-10 test by Rammstedt and John (2007) that consists of two questions per personality trait, except for agreeableness which contains three items. The BFI-10 has been used extensively and provides significant levels of reliability and validity. The average per bias and trait was then calculated based on the average of the items per bias. Lastly, we surveyed the perceived investment satisfaction of all respondents.

Results A total of 540 persons started the survey, of which 327 successfully completed the survey, accounting for repeat participation and control questions. Only respondents who participated in at least one ICO were considered. Of these 327 respondents, not all participants answered each question, for example, the age or country of origin were not mandatory to fill out in order to increase the level of anonymity of respondents. We measured personality traits and biases through a 5-point Likert scale.4 Descriptive Results

Table 8.3 shows the demographics of our sample. The overwhelming majority of respondents was male with a mean age of under 32, which is in line with findings by Agarwalla (2018) on cryptocurrency users and the fact that especially young men are empirically less risk averse in their investment behavior ( Jianakoplos & Bernasek, 1998). The majority of respondents originated from European countries: 76.4% of respondents hold a university degree, making the surveyed group of investors a highly educated group of individuals; 25.6% of respondents have invested in one ICO, 43.5% in two to four ICOs and the remaining 30.9% in more than five ICOs. Respondents overwhelmingly Table 8.3  Descriptive Statistics on Retail Investors Sex

#

%

Continent

#

%

Male Female No answer Age Minimum Maximum Mean N

304 11 12

93% 3.4% 3.7%

Europe Asia and Oceania Africa North America South America Education No school degree High School Bachelor’s Master’s Ph.D., MBA, or equivalent

197 46 14 63 3

60.2% 14.1% 4.3% 19.3% 0.9%

8 69 129 105 16

2.4% 21.1% 39.4% 32.1% 4.9%

17 59 31.88 322

The Behavioral Biases of Cryptocurrency Retail Investors 121

perceived ICOs to be a high-risk investment (Mdn = 5, M = 4.65, SD = .634) on a 5-point Likert scale. Personality Traits and Behavioral Biases of ICO Retail Investors

In this study, personality is tested by using the BFI-10 test, introduced by Rammstedt and John (2007), consisting of 11 questions that provide substantial reliability and validity. It can be seen in Table  8.4 that, among all respondents, conscientiousness is the personality type most pronounced (mean equals 3.57), closely followed by agreeableness and openness. Neuroticism is the least pronounced personality type by far. Several correlations between traits can be observed, similarly to findings made by Gnambs and Batinic (2012). Interrelation between biases has been found in behavioral finance by Agrawal (2012) who found that biases may reinforce each other. Using Friedman’s chi-square as a reliability analysis, a statistically significant difference between the personality traits (PT) can be seen, χ2(4) = 165.43, p < .001. Similarly, a statistically significant difference between the BB can be seen, χ2(6) = 423.59, p < .001. Additionally, we compare the distributions between each PT with a list of biases via Pearson’s χ2 test. The results are shown in Table 8.5. A significant relationship with at least one personality trait can be shown for all BB with traits except for disposition and representativeness bias. Mental accounting demonstrated a relationship with extraversion, while herding, overconfidence, conscientiousness, and availability bias all demonstrated a significant relationship with at least two personality traits. Overall, every trait was associated with two biases. Thus, endogeneity, for instance, through

Table 8.4 Descriptive Statistics and Correlations on Personality and Biases Traits

Total

Mean

Std. Dev.

OP EX CC

OP EX CC NE AG

301 301 301 301 301

3.45 3.11 3.57 2.56 3.50

.89 .96 .80 .94 .75

1

.06 .107 −.112 .003 1 .148* −.240** .037 1 −.205** .110 1 −.149** 1

Biases

Total

Mean

Std. Dev.

O

C

O C D R A M H

327 327 327 327 327 327 327

3.66 2.93 2.91 2.74 3.00 3.22 2.55

.61 .64 .63 .59 .68 .72 .84

1

,02 ,08 ,01 1 −,05 .09 1 −.10 1

*

Pearson correlation is significant at the 0.05 level. Pearson correlation is significant at the 0.01 level.

**

D

NE

R

AG

A

M

H

−.08 .05 −.095 .17** 1

−.07 −.07 .05 .05 .04 .37 .13* .20* .13* .26** 1 .19** 1

Biases Traits

Overconfidence

Confirmation

Disposition

Representativeness

Availability

Mental Accounting

Herding

OP

χ2 (72) = 91.02, p = .065 χ2 (72) = 72.76, p = .45 χ2 (72) = 90.07, p =.073 χ2 (72) = 108.93, p = .003* χ2 (99) = 131.14, p = .017*

χ2 (96) = 136.5, p = .004* χ2 (96) = 117.8, p = .065 χ2 (96) = 125.1, p = .025* χ2 (96) = 97.6, p = .44 χ2 (132) = 138.75, p = .33

χ2 (80) = 70.92, p = .76 χ2 (80) = 93.9, p = .14 χ2 (80) = 65.28, p = .88 χ2 (80) = 87.91, p = .26 χ2 (110) = 97.63, p = .8

χ2 (80) = 81.39, p = .44 χ2 (80) = 92.65, p = .16 χ2 (80) = 96.2, p = .11 χ2 (80) = 89.7, p = .22 χ2 (110) = 113.45, p = .39

χ2 (96) = 81.16, p = .86 χ2 (96) = 130.30, p = .011* χ2 (96) = 145.58, p = .001* χ2 (96) = 100.88, p =.35 χ2 (132) = 189.53, p = .001*

χ2 (88) = 87.1, p = .51 χ2 (88) = 117.04, p = .02* χ2 (88) = 72.56, p = .88 χ2 (88) = 76.82, p = .80 χ2 (121) = 117.12, p = .58

χ2 (64) = 90.99, p = .02* χ2 (64) = 72.5, p = .22 χ2 (64) = 58.27, p = .68 χ2 (64) = 88.63, p = .023* χ2 (88) = 100.84, p = .17

EX CC NE AG

122  Frédéric Tronnier, Peter Hamm, and David Harborth

Table 8.5  Chi-square Analysis on Behavioral Biases and Personality Traits

The Behavioral Biases of Cryptocurrency Retail Investors 123

omitted variables or simultaneity, needs to be stated as a possible limitation of this work that calls for further work on the intricate interplay of behavioral biases and personality traits. However, Cronbach’s Alpha demonstrated an unacceptable value below .6 (Peterson, 1994) expect for extraversion, indicating low consistency between items of the same construct. We decided to employ averages of the individual items to calculate traits and biases to avoid overfitting and selection bias. Analysis of Investor Satisfaction for ICO Investments

Investor satisfaction is defined by Rutkowska (2015) as the comparison of an individual’s expectations to the perceived performance of an investment, representing a special type of utility function. We ran a multivariate regression analysis of the surveyed perceived investor satisfaction on the average of each BB while controlling for PT to assess whether BB influences the satisfaction of investors with their ICO investment (Table 8.6). This regression yielded an adjusted R2 of 0.1075, indicating a moderate exploratory power of the regression. None of the traits are significant, while overconfidence is highly statistically significant with p < 0.01, and both disposition and confirmation bias are significant with p-values around 0.03. The regression equation was the following: Yi = b0 + b1EX i + b 2 AGi + b3CC i + b4 NEi + b5OPi + b6Oi + b 7 Ri + b8 Ai + b9 Di + b100C i + b11M i + b12 H i

Discussion Results in Cronbach’s Alpha indicate that there is low to no interrelation between questions measuring the same behavioral bias, as well as low Table 8.6  Regression of Average BB and Traits on Retail Investor Satisfaction in ICOs

(Constant) Extraversion Agreeableness Conscientiousness Neuroticism Openness Overconfidence Representative Availability Disposition Confirmation Mental accounting Herding

Coefficient

Std. Error

T

Sig.

