Adaptive Competition, Market Efficiency, and Phase Transitions
TL;DR: This work analyzes a simple model that incorporates fundamental features of social and biological systems that simultaneously and adaptively compete for limited resources, thereby altering their environment.
Abstract: In many social and biological systems agents simultaneously and adaptively compete for limited resources, thereby altering their environment. We analyze a simple model that incorporates fundamental features of such systems. If the space of strategies available to the agents is small, the system is in a phase in which all information available to the agents' strategies is traded away, and agents' choices are maladaptive, resulting in a poor collective utilization of resources. For larger strategy spaces, the system is in a phase in which the agents are able to coordinate their actions to achieve a better utilization of resources. The best utilization of resources occurs at a critical point, when the dimension of the strategy space is on the order of the number of agents.
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TL;DR: The authors surveys research on agent-based models used in finance, focusing on models where the use of computational tools is critical for the process of crafting models which give insights into the importance and dynamics of investor heterogeneity in many financial settings.
Abstract: This chapter surveys research on agent-based models used in finance. It will concentrate on models where the use of computational tools is critical for the process of crafting models which give insights into the importance and dynamics of investor heterogeneity in many financial settings.
941 citations
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27 Sep 2010TL;DR: This paper aims to demonstrate the efforts towards in-situ applicability of EMMARM, as to provide real-time information about the physical and social contexts in which individuals and institutions operate.
Abstract: Acknowledgments ix Chapter 1: Introduction 1 Chapter 2: Coming Together 14 Chapter 3: Information Transfer 44 Chapter 4: Making Decisions 77 Chapter 5: Moving Together 101 Chapter 6: Synchronization 130 Chapter 7: Structures 151 Chapter 8: Regulation 173 Chapter 9: Complicated Interactions 198 Chapter 10: The Evolution of Co-operation 223 Chapter 11: Conclusions 253 References 259 Index 293
755 citations
TL;DR: It is shown that the stationary state of the system is described by the ground state of a disordered spin model which is exactly solvable within the simple replica symmetric ansatz.
Abstract: We study analytically a simple game theoretical model of heterogeneous interacting agents. We show that the stationary state of the system is described by the ground state of a disordered spin model which is exactly solvable within the simple replica symmetric ansatz. Such a stationary state differs from the Nash equilibrium where each agent maximizes her own utility. The latter turns out to be characterized by a replica symmetry broken structure. Numerical results fully agree with our analytical findings.
231 citations
TL;DR: A review of recent empirical and theoretical developments usually grouped under the heading of Econophysics can be found in this paper, where the authors reviewed the statistical properties of financial time series, the statistics exhibited in order books and discussed some studies of correlations of asset prices and returns.
Abstract: This article is the second part of a review of recent empirical and theoretical developments usually grouped under the heading Econophysics. In the first part, we reviewed the statistical properties of financial time series, the statistics exhibited in order books and discussed some studies of correlations of asset prices and returns. This second part deals with models in Econophysics from the point of view of agent-based modeling. Of the large number of multi-agent-based models, we have identified three representative areas. First, using previous work originally presented in the fields of behavioral finance and market microstructure theory, econophysicists have developed agent-based models of order-driven markets that we discuss extensively here. Second, kinetic theory models designed to explain certain empirical facts concerning wealth distribution are reviewed. Third, we briefly summarize game theory models by reviewing the now classic minority game and related problems.
221 citations
TL;DR: In this article, the role of different types of agents: producers, speculators as well as noise traders are studied using the minority game model, and the central issue here is the information flow: producers feed in the information whereas speculators make it away.
Abstract: Using the minority game model we study a broad spectrum of problems of market mechanism. We study the role of different types of agents: producers, speculators as well as noise traders. The central issue here is the information flow: producers feed in the information whereas speculators make it away. How well each agent fares in the common game depends on the market conditions, as well as their sophistication. Sometimes there is much to gain with little effort, sometimes great effort virtually brings no more incremental gain. Market impact is also shown to play an important role, a strategy should be judged when it is actually used in play for its quality. Though the minority game is an extremely simplified market model, it allows to ask, analyze and answer many questions which arise in real markets.
186 citations