Abstract
We analyze the mechanistic origins of the extreme behaviors that arise in an idealized model of a population of competing agents, such as traders in a market. These extreme behaviors exhibit the defining characteristics of 'dragon-kings'. Our model comprises heterogeneous agents who repeatedly compete for some limited resource, making binary choices based on the strategies that they have in their possession. It generalizes the well-known Minority Game by allowing agents whose strategies have not made accurate recent predictions, to step out of the competition until their strategies improve. This generates a complex dynamical interplay between the number V of active agents (mimicking market volume) and the imbalance D between the decisions made (mimicking excess demand). The wide spectrum of extreme behaviors which emerge, helps to explain why no unique relationship has been identified between the price and volume during real market crashes and rallies.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 65-78 |
| Number of pages | 14 |
| Journal | European Physical Journal: Special Topics |
| Volume | 205 |
| Issue number | 1 |
| DOIs | |
| State | Published - May 2012 |
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ASJC Scopus subject areas
- Physics and Astronomy(all)
- Materials Science(all)
- Physical and Theoretical Chemistry
Cite this
Mechanistic origin of dragon-kings in a population of competing agents. / Johnson, Neil F; Tivnan, B.
In: European Physical Journal: Special Topics, Vol. 205, No. 1, 05.2012, p. 65-78.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Mechanistic origin of dragon-kings in a population of competing agents
AU - Johnson, Neil F
AU - Tivnan, B.
PY - 2012/5
Y1 - 2012/5
N2 - We analyze the mechanistic origins of the extreme behaviors that arise in an idealized model of a population of competing agents, such as traders in a market. These extreme behaviors exhibit the defining characteristics of 'dragon-kings'. Our model comprises heterogeneous agents who repeatedly compete for some limited resource, making binary choices based on the strategies that they have in their possession. It generalizes the well-known Minority Game by allowing agents whose strategies have not made accurate recent predictions, to step out of the competition until their strategies improve. This generates a complex dynamical interplay between the number V of active agents (mimicking market volume) and the imbalance D between the decisions made (mimicking excess demand). The wide spectrum of extreme behaviors which emerge, helps to explain why no unique relationship has been identified between the price and volume during real market crashes and rallies.
AB - We analyze the mechanistic origins of the extreme behaviors that arise in an idealized model of a population of competing agents, such as traders in a market. These extreme behaviors exhibit the defining characteristics of 'dragon-kings'. Our model comprises heterogeneous agents who repeatedly compete for some limited resource, making binary choices based on the strategies that they have in their possession. It generalizes the well-known Minority Game by allowing agents whose strategies have not made accurate recent predictions, to step out of the competition until their strategies improve. This generates a complex dynamical interplay between the number V of active agents (mimicking market volume) and the imbalance D between the decisions made (mimicking excess demand). The wide spectrum of extreme behaviors which emerge, helps to explain why no unique relationship has been identified between the price and volume during real market crashes and rallies.
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UR - http://www.scopus.com/inward/citedby.url?scp=84860525777&partnerID=8YFLogxK
U2 - 10.1140/epjst/e2012-01562-x
DO - 10.1140/epjst/e2012-01562-x
M3 - Article
AN - SCOPUS:84860525777
VL - 205
SP - 65
EP - 78
JO - European Physical Journal: Special Topics
JF - European Physical Journal: Special Topics
SN - 1951-6355
IS - 1
ER -