1.2363 0.1113 0.1201 0.0793 −0.1453 0.0194 0.3220 0.1946 −0.1479 0.2368 −0.2408 0.0139 −0.0589

0.9505 0.0741 0.0917 0.0868 0.0757 0.0767 0.1171 0.1158 0.1035 0.1086 0.1105 0.0980 0.0841

1.3010 1.5020 1.3100 0.9140 −1.9190 0.2530 2.7500 1.6820 −1.4290 2.1810 −2.1780 0.1420 −0.7010

0.1944 0.1341 0.1913 0.3612 0.0559 0.8005 0.0063** 0.0937 0.1540 0.0300* 0.0302* 0.8872 0.4842

124  Frédéric Tronnier, Peter Hamm, and David Harborth

interrelation between questions per personality type. Several possible explanations for this finding are discussed in the following section. The items on behavioral biases have been adapted from prior research on stock market investments in which good, or very good, Alphas were found. As the questions were only adapted and have been verified by scientific literature in order to ensure that each question is concerned with a particular aspect and behavior of a bias, the resulting low Alphas from this survey are surprising. The fact that questions on personality traits, which were extensively proven to be interrelated, also demonstrated low Alphas indicate that there might not have been enough questions to achieve sufficiently high Alphas. Second, many questions measure different sub-biases or subaspects of one bias. Additionally, it has been shown that behavioral biases interact with each other and behavior patterns can be attributed to multiple different biases (see Daxhammer & Facsar, 2017, p. 253). Moreover, the interrelatedness of BB and PT can skew the results. Tronnier et  al. (2020) evaluate this in more detail using principal component analysis (PCA) in a prior work. In a direct comparison to Kubilay and Bayrakdaroglu (2016), who studied the relationship between PT and BB in Turkish retail investors in stocks, we only find similar results in the significant relationship between agreeableness and availability bias, as well as agreeableness and overconfidence. The authors identified several significant relationships that have not been significant in our study. These include representativeness with extraversion and agreeableness and extraversion with overconfidence. However, as ICOs are a very high-risk investment that may appeal to specific types of investors, the differences in findings might be explained through the unique personality type of those investors. The multivariate regression shows that the disposition, confirmation, and overconfidence biases demonstrate a statistically significant effect on satisfaction. As BB generally led to a non-optimal investment performance, it was expected that BB lead to a decrease in satisfaction. While satisfaction increases with an increase in disposition and overconfidence bias, it decreases with an increase in confirmation bias. To evaluate these findings, it is crucial to put the results into context with the general market environment of cryptocurrencies. The surveys took place in the month of January of 2019, which together with the preceding month saw most of the large cryptocurrencies at a two-year low after an unprecedented rally at the end of 2017. While ICOs are oftentimes highly illiquid, it is reasonable to assume they generally follow the direction of the larger crypto market, which would imply that a majority of retail investors into ICOs suffered losses at the time they answered the questions. Confirmation bias leads investors to seek out information that confirms their investment decision and avoid information that would contest that decision. As token prices had strongly and quickly decreased in 2018, confirmation bias is likely to have encouraged investors to hold onto their investments, instead of selling them, despite new knowledge becoming available for investors to process.

The Behavioral Biases of Cryptocurrency Retail Investors 125

This behavior has widely been encouraged in the crypto-ecosystem through the “HODL” trend (see also Chapter 7 in this volume), whereby online community members encourage each other to hold onto their investments in the hope of strong price increases as experienced in earlier years. This behavior is similar to findings made by Park et al. (2012) who identified confirmation bias on stock message boards. Holding on to their investments, and ignoring a declining market, driven by news of scams and regulatory changes, such as prohibition of ICOs in certain countries, is likely to have left investors with investments deep in the red. Thus, confirmation bias is found to be associated with a decrease in satisfaction likely because investors held on to their investments for too long, which is in line with the findings stated in Table 8.1. This behavior also explains the results for the disposition bias which seem surprising at first. While disposition bias normally leads to suboptimal investment results, it might have been beneficial for ICO investors. Disposition bias leads investors to sell winners too early and hold losers too long as investors are generally risk averse when their investments fall into the profit zone and take more risks when they fall into the loss zone. Therefore, investors who made a quick profit with their ICOs and who are influenced by the disposition bias might have sold their investments profitably, avoiding the worsening market environment in the latter half of 2018. These investors can thus be expected to be satisfied with their investment performance. As a result, investors who made a profit are likely to become more overconfident due to the self-attribution bias. While profits are attributed to one’s own actions, losses are attributed to someone else, that is, market conditions. The fact that confirmation and disposition bias show reverse trends is therefore explainable through the nature of the biases themselves as well as the market cycle and the general sentiment in the ICO community. Additionally, an increase in satisfaction through an increase in overconfidence bias was found. An explanation for this phenomenon may be the causality behind this specific bias. This could not be investigated further as no time-series data of the individual investors’ performances was available. It is possible that investors who experienced high returns on their investments grew more confident. This could have led to them attributing their success to their own actions, in line with scientific findings on the bias (see Moore & Schatz, 2017; Odean, 1998). Overconfidence was especially present in men, as expected from earlier research (Barber & Odean, 2001). Additionally, it is increased by confirmation bias (Park et al., 2012). Lastly, overconfident investors might generally be more satisfied with their investment performance even in adverse situations as they assume their performance to be better compared to other investors or other investments, regardless of whether this is actually the case. These findings demonstrate that some behavioral biases, unexpectedly and likely unforeseen by investors, may have helped investors with their investment

126  Frédéric Tronnier, Peter Hamm, and David Harborth

returns while others are associated with a decrease in satisfaction with the investment. Considering the wealth of literature establishing a link between general satisfaction and personality traits (Diener & Lucas, 1999), it is notable that in our regression no personality trait significantly predicts investment satisfaction, with only neuroticism even breaking below a significance level of 10% with an expected negative sign. This shows that behavioral biases offer explanatory power for investor satisfaction beyond potentially underlying personality traits, and that satisfaction with investment performance is not simply a result of generally high life satisfaction.

Impact on Other YOLO Investment Classes In this section, we aim to relate the findings of our analysis to other nontraditional assets, such as meme stocks. The findings in this work might not only contribute to a better understanding of ICO retail investors but might also be adaptable toward retail investors who invest in comparable YOLO assets or during specific events such as the recent GameStop short squeeze which saw retail investors drive multiple stocks to extensive heights in 2021 (Hasso et al., 2021; Stiebel, 2021). More specifically, we argue that the ICO craze of 2018/2019 was not a singular phenomenon but part of a still occurring shift in investment behavior of retail investors that is linked to the emergence of new markets. Starting with the first waves of strong increases in Bitcoin and other cryptocurrency prices in 2017, 2018, and again in 2021, cryptocurrencies became a topic that received widespread media attention. Retail investor attention shortly shifted toward ICOs, looking for quick return. Following a strong decline in cryptocurrency prices before and during the beginning of the Covid-19 pandemic, both cryptocurrencies and stock prices reached new heights. These occurrences were accompanied by the emergence of new developments in the blockchain market (see also Chapter 3 in this volume), the emergence of nonfungible tokens (NFTs, see Chohan, 2021a), and decentralized finance (DeFi, see Chohan, 2021b). Both new markets demonstrated bubble-like behavior, although both do possess some intrinsic value (Lucey et al., 2022). In particular, retail investors used the Covid-19 pandemic to invest into various asset types, using the market crash as an entry point. This increase in retail investor activity was facilitated through easy-to-use and commission-free trading applications, such as Robinhood in the United States (Pagano et al., 2021), on which individuals who were often new to the market can (now) trade both cryptocurrencies and stocks. When looking at these markets, the question arises whether cryptocurrency and ICO retail investors are the same individuals who later on contributed to the meme stock frenzy. Indeed, initial research has already demonstrated a spillover effect between Bitcoin and meme stocks (Frankovic et al., 2021; Li, 2022). While to the best of our knowledge, no research has yet verified that cryptocurrency, ICO, and meme stock investors are the same individuals or even share similar personality traits, there are indications for a link between

