Paul Tayler

Bio: Paul Tayler is an academic researcher from Deloitte. The author has contributed to research in topics: Stock market & Rational expectations. The author has an hindex of 3, co-authored 3 publications receiving 2028 citations.

Asset Pricing Under Endogenous Expectations in an Artificial Stock Market

Abstract: This chapter proposes a theory of asset pricing based on heterogeneous agents who continually adapt their expectations to the market that these expectations aggregatively create. It explores the implications of this theory computationally using Santa Fe artificial stock market. Computer experiments with this endogenous-expectations market explain one of the more striking puzzles in finance: that market traders often believe in such concepts as technical trading, "market psychology," and bandwagon effects, while academic theorists believe in market efficiency and a lack of speculative opportunities. Academic theorists and market traders tend to view financial markets in strikingly different ways. Standard (efficient-market) financial theory assumes identical investors who share rational expectations of an asset's future price, and who instantaneously and rationally discount all market information into this price. While a few academics would be willing to assert that the market has a personality or experiences moods, the standard economic view has in recent years begun to change.

Asset Pricing Under Endogenous Expectations in an Artificial Stock Market

Abstract: We propose a theory of asset pricing based on heterogeneous agents who continually adapt their expectations to the market that these expectations aggregatively create. And we explore the implications of this theory computationally using our Santa Fe artificial stock market.

Simple Heuristics That Make Us Smart

Abstract: Fast and frugal heuristics - simple rules for making decisions with realistic mental resources - are presented here. These heuristics can enable both living organisms and artificial systems to make smart choices, classifications, and predictions by employing bounded rationality. But when and how can such fast and frugal heuristics work? What heuristics are in the mind's adaptive toolbox, and what building blocks compose them? Can judgments based simply on a single reason be as accurate as those based on many reasons? Could less knowledge even lead to systematically better predictions than more knowledge? This book explores these questions by developing computational models of heuristics and testing them through experiments and analysis. It shows how fast and frugal heuristics can yield adaptive decisions in situations as varied as choosing a mate, dividing resources among offspring, predicting high school drop-out rates, and playing the stock market.

Agent-based modeling: Methods and techniques for simulating human systems

Abstract: Agent-based modeling is a powerful simulation modeling technique that has seen a number of applications in the last few years, including applications to real-world business problems. After the basic principles of agent-based simulation are briefly introduced, its four areas of application are discussed by using real-world applications: flow simulation, organizational simulation, market simulation, and diffusion simulation. For each category, one or several business applications are described and analyzed.

Scaling and criticality in a stochastic multi-agent model of a financial market

Abstract: Financial prices have been found to exhibit some universal characteristics1,2,3,4,5,6 that resemble the scaling laws characterizing physical systems in which large numbers of units interact. This raises the question of whether scaling in finance emerges in a similar way — from the interactions of a large ensemble of market participants. However, such an explanation is in contradiction to the prevalent ‘efficient market hypothesis’7 in economics, which assumes that the movements of financial prices are an immediate and unbiased reflection of incoming news about future earning prospects. Within this hypothesis, scaling in price changes would simply reflect similar scaling in the ‘input’ signals that influence them. Here we describe a multi-agent model of financial markets which supports the idea that scaling arises from mutual interactions of participants. Although the ‘news arrival process’ in our model lacks both power-law scaling and any temporal dependence in volatility, we find that it generates such behaviour as a result of interactions between agents.

The Contributions of the Economics of Information to Twentieth Century Economics

Abstract: In the e eld of economics, perhaps the most important break with the past— one that leaves open huge areas for future work— lies in the economics of information. It is now recognized that information is imperfect, obtaining information can be costly, there are important asymmetries of information, and the extent of information asymmetries is affected by actions of e rms and individuals. This recognition deeply affects the understanding of wisdom inherited from the past, such as the fundamental welfare theorem and some of the basic characterization of a market economy, and provides explanations of economic and social phenomena that otherwise would be hard to understand. I. INTRODUCTION The century coming to a close has seen vast changes in economics in both ideas and methodology. Upon ree ection, it is remarkable, however, how many of the seeds of advances in this century were sowed in the previous. I would argue that perhaps the most important break with the past— one that leaves open huge areas for future work— lies in the economics of information. The recognition that information is imperfect, that obtaining information can be costly, that there are important asymmetries of information, and that the extent of information asymmetries is affected by actions of e rms and individuals, has had profound implications for the wisdom inherited from the past, and has provided explanations of economic and social phenomena that otherwise would be hard to understand. In this essay I wish to argue that information economics has had— directly and indirectly— a profound effect on how we think about economics today. Eighteenth and Nineteenth-Century Antecedents To be sure, Marshall and other nineteenth century economists talked about problems of imperfect information. But with one exception, discussions of information were obiter dicta, caveats at the end of the analysis; they were never at the center.