The Behavioral Biases of Cryptocurrency Retail Investors 127

these asset types. Initial research finds price co-explosivity among meme stocks and cryptocurrencies, although correlation between the stock market and cryptocurrencies has been low in the past (Aloosh et al., 2022). Again, correlation between these two markets, and by association also between ICO and meme stock investors, could have now increased as retail investors are now able to invest into multiple asset types on the same trading platforms, such as commission-free Robinhood with ease. Through social media, individuals can connect with each other, discuss investment strategies, and even take concentrated actions such as the buying and holding of a stock (see Chapters 4, 6, and 7 in this volume). High-risk circumstances, with assets that demonstrate extreme volatility, might attract investors with comparable personality traits, given their risk appetite, which could then also be subject to similar behavioral biases. When looking at the general demographics of investors we find that they are comparable between these two markets. For cryptocurrencies, Sudzina and Pavlicek (2019) find in a survey that individuals who have used or bought cryptocurrency score higher on openness and are more likely to be male than respondents that have no cryptocurrency experience. Another study finds cryptocurrency investors to be male, novice investors (eToro, 2018). Research also demonstrated the existence of herding behavior in the cryptocurrency market (Bouri et al., 2019). Jalal et al. (2020) find herding behavior in times of high market activity by studying index returns but did not test for biases directly. For meme stocks, Hasso et al. (2021) profiled retail investors and found that GameStop investors had already demonstrated high-risk investment behavior, such as cryptocurrency investments and investments in “lottery-like” stocks. Investors were found to be young and, on average, male. Using brokerage data, the authors also noted that investors were more likely to close their positions before the burst of the bubble. These results are similar to the results in our study as the majority of ICO investors were also found to be male, rather young, and aware of the level of risk of their investment. Such successful behavior, likely selling with a profit before the peak, may also contribute to overconfidence bias, a phenomenon that was outlined for ICO investors in the prior section of this work. Overconfidence bias was attributed to GameStop investors in other work as well (Rosato, 2021). The GSS was mostly investigated not by surveying individual investors but rather by focusing on the social dynamics of the phenomenon. The collective behavior was analyzed using sentiment and network analysis, finding that information can be spread efficiently using Reddit as a platform, with diverging sentiment among users (Zheng et al., 2022). The presence of herding behavior (Aloosh et al., 2021; Klein, 2022; Lyócsa et al., 2022; Lyu et al., 2021; Stiebel, 2021) and confirmation bias (Pedersen, 2022) was also mentioned in other research that utilized sentiment and Google search data analysis (see also Chapter  7 in this volume). Stiebel (2021) did establish that individuals’ demonstrated herding behavior based on the money inflow in GameStop stock at a particular point in time that correlates with high

128  Frédéric Tronnier, Peter Hamm, and David Harborth

activity in forums in which investors discuss the stock. This herding effect is also titled the “bandwagon” (Rahadi et al., 2022). The authors describe the occurrences in 2021 as a unique phenomenon, while others even call it a social movement (Schou et al., 2022; see also Chapters 11 and 13 in this volume). The similarities to investors in other asset classes might not automatically extend toward investment behavior and behavioral biases. While there exist first findings that depict overconfidence and confirmation bias in GSS participants that could also be identified in this work for retail ICO investors, herding behavior demonstrated the lowest mean of all biases in this work and does not significantly influence investment satisfaction in ICO investors. While it might be hypothesized that herding behavior was present in the ICO market based on the money inflow in ICOs, this survey was not able to confirm this hypothesis. Several potential reasons for these results can be identified. First, compared to the GameStop frenzy in 2021, ICOs received less media attention. Additionally, countless ICOs were conducted at the same time, while the rise in GameStop stock price was only accompanied by a lesser increase in prices of a couple of other stocks that also received significantly less media attention. Moreover, investing in an ICO remained a much more technical procedure. While some companies raised money using both cryptocurrencies and traditional currency for their ICOs, others only allowed for cryptocurrency investments. For the GameStop stock, any individual with a brokerage account was able to buy and sell the stock, greatly increasing the potential number of participants in a herding situation. Lastly, many retail investors only started investing during the Covid-19 pandemic after the ICO craze had already ended, enabled through the emergence of the aforementioned applications that offered high usability. This wave of new investors might have also influenced the overall characteristics of retail investors. New investors could be less knowledgeable, viewing their investments as something akin to gambling (Greifeld  & Ballentine, 2021), or become more knowledgeable as the subject of investing itself has received more attention. While the aforementioned discussion indicates that there exist at least some differences between meme stock and cryptocurrency investors, both seem to differ similarly and strongly from the “traditional” retail investor of the past. The work of Kubilay and Bayrakdaroglu (2016) demonstrated different relationships between personality traits and behavioral biases of “traditional” stock market investors than what was identified in this work. Similarly, Keller and Scholz (2019) showed that Bitcoin investor behavior differs significantly from traditional investors. We therefore join the call of Delfabbro et al. (2021), who call for further research on the role of biases and emotions in non-traditional investment types, be it cryptocurrencies or meme stocks. Overall, this work demonstrates that behavioral biases influence investment satisfaction and therefore also investment behavior, although the identified relationship cannot be seen as causal. Depending on the circumstances and biases, some biases could even lead to positive investment outcomes as they influence

The Behavioral Biases of Cryptocurrency Retail Investors 129

individuals to buy, sell, or hold their assets for a normally non-optimal time period. This could also have been the case for GameStop investors who drove prices of the stock upward by buying and holding the stock. More research should be conducted on biases in comparable instances to further investigate this kind of investment behavior as well as their relationship with personality traits of the investors.

Conclusion This chapter provides a first study into ICO investors and their investment behavior and personality traits. First, evidence was provided that retail investors exhibit several behavioral biases that influence their self-attributed satisfaction with their investments in the past. Biases could actually be attributed to an increase in satisfaction, likely due to the timing of the ICO bubble. Using multiple linear regressions, evidence of behavioral biases in retail investors’ investment behavior could be found. Overconfidence, disposition, and confirmation bias could be shown to have a significant effect on investment satisfaction on an aggregated bias level. Although it was hypothesized that susceptibility to behavioral biases leads to a decrease in satisfaction, it was shown that specific biases are in fact positively associated with investment satisfaction, namely, overconfidence and disposition bias, and that different biases interact with each other. Possible reasons for this investment behavior include the very specific personality traits of ICO investors as well as the unique circumstance of this study being conducted right after the burst of the ICO bubble. Investors who were influenced by behavioral biases to sell their assets early, that is, disposition bias, of course ended up being much more satisfied than investors who decided to hold onto their assets for longer than was optimal, that is, due to confirmation bias. The insights generated in this chapter are of value to researchers and practitioners that study retail investor behavior as the results could be adapted toward different asset classes and investment circumstances. We find that some of the biases investigated in this work, namely, confirmation bias, herding behavior, and overconfidence bias, are likely to also be present in meme stock investors, presumably as investors of both asset classes shared similar demographics and possibly also personality traits. The knowledge about one’s behavior and the existence of behavioral biases in the context of investment decisions might help retail investors to avoid mistakes and increase both their satisfaction and their return on investment. Although self-knowledge about one’s biases might not be enough, it can be a first step to develop processes and checklists for controlled decision-making (see Kahneman et al., 2011). Regulators and researchers need to consider biases and personality traits, as new services and markets are attracting especially younger and inexperienced investors who need to be protected from making suboptimal investment decisions.

130  Frédéric Tronnier, Peter Hamm, and David Harborth

Limitations and Future Research Due to its design and the novelty of the topic of research, the study comes with several limitations. Although the survey reached more than 500 participants, it was taken at a particular time, namely, a collapse of crypto valuations. Furthermore, hindsight bias might have influenced the respondents’ answers about their past actions. Another clear limitation is our use of average scores, even though Cronbach’s Alpha showed a low degree of internal consistency for most of our variables. Lastly, the interplay between multiple different biases and personality traits makes this work susceptible to the problem of endogeneity. Future work may replicate or extend our research with a higher sample size or a more detailed or extensive survey. The use of instrumental variable (IV) regression could also provide a suitable alternative to address endogeneity (Daryanto, 2020). Additionally, due to the sensitive nature of this study, no questions regarding investment sizes or actual returns were asked, leaving room for interpretation of the actual success of investors with their investments.

Acknowledgment This work is based on the initial article: Tronnier, Frédéric; Hamm, Peter; and Harborth, David, “The Role of Behavioural Biases and Personality Traits of Retail Investors in ICOs” (2020). In Proceedings of the 28th European Conference on Information Systems (ECIS), An Online AIS Conference, June 15–17, 2020. https://aisel.aisnet.org/ecis2020_rp/22.

Notes 1 2 3 4

Goethe University Frankfurt am Main, Frankfurt am Main, Germany. Goethe University Frankfurt am Main, Frankfurt am Main, Germany. Goethe University Frankfurt am Main, Frankfurt am Main, Germany. For more information on the methodology as well as additional analyses, see Tronnier et al. (2020).

References Adhami, S., Giudici, G., & Martinazzi, S. (2018, March). Why do businesses go crypto? An empirical analysis of initial coin offerings. Journal of Economics and Business, 100, 64–75. https://doi.org/10.1016/j.jeconbus.2018.04.001 Agarwalla, D. (2018). New study: Millennial women underrepresented in crypto investing opportunity. https://blog.circle.com/2018/09/12/new-study-millennial-women-underrepresentedin-crypto-investing-opportunity/ Agrawal, K. (2012). A conceptual framework of behavioral biases in finance. IUP Journal of Behavioral Finance, 7–18. https://search.ebscohost.com/login.aspx?direct=true&db=buh& AN=77971135&site=eds-live Ahn, Y.,  & Kim, D. (2021). Emotional trading in the cryptocurrency market. Finance Research Letters. https://doi.org/10.1016/j.frl.2020.101912

The Behavioral Biases of Cryptocurrency Retail Investors 131 Albarracín, D.,  & Mitchell, A. L. (2004). The role of defensive confidence in preference for proattitudinal information: How believing that one is strong can sometimes be a defensive weakness. Personality and Social Psychology Bulletin. https://doi. org/10.1177/0146167204271180 Aloosh, A., Choi, H.-E., & Ouzan, S. (2021). Meme stocks and herd behavior. SSRN Electronic Journal, 1–6. https://doi.org/10.2139/ssrn.3909945 Aloosh, A., Ouzan, S., & Shahzad, S. J. H. (2022). Bubbles across meme stocks and cryptocurrencies. Finance Research Letters, 49, 103155. Alrabadi, D. W. H., Al-Abdallah, S. Y., & Aljarayesh, N. I. A. (2018). Behavioral biases and investment performance, does gender matter ?  Evidence From Amman Stock Exchange. https://doi.org/10.35516/1250-005-001-006 Anum, B., Ameer, B., Dar, F. A., Kengatharan, L., Kengatharan, N., Dunusinghe, L. M. C. S. M. P., Ranasinghe, A., Luong, L. P., Hu, D. T. T., & Shabgou, M. (2015). Behavioral factors influencing individual investors’ decision-making and performance: A survey at the Ho Chi Minh stock exchange. Umeâ School of Business. https://doi.org/10.5296/ajfa.v6i1.4893 Armstrong, J. S., & Plous, S. (1994). The psychology of judgment and decision making. Journal of Marketing. https://doi.org/10.2307/1252316 Barber, B. M.,  & Odean, T. (2001). Boys will be boys: Gender, overconfidence, and common stock investment. Quarterly Journal of Economics. https://doi.org/10.1162/ 003355301556400 Barber, B. M.,  & Odean, T. (2013). The behavior of individual investors. In Handbook of the economics of finance (Vol. 2, Issue PB). Elsevier B.V. https://doi.org/10.1016/ B978-0-44-459406-8.00022-6 Belsky, G., & Gilovich, T. (2010). Why smart people make big money mistakes and how to correct them: Lessons from the life-changing science of behavioral economics. Simon and Schuster. Bouri, E., Gupta, R.,  & Roubaud, D. (2019). Herding behaviour in cryptocurrencies. Finance Research Letters, 29. https://doi.org/10.1016/j.frl.2018.07.008 Brown, S., & Taylor, K. (2014). Household finances and the “Big Five” personality traits. Journal of Economic Psychology, 45, 197–212. https://doi.org/10.1016/j.joep.2014.10.006 Chandra, A., & Kumar, R. (2011). Determinants of individual investor behaviour: An orthogonal linear transformation approach (pp. 1–30). MPRA Paper No. 29722. MPRA. Chanson, M., Risius, M., & Wortmann, F. (2018). Initial coin offerings (ICOs): An introduction to the novel funding mechanism based on blockchain technology. Americas Conference on Information Systems 2018: Digital Disruption, AMCIS 2018, Kaal, 1–5. Chohan, U. W. (2019). Initial coin offerings (ICOs): Risks, regulation, and accountability. In Cryptofinance and mechanisms of exchange (pp. 165–177). Springer. Chohan, U. W. (2021a). Non-fungible tokens: Blockchains, scarcity, and value. Critical Blockchain Research Initiative (CBRI) Working Papers. https://papers.ssrn.com/sol3/papers. cfm?abstract_id=3822743 Chohan, U. W. (2021b). Decentralized finance (DeFi): An emergent alternative financial architecture. Critical Blockchain Research Initiative (CBRI) Working Papers. https://papers.ssrn. com/sol3/papers.cfm?abstract_id=3791921 Costa, P. T.,  & McCrae, R. R. (1992). Normal personality assessment in clinical practice: The NEO personality inventory. Psychological Assessment, 4(1), 5–13. https://doi. org/10.1037/1040-3590.4.1.5 Daryanto, A. (2020). EndoS: An SPSS macro to assess endogeneity. The Quantitative Methods for Psychology, 16(1), 56–70. https://doi.org/10.20982/tqmp.16.1.p056 Daxhammer, R. J., & Facsar, M. (2017). Behavioral finance. UVK Verlagsgesellschaft mbH.

132

Frédéric Tronnier, Peter Hamm, and David Harborth

Delfabbro, P., King, D. L.,  & Williams, J. (2021). The psychology of cryptocurrency trading: Risk and protective factors. Journal of Behavioral Addictions, 10(2). https://doi. org/10.1556/2006.2021.00037 Dell’Erba, M. (2017). Initial coin offerings: A  primer. The first response of regulatory authorities. SSRN, 1–28. https://doi.org/10.2139/ssrn.3063536 Diener, E.,  & Lucas, R. E. (1999). 11 personality and subjective well-being. Well-Being: Foundations of Hedonic Psychology, 213. Dohmen, T., Falk, A., Huffman, D., Sunde, U., Schupp, J., & Wagner, G. G. (2011). Individual risk attitudes: Measurement, determinants, and behavioral consequences. Journal of the European Economic Association. https://doi.org/10.1111/j.1542-4774.2011.01015.x Donnelly, G., Iyer, R., & Howell, R. T. (2012). The Big Five personality traits, material values, and financial well-being of self-described money managers. Journal of Economic Psychology. https://doi.org/10.1016/j.joep.2012.08.001 Durand, R., Newby, R., Tant, K.,  & Trepongkaruna, S. (2013). Overconfidence, overreaction and personality. Review of Behavioral Finance. https://doi.org/10.1108/RBF07-2012-0011 Encyclopedia of Psychology (2000). Encyclopedia of psychology. In A. E. Kazdin (Ed.), Encyclopedia of psychology (Vol. 3). Oxford University Press. https://doi.org/10.1037/10518-000 Etoro (2018). Who are the crypto investors? www.etoro.com/blog/market-insights/who-arethe-crypto-investors/ Fama, E. F. (1970). Efficient capital markets: A review of theory and empirical work. The Journal of Finance. https://doi.org/10.2307/2325486 Fenton-O’Creevy, M., Nicholson, N., Soane, E.,  & Willman, P. (2011). Traders: Risks, decisions, and management in financial markets. Traders: Risks, Decisions, and Management in Financial Markets. https://doi.org/10.1093/acprof:oso/9780199269488.001.0001 Fisch, C., Masiak, C., Vismara, S.,  & Block, J. (2019, November). Motives and profiles of ICO investors. Journal of Business Research, 1–13. https://doi.org/10.1016/j. jbusres.2019.07.036 Frankovic, J., Liu, B.,  & Suardi, S. (2021). On spillover effects between cryptocurrencylinked stocks and the cryptocurrency market: Evidence from Australia. Global Finance Journal. https://doi.org/10.1016/j.gfj.2021.100642 Fridgen, G., Regner, F., Schweizer, A., & Urbach, N. (2018). Don’t slip on the initial coin offering (ICO) -a taxonomy for a blockchain-enabled form of crowdfunding. 26th European Conference on Information Systems: Beyond Digitization—Facets of Socio-Technical Change, ECIS. Gilovich, T. (1991). How we know what isn’t so: The fallibility of human reason in everyday life. The Free Press. Glaser, M., & Weber, M. (2007). Overconfidence and trading volume. GENEVA Risk and Insurance Review. https://doi.org/10.1007/s10713-007-0003-3 Gnambs, T., & Batinic, B. (2012). A personality-competence model of opinion leadership. Psychology and Marketing, 29(8), 606–621. https://doi.org/10.1002/mar.20547 Goldberg, J., & Von Nitzsch, R. (2004). Behavioral finance: Gewinnen mit Kompetenz. FinanzBuch Verlag. Greifeld, K., & Ballentine, C. (2021). GameStop mania is delivering a dangerous rush to the reddit mob. www.bloomberg.com/news/articles/2021-01-30/-like-a-drug-redditors-stockmania-fueled-by-gambling-high Hasso, T., Müller, D., Pelster, M.,  & Warkulat, S. (2021). Who participated in the GameStop frenzy? Evidence from brokerage accounts. Finance Research Letters. https:// doi.org/10.1016/j.frl.2021.102140

The Behavioral Biases of Cryptocurrency Retail Investors

133

Hornuf, L., Kück, T., & Schwienbacher, A. (2022). Initial coin offerings, information disclosure, and fraud. Small Business Economics, 58(4), 1741–1759. https://doi.org/10.1007/ s11187-021-00471-y Jalal, R. N. U. D., Sargiacomo, M., Sahar, N. U., & Fayyaz, U. E. R. (2020). Herding behavior and cryptocurrency: Market asymmetries, inter-dependency and intra-dependency. Journal of Asian Finance, Economics and Business, 7(7). https://doi.org/10.13106/jafeb.2020. vol7.no7.027 Jianakoplos, N. A., & Bernasek, A. (1998). Are women more risk averse? Economic Inquiry, 36(4), 620–630. https://doi.org/10.1111/j.1465-7295.1998.tb01740.x John, O. P., & Srivastava, S. (1999). Big Five inventory (Bfi). Handbook of Personality: Theory and Research. https://doi.org/10.1525/fq.1998.51.4.04a00260 Kahneman, D., Lovallo, D., & Sibony, O. (2011). Before you make that big decision . . . Harvard Business Review, 89(6). Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Econometrica. https://doi.org/10.2307/1914185 Keller, A., & Scholz, M. (2019). Trading on cryptocurrency markets: Analyzing the behavior of bitcoin investors (pp. 1–17). https://core.ac.uk/download/pdf/301384302.pdf Klein, T. (2022, March). A  note on GameStop, short squeezes, and autodidactic herding: An evolution in financial literacy? Finance Research Letters, 46, 1–12. https://doi. org/10.1016/j.frl.2021.102229 Kubilay, B., & Bayrakdaroglu, A. (2016). An empirical research on investor biases in financial decision-making, financial risk tolerance and financial personality. International Journal of Financial Research, 7(2). https://doi.org/10.5430/ijfr.v7n2p171 Lakonishok, J., Shleifer, A., & Vishny, R. W. (1992). The impact of institutional trading on stock prices. Journal of Financial Economics. https://doi.org/10.1016/0304-405X(92)90023-Q Li, S. (2022). Spillovers between bitcoin and meme stocks. Finance Research Letters. https:// doi.org/10.1016/j.frl.2022.103218 Lucey, B. M., Wang, Y.,  & Vigne, S. A. (2022). Bubbles all the way down? Detecting and date-stamping bubble behaviour in DeFi and NFT markets. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.4045855 Lyócsa, Š., Baumöhl, E., & Výrost, T. (2022). YOLO trading: Riding with the herd during the GameStop episode. Finance Research Letters, 46, 102359. Lyu, S., Wang, Y.,  & Zhang, M. (2021). Heightened herd behavior in financial market under Covid-19. Proceedings of the 2021 3rd International Conference on Economic Management and Cultural Industry (ICEMCI 2021), 128–134. https://doi.org/10.2991/ assehr.k.211209.021 Mayfield, C., Perdue, G., & Wooten, K. (2008). Investment management and personality type. Financial Services Review, 17. Mishra, K. C., & Metilda, M. J. (2015). A study on the impact of investment experience, gender, and level of education on overconfidence and self-attribution bias. IIMB Management Review. https://doi.org/10.1016/j.iimb.2015.09.001 Moore, D. A., & Schatz, D. (2017). The three faces of overconfidence. Social and Personality Psychology Compass. https://doi.org/10.1111/spc3.12331 Neupane, S., & Poshakwale, S. S. (2012). Transparency in IPO mechanism: Retail investors’ participation, IPO pricing and returns. Journal of Banking and Finance. https://doi. org/10.1016/j.jbankfin.2012.03.010 Norman, W. T. (1963). Toward an adequate taxonomy of personality attributes: Replicated factor structure in peer nomination personality ratings. Journal of Abnormal and Social Psychology. https://doi.org/10.1037/h0040291

134

Frédéric Tronnier, Peter Hamm, and David Harborth

Odean, T. (1998). Volume, volatility, price, and profit when all traders are above average. Journal of Finance. https://doi.org/10.1111/0022-1082.00078 Oehler, A., Wendt, S., Wedlich, F., & Horn, M. (2018). Investors’ personality influences investment decisions: Experimental evidence on extraversion and neuroticism. Journal of Behavioral Finance. https://doi.org/10.1080/15427560.2017.1366495 Pagano, M. S., Sedunov, J., & Velthuis, R. (2021). How did retail investors respond to the COVID-19 pandemic? The effect of Robinhood brokerage customers on market quality. Finance Research Letters, 43, 101946. https://doi.org/10.1016/j.frl.2021.101946 Park, J., Konana, P., Gu, B., Kumar, A., & Raghunathan, R. (2012, October). Confirmation bias, overconfidence, and investment performance: Evidence from stock message boards. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1639470 Pedersen, L. H. (2022). Game on: Social networks and markets. Journal of Financial Economics. https://doi.org/10.1016/j.jfineco.2022.05.002 Peterson, R. A. (1994). A meta-analysis of Cronbach’s coefficient alpha. Journal of Consumer Research. https://doi.org/10.1086/209405 Pompian, M. M. (2006). Behavioral finance and wealth management. Wiley Finance. https:// doi.org/10.1016/j.cca.2016.12.013 Pozzi, D. (2019). ICO market 2018 vs 2017: Trends, capitalization, localization, industries, success rate. https://cointelegraph.com/news/ico-market-2018-vs-2017-trends-capitalizationlocalization-industries-success-rate Rahadi, R. A., Sukarno, S., Hernawan, R. F., Putra, A. I., Vetra, E., Indriawan, J. A., & Syahruddin, N. (2022). Learning from GameStop: How bandwagon effect influence trading decisions. JAF (Journal of Accounting and Finance), 6(1), 32–50. Rammstedt, B., & John, O. P. (2007). Measuring personality in one minute or less: A 10-item short version of the Big Five inventory in English and German. Journal of Research in Personality, 41(1), 203–212. https://doi.org/10.1016/j.jrp.2006.02.001 Rizvi, S., & Fatima, A. (2015). Behavioral finance: A study of correlation between personality traits with the investment patterns in the stock market. In Managing in recovering markets (pp. 143–155). Springer. https://doi.org/10.1007/978-81-322-1979-8_11 Rosato, S. (2021). The extent of retail trading risk : The GameStop case (pp. 1–29). http://tesi. luiss.it/31766/1/237561_ROSATO_SOFIA.pdf Rutkowska, A. (2015, June). Investor’s satisfaction in portfolio selection problem. In Proceedings of the 2015 conference of the international fuzzy systems association and the European society for fuzzy logic and technology. Atlantis Press. https://doi.org/10.2991/ifsa-eusflat-15.2015.23 Schou, P., Bucher, E., Waldkirch, M.,  & Grünwald, E. (2022, January). We did start the fire: R/wallstreetbets, “flash movements” and the Gamestop short-squeeze. Proceedings of the 55th Hawaii International Conference on System Sciences. https://doi.org/10.24251/ hicss.2022.543 Shefrin, H.,  & Stratman, M. (1985). The disposition to sell winners too early and ride losers too long: Theory and evidence. The Journal of Finance. https://doi.org/10.1111/ j.1540-6261.1985.tb05002.x Stiebel, J. H. (2021). GameStop: Power to the players? SSRN Electronic Journal. https://doi. org/10.2139/ssrn.3883295 Sudzina, F., & Pavlicek, A. (2019). Impact of personality traits (BFI-2-XS) on use of cryptocurrencies. Proceedings of the International Scientific Conference Hradec Economic Days 2019 Part II, 9. https://doi.org/10.36689/uhk/hed/2019-02-037 Thaler, R. H. (1999). Menta accounting matters. Journal of Behavioral Decision Making. https:// doi.org/10.1002/(SICI)1099-0771(199909)12:3 < 183::AID-BDM318 > 3.0.CO;2-F

The Behavioral Biases of Cryptocurrency Retail Investors 135 Tronnier, F., Hamm, P., & Harborth, D. (2020). The role of behavioral biases and personality traits of retail investors in ICOs. Proceedings of the 28th European Conference on Information Systems, ECIS. Tversky, A., & Kahneman, D. (1974). Judgment under uncertainty : Heuristics and biases. Science. https://doi.org/10.1126/science.185.4157.1124 Wahren, H.-K. (2009). Anlegerpsychologie. Anlegerpsychologie. https://doi.org/10.1007/ 978-3-531-91374-2 Zheng, X., Tian, H., Wan, Z., Wang, X., Zeng, D. D., & Wang, F. Y. (2022). Game starts at GameStop: Characterizing the collective behaviors and social dynamics in the short squeeze episode. IEEE Transactions on Computational Social Systems, 9(1), 45–58. https:// doi.org/10.1109/TCSS.2021.3122260

9 FOMO in Digital Assets Tatja Kärkkäinen1,2

There are more things, Lucilius, likely to frighten us than there are to crush us; we suffer more often in imagination than in reality. Seneca

Introduction This study attempts to examine and measure FOMO for digital assets. Present ICO studies suggest that investor FOMO might explain the success and pricing of ICO tokens (e.g., Momtaz, 2020a; Roosenboom, 2020; Huber & Hobart, 2019). I analyze the novel ICO market by looking at demand-side data utilizing the OECD survey data on ICO beliefs. ICOs can be classified as a category of digital or crypto assets, much like cryptocurrency (see also Chapter 8 in this volume). However, compared to the latter, they can also be classified as investable tokens that are issued by small companies that can be acquired using cryptocurrency or fiat money (e.g., Li & Mann, 2018; OECD, 2019a). The Google Trends in Figure 9.1 show how different topics relate to search results for FOMO. FOMO, as a phenomenon that interacts with investment decisions, has attracted attention in both academia and the practice, especially in connection to Bitcoin. This study contributes to research on retail investors exhibiting FOMO phenomena in digital asset ownership by specifically focusing on ICOs. It thus focuses on a broader field than just Bitcoin, which is at the same time also more novel, less well-understood, and more risky. The chapter sources from existing retail behavior literature, complemented by literature focusing on ICOs. The findings corroborate traditional financial market findings, but also provide circumstantial caveats that relate in more specificity to the current adaptation of technology and the regulatory framework in which this plays out. In particular, this chapter argues that, while financial democratization and even financial inclusion are often mentioned in connection with digital asset innovation, the evidence suggests a bleaker picture. This chapter suggests that in the subset of countries studied, the focus of the marketing of these ICOs was strongly on more wealthy people, who have specifically been targeted through sentiment-driven campaigns. As such, even though ICOs as a novel financial DOI: 10.4324/9781003351085-11

FOMO in Digital Assets 137

Figure 9.1 FOMO search topic association, related topics on fear of missing out between March 2020 and March 2021. Source: Google Trends.

technological innovation envision more inclusive investing, this chapter argues that they are often marketed as exclusive opportunities for those better-off. We can see that sentiment, such as FOMO, is a driver for the ICO ownership that also prerequisites wealth, or at least the ability to muster an investable sum. This is further strengthened as wealthier members of society already have access to financial services, and tend to be more knowledgeable about them. So, new innovations, such as ICOs, regardless of the societal rhetoric (Chohan & Jacobs, 2018), may not be able to reach the wider population necessitated to generate further financial inclusion. Due to the online nature of the ICOs, they are a good topic to study retail investors’ behavior and the concept of FOMO in digitalized financial services in more depth. This study utilizes OECD survey data specifically on ICO perceptions to understand the motivations for investing in ICOs. The remainder of this study is organized as follows. The second section reviews the relevant literature and outlines the empirical predictions. The third section presents the data, summary statistics, and the empirical strategy. The fourth section presents the estimates for demand-side variable effects and then the concluding section follows. Fear of Missing Out in ICO Markets

Przybylski et al. (2013) formulate a survey-based scale for FOMO which they find to be associated with negative feelings (i.e., lower mood, lower need

138  Tatja Kärkkäinen

satisfaction, and lower life satisfaction). At the same time, decreasing use of social media is argued to increase the feeling of well-being (Hunt et al., 2018). Thus, one might point out that FOMO could be better avoided through less use of social media. This naturally relates to the awareness of ICO issuance. A  recent study by FCA UK (2021) also reported that buyers motivated by online adverts have regretted their cryptocurrency purchases. This regret is not only epitomic to ICOs or cryptocurrency, as generally some investors make or are led into making unsuitable investment decisions by misleading online advertisements (Britainthinks, 2021). There is also a notion that marketers might not be aligned with the FOMO buyer’s long-term well-being, as there is a reduced expectation of loyalty if the service or product disappoints (Hayran et al., 2020). Huber and Hobart (2019) also discuss the impact of promoters on investors’ crypto asset investing. These promoters and their online advertisements also use advanced technologies in order to target and learn how to better target certain demographics (Britainthinks, 2021). It is common to see the “hot market” rhetoric used especially in real estate, a scarcity-based market, in which the marketer advises prospects to move early. Momtaz (2020a) suggests that ICO issuers in faster-selling markets may apply FOMO in order to sell tokens faster; however, the token issuer might decide to afterward lengthen the token issuance period, or even lower the token asking price in order to generate more investment, which can greatly disappoint earlier investors. Additionally, the marketers’ short-term targets of advert clicks or purchases can also further contribute to making unsuitable investment decisions. This unaligned interest marketing is enabled by lack of regulation in the ICO market (Chod & Lyandres, 2019; Li & Mann, 2018; Chohan, 2019) and the resulting lack of governing oversight on ICO investor relations. Investors’ regret is then created when the investment decision proves to be unsuitable with time. Empirical Estimator Specification

There is some early literature that touches upon demand-side characteristics of the ICO market, with a specific focus on investor behavior and motives. Fisch et al. (2019) designed an online survey on ICO investors and their motivations. Approaching the data sampling as big data by using online sources, including blockchain account information, Boreiko and Risteski (2020) studied large as well as repeat investors. Herman (2000) suggests that consumers make shortterm decisions through cognitive and emotional evaluation. This plays out more vividly when there is a scarcity of options and a strong second-order expectation of other market participants. As in normal markets with a diversity of investor preferences, we can make hypotheses of FOMO-motivated ownership but also long-term motivated ICO ownership. First, we formulate the null hypothesis on the possible FOMO sentiment investing: Hypothesis: 1(0) = The investors who are investing in ICOs are not driven by their FOMO sentiment.

FOMO in Digital Assets

139

Hypothesis: 1(ALT) = The investors who are investing in ICOs are driven by their FOMO sentiment. In order to understand the participants in these markets, we also like to examine investors’ long-term investment motivations in the ICOs. With this information, we make the last null hypothesis that describes the investor behavior through their long-term investing motivations. Hypothesis: 2(0) = investors have not invested in ICOs for long-term savings or retirement Hypothesis: 2(ALT)  =  investors have invested in ICOs for long-term savings or retirement

Data and Methodology ICO Organization Retail Investor Survey Data

This study uses data from a pilot survey in Southeast Asia on cryptocurrency and ICO participation (OECD, 2019a) to analyze the motivations of the ICO buyers. The OECD survey differentiates ICOs from cryptocurrencies, such as Bitcoin and Ethereum. The answers are self-reported subjective views of the interviewee. The select variables and their ordered set answers can be viewed in Appendix 9.1. Summary statistics of the survey data are presented in Table 9.1. The OECD survey data on cryptocurrencies and ICOs was collected online from 3,006 individuals in Malaysia (N: 1,000), the Philippines (N: 1,003), and Vietnam (N: 1,003). The survey also had a control sample of 422 individuals who had not invested in crypto assets, thus, in neither cryptocurrencies nor ICOs. The survey was conducted between February and March  2019. The ICO-specific subsample is 1,688, due to the survey design that included branching questions. A total of 16% of the respondents owned ICOs and 54% were aware of them. Comparably, the surveyed cryptocurrency ownership was at 30% of the sample; 42% of the ICO owners reported holding them to make money quickly. However, at the same time, 25% of the owners reported holding ICOs to support initiatives that are built on blockchain technology. The average age is around 36 years old. This is much younger compared to ING International Survey on Mobile Banking and the OECD Consumer Insights Survey on Crypto Assets reported an average survey age of 42  years old (Table  9.1) (Panos et al., 2020). The ICO subsample comprises 16% males holding ICOs and 17% females. Compared to Fisch et  al. (2019), 95.4% of their sample of ICO investor respondents were male (see also Chapter 8 of this volume). This could be down to the survey sampling differences including their proposed financial incentive through a lottery of Ethereum tokens among respondents and that most respondents are from Europe or the United States (68%). The OECD survey sample looks plausible considering the Band of International Settlements’

140  Tatja Kärkkäinen Table 9.1  OECD ICOs Survey Summary Data Table  

N

Mean

Std. Dev.

Median

Min

Max

Own ICOs Owned ICOs Never owned ICOs Own cryptocurrencies Income PPP (monthly) adjusted Income USD (monthly) Malaysia The Philippines Vietnam Male Age Education: no qualifications “-” School “-” College “-” University “-” Graduate school Occupation: full-time employed -”- Part-time employed -”- Self-employed -”- Student -”- Unemployed -”- Inactive -”- Retired -”- Homemaker Awareness of ICOs Understanding of ICOs Advice on ICOs Online advertisement White Paper: read White Paper: understanding Motivation to invest: FOMO “-” For fun “-” For experience “-” Quick profit “-” Long tern/retirement “-” For inheritance “-” Support of blockchain tech “-” Portfolio diversification “-” Belief in the project ICO perceptions: retail investing to inno. Firms “-” Liquid investments “-” Regulated by government “-” Facilitate illegal activities “-” Good time to buy ICOs Perceptions: risk tolerance “-” Financial satisfaction “-” Living in present “-” Prefer ethical fin. services “-” Tech literacy “-” Finance knowledge “-” Deprived Home owner

1,688 1,688 1,688 3,428 3,180 3,428 3,428 3,428 3,428 3,428 3,428 3,428 3,428 3,428 3,428 3,428 3,428 3,428 3,428 3,428 3,428 3,428 3,428 3,428 3,428 1,688 996 1,688 857 857 996 996 996 996 996 996 996 996 996 1,688

0.39 0.20 0.41 0.46 4,318 1,510 0.33 0.33 0.33 0.50 36.07 0.02 0.19 0.09 0.58 0.12 0.64 0.06 0.12 0.06 0.06 0.01 0.02 0.04 0.49 2.07 0.45 0.17 2.27 2.62 0.11 0.12 0.34 0.42 0.29 0.11 0.25 0.30 0.31 3.67

0.49 0.40 0.49 0.50 4,088 1,416 0.47 0.47 0.47 0.50 10.72 0.14 0.39 0.29 0.49 0.32 0.48 0.23 0.33 0.23 0.23 0.12 0.13 0.19 0.50 0.72 0.50 0.38 0.65 0.5 0.31 0.32 0.47 0.49 0.45 0.31 0.43 0.46 0.46 0.91

0 0 0 0 4,109 1,424 0 0 0 0 35 0 0 0 1 0 1 0 0 0 0 0 0 0 0 2 0 0 2 3 0 0 0 0 0 0 0 0 0 4

0 0 0 0 329 114 0 0 0 0 18 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 1 1 0 0 0 0 0 0 0 0 0 1

1 1 1 1 22,468 7,743 1 1 1 1 65 1 1 1 1 1 1 1 1 1 1 1 1 1 1 3 1 1 3 3 1 1 1 1 1 1 1 1 1 5

1,688 1,688 1,688 1,688 3,428 3,428 3,428 3,428 3,428 3,428 3,428 3,428

3.49 3.35 3.18 3.46 1.84 2.03 2.02 1.65 1.40 1.86 2.02 0.58

0.96 1.03 1.06 0.95 0.48 0.69 0.75 0.76 0.69 0.58 0.69 0.49

4 3 3 3 2 2 2 2 1 2 2 1

1 1 1 1 0 0 0 0 0 0 0 0

5 5 5 5 3 3 3 3 3 3 3 1

The table summarizes the data from OECD ICO survey in Malaysia, the Philippines, and Thailand in 2019. A total of 3,006 respondents were surveyed online and a control sample of 422 respondents who have not invested in cryptocurrencies or ICOs was used.

FOMO in Digital Assets 141

(2021) study on the use of FinTech by gender internationally, which showed closing gender caps to investing in China and India and also showed around 40% participation. In Singapore and Hong Kong, the figures are close to the global average in FinTech usage for investing and show a gender gap. These city-states are known for being regional financial centers with established financial service sectors. It is noteworthy that this survey did not have the data for Malaysia, the Philippines, and Vietnam, which will be discussed in more detail subsequently. Empirical Strategy

First, we examine relationship between ICO ownership and respondent’s investment motivation and characteristic variables. This is estimated in the following form using the multinomial probit model:

ICOi = b0 + b1Ri + b 2Fi + b3 ( Ri ´ Fi ) + b1X i + q c + e i (1)

where ICOi[0,1] represents ICO ownership. The data excludes the observations in which the respondent is not aware of ICOs due to the branching questionnaire design. R denotes the Wealthy dummy variable, which is focused on the top 60% wealthiest. F denotes the FOMO dummy variable, Xi is a vector of individual characteristics, θc is a fixed effect for country of residence, and εi is the error term. The interaction between a dummy variable Rich top 60 (R) and a dummy variable of FOMO (F) is used as the main effect. To establish robustness, awareness of ICOs as an independent variable is examined using the full sample. This specification is then used for ICO present and past ownership subsample estimation for effect comparison. Due to the branching questions, the variables are missing observations, second and third specifications are adjusted to the following terms:

AWi = b0 + X i + q c + e i (2)

where AWi[0,1] represents respondent’s awareness on ICOs. This specification utilizes the full survey sample.

ICOPC i = b0 + X i + q c + e i (3)

where ICOPCi[0,1] represents whether the respondent owns or has owned ICOs. All the regression models utilize the robust standard errors with a simple degree-of-freedom adjustment to possible sample heteroskedasticity.

Results Table 9.2 presents the OECD survey data regression estimates of the determinants for the ICO ownership behavior. These consist of measures for ownership

142

Tatja Kärkkäinen

as in column 1 or alternatively past ownership as in column 2. Male ownership or not having owned is highly significant and negative with an effect of 7.5%. There is a weak positive relationship effect between long-term saving for retirement and supporting the blockchain-based technology initiatives or believing in the ICO project offering. Their effects are all over 6%. Nevertheless, the ICO understanding among the current ICO owners that is measured on three degrees of the progressive scale has a large negative effect at −15.2% with a high significance. Furthermore, the respondents who have never invested in ICOs have a larger negative effect of −19.6% with a high significance of not understanding ICOs. There also seems to be learning about ICOs from past holders of ICOs to a significant effect While ICOs are largely new financial instruments that are unregulated, it is surprising to see that the effect of ICO ownership through advice from financial professionals is strongly significant at 14.25%. Financial advice from a professional may lend itself to longer holding periods in the form of savings. The advice of friends or family as more informal sources of financial advice also shows an 8% positive effect on ownership at a moderate significance level of 5%. By country breakdown, it appears that people in the Philippines are 15.5% more likely to hold ICOs than the Vietnamese. This effect is strongly significant to which a comparably larger remittance inflow may contribute.3 The effect of never owning ICOs is 8.4% among the Philippine respondents compared to the Vietnamese with a moderate level of statistical significance. The educational effect on ownership does not appear to be perfectly linear as both lower educational levels and people educated up to graduate school appear to have never owned ICOs with more than 10% likelihood. This phenomenon might lend itself to a positive relationship between education and risk tolerance (Dolvin et al., 2008). When motivations spurring the holding of ICOs are inspected, the fear of missing out (FOMO) does not have a self-standing effect, but if interaction with the top 60% real income receivers as PPP adjusted, or “the wealthy,” that is excluding the bottom 40%4 sample, or “the poor” is considered, it has a very strong effect on the ICO ownership at a high significance level. Namely, the FOMO and wealth interaction in both columns show highly significant and high effects of 27% and 25%, respectively. Thus, we can reject this specific null Hypothesis 1(0) that investors are not invested in ICOs driven by their FOMO sentiment, and accept the alternative that these investors are driven by FOMO sentiment. This interaction effect is similar in size to currently owning cryptocurrencies, for example, Ethereum and Bitcoin. Interestingly, and importantly, we see results for holding ICOs for long-term interest at around 8% at high to moderate significance across columns 1 and 2. Thus, we can reject the null Hypothesis 2(0). The investors have not invested in ICOs for long-term savings or retirement and accept that investors have invested in ICOs long term. Recalling back to the descriptive statistics of ICO ownership and inspecting the breakdown of the ICO motivation variables, we can see that the long-term/retirement saving motivation share is almost three

FOMO in Digital Assets 143 Table 9.2  Determinants of ICO Ownership Relationships   Owning cryptocurrencies FOMO Income top 60% FOMO*Income top 60 Understanding of ICOs Log (income PPP adj.) Vietnam The Philippines Malaysia Male Age Education: school “-” College “-” University “-” Graduate school “-” No qualifications Home owner Perceptions: risk tolerance “-” Financial satisfaction “-” Living in present “-” Prefer ethical fin. services “-” Tech literacy “-” Finance knowledge “-” Deprived Advice on ICOs Online advertisement

(1) 0.237*** [0.075] −0.153* [0.088] −0.066 [0.052] 0.266*** [0.101] 0.065* [0.034] 0.064** [0.029] −0.040 [0.045] 0.096** [0.043] [REF] −0.054* [0.028] 0.002 [0.002] −0.110 [0.111] −0.254* [0.141] −0.145 [0.107] −0.147 [0.110] [REF] 0.001 [0.047] −0.021 [0.030] −0.019 [0.026] −0.022 [0.026] 0.003 [0.027] −0.015 [0.033] −0.008 [0.027] 0.008 [0.020] 0.153*** [0.049]

(2) 0.265*** [0.058] −0.152* [0.083] −0.074 [0.052] 0.248*** [0.096] 0.123*** [0.028] 0.056* [0.029] −0.041 [0.044] 0.151*** [0.042] [REF] −0.047* [0.028] 0.002 [0.002] −0.173 [0.108] −0.353** [0.138] −0.241** [0.106] −0.232** [0.108] [REF] 0.020 [0.041] −0.035 [0.027] −0.044* [0.025] −0.031 [0.024] −0.006 [0.025] −0.002 [0.030] −0.009 [0.025] 0.005 [0.020] 0.178*** [0.042] 0.077** [0.039] (Continued)

144  Tatja Kärkkäinen Table 9.2 (Continued)  

(1)

White paper: read White paper: understanding Motivation to invest: for fun “-” For experience “-” Quick profit “-” Long term/retirement “-” For inheritance “-” Support of blockchain tech “-” Portfolio diversification “-” Belief in the project Number of observations R2 Adjusted R2

−0.064 [0.053] 0.007 [0.031] 0.014 [0.031] 0.075** [0.032] 0.008 [0.044] 0.043 [0.032] 0.033 [0.032] 0.028 [0.033] 978 0.250 0.220

(2) 0.171*** [0.040] 0.031 [0.029] −0.048 [0.049] 0.025 [0.030] −0.005 [0.030] 0.080*** [0.030] 0.001 [0.043] 0.056* [0.031] 0.031 [0.031] 0.050 [0.032] 844 0.259 0.222

The table contains two regression estimates of dependent binary outcome variable on owning ICO’s against having previously owned. The dependent variables are also regressed with occupations which did not show significant coefficient results. Robust standard errors are shown in brackets. The asterisks denote the following levels of significance: ***