Phenomena which involves collective choice of many agents who are interacting with each other and choosing one of several alternatives, based on the limited information available to them, frequently show switching between two distinct phases characterized by a bimodal and an unimodal distribution respectively. Examples include financial markets, movie popularity and electoral behavior. Here we present a model for this biphasic behavior and argue that it arises from interactions in a local neighborhood and adaptation & learning based on information about the effectiveness of past choices.
A new emergence mechanism related to the human fuzzy rationality is considered. It assumes that individuals (operators) governing the dynamics of a certain system try to follow an optimal strategy in controlling its motion but fail to do this perfectly because similar strategies are indistinguishable for them. The main attention is focused on the systems where the optimal dynamics implies the stability of a certain equilibrium point in the corresponding phase space. In such systems the fuzzy rationality gives rise to some neighborhood of the equilibrium point, the region of dynamical traps, wh…
Information technology has revolutionized the traditional structure of markets. The removal of geographical and time constraints has fostered the growth of online auction markets, which now include millions of economic agents worldwide and annual transaction volumes in the billions of dollars. Here, we analyze bid histories of a little studied type of online auctions --- lowest unique bid auctions. Similarly to what has been reported for foraging animals searching for scarce food, we find that agents adopt Levy flight search strategies in their exploration of "bid space". The Levy regime, whic…
Collective phenomena with universal properties have been observed in many complex systems with a large number of components. Here we present a microscopic model of the emergence of scaling behavior in such systems, where the interaction dynamics between individual components is mediated by a global variable making the mean-field description exact. Using the example of financial markets, we show that asset price can be such a global variable with the critical role of coordinating the actions of agents who are otherwise independent. The resulting model accurately reproduces empirical properties …
In the age of globalization, it is natural that the stock market of each country is not independent form the other markets. In this case, collective behavior could be emerged form their dependency together. This article studies the collective behavior of a set of forty influential markets in the world economy with the aim of exploring a global financial structure that could be called world-stock-market network. Towards this end, we analyze the cross-correlation matrix of the indices of these forty markets using Random Matrix Theory (RMT). We find the degree of collective behavior among the mar…
We investigate the emergence of a structure in the correlation matrix of assets' returns as the time-horizon over which returns are computed increases from the minutes to the daily scale. We analyze data from different stock markets (New York, Paris, London, Milano) and with different methods. Result crucially depends on whether the data is restricted to the ``internal'' dynamics of the market, where the ``center of mass'' motion (the market mode) is removed or not. If the market mode is not removed, we find that the structure emerges, as the time-horizon increases, from splitting a single lar…
Idea markets are contexts where ideas compete for attention and people to embrace them. They are near ubiquitous in the form of religions, political parties, securities markets and the blogosphere to name a few. Most idea markets are also communities where members alternate between being idea consumers and producers. They are thus centers for collaborative knowledge creation. Recent research extols the value of diverse perspectives among the members of such groups, however these groups tend to form based on commonality of idea preference, a basis that is thought to limit diversity. This study …
In complex systems like financial market, risk tolerance of individuals is crucial for system resilience.The single-security price limit, designed as risk tolerance to protect investors by avoiding sharp price fluctuation, is blamed for feeding market panic in times of crash.The relationship between the critical market confidence which stabilizes the whole system and the price limit is therefore an important aspect of system resilience. Using a simplified dynamic model on networks of investors and stocks, an unexpected linear association between price limit and critical market confidence is th…
We study the time change of the relation between the rank of a racehorse in the Japan Racing Association and the result of victory or defeat. Horses are ranked according to the win bet fractions. As the vote progresses, the racehorses are mixed on the win bet fraction axis. We see the emergence of a scale invariant relation between the cumulative distribution function of the winning horse $x_{1}$ and that of the losing horse $x_{0}$. $x_{1}\propto x_{0}^α$ holds in the small win bet fraction region. We also see the efficiency of the market as the vote proceeds. However, the convergence to the …
Centre for Complex Systems, The University of Sydney（悉尼大学复杂系统中心）；Securities Industry Research Centre of Asia-Pacific（亚太证券业研究中心）；CoreLogic, Inc.（CoreLogic公司）
Bounded rationality is an important consideration stemming from the fact that agents often have limits on their processing abilities, making the assumption of perfect rationality inapplicable to many real tasks. We propose an information-theoretic approach to the inference of agent decisions under Smithian competition. The model explicitly captures the boundedness of agents (limited in their information-processing capacity) as the cost of information acquisition for expanding their prior beliefs. The expansion is measured as the Kullblack-Leibler divergence between posterior decisions and prio…
The nature of dispersal of many invasive pests and pathogens in agricultural and forestry makes it necessary to consider how the actions of one manager affect neighbouring properties. In addition to the direct effects of a potential spread of a pest and the resulting economic loss, there are also indirect consequences that affect whole regions and that require coordinated actions to manage and/or to eradicate it (like movement restrictions). In this paper we address the emergence and stability of cooperation among agents who respond to a threat of an invasive pest or disease. The model, based …
Standard economic theory assumes that agents in markets behave rationally. However, the observation of extremely large fluctuations in the price of financial assets that are not correlated to changes in their fundamental value, as well as the extreme instance of financial bubbles and crashes, imply that markets (at least occasionally) do display irrational behavior. In this paper, we briefly outline our recent work demonstrating that a market with interacting agents having bounded rationality can display price fluctuations that are {\em quantitatively} similar to those seen in real markets.
Urban housing markets, along with markets of other assets, universally exhibit periods of strong price increases followed by sharp corrections. The mechanisms generating such non-linearities are not yet well understood. We develop an agent-based model populated by a large number of heterogeneous households. The agents' behavior is compatible with economic rationality, with the trend-following behavior found to be essential in replicating market dynamics. The model is calibrated using several large and distributed datasets of the Greater Sydney region (demographic, economic and financial) acros…
We analyze different ways of pairing agents in a bipartite matching problem, with regard to its scaling properties and to the distribution of individual ``satisfactions''. Then we explore the role of partial information and bounded rationality in a generalized {\it Marriage Problem}, comparing the benefits obtained by self-searching and by a matchmaker. Finally we propose a modified matching game intended to mimic the way consumers' information makes firms to enhance the quality of their products in a competitive market.
Standard micro-economics concentrate on the description of markets but is seldom interested in production. Several economists discussed the concept of a firm, as opposed to an open labour market where entrepreneurs would recrute workers on the occasion of each business opportunity. Coase \cite{Coase} is one of them, who explains the existence of firms as institution because they reduce the transaction costs with respect to an open labour market. Whatever the rationale proposed by economists to account for the existence of firms, their perspective is based on efficiency and cost analysis. Littl…
We introduce a fully probabilistic framework of consumer product choice based on quality assessment. It allows us to capture many aspects of marketing such as partial information asymmetry, quality differentiation, and product placement in a supermarket.
The increasing relevance of Internet-based markets requires a sustained investigation into the relationship between design and user behavior. This research begins within the sociology of quantification and markets to investigate the impacts of basic design decisions on user behavior and individual success on a widely used crowdfunding website. This study looks at one common design feature, publishing recipients' sex, on the probability of receiving funding. Following research in the sociology of gender, these effects are defined along individual, behavioral, and structural dimensions. The resu…
A combination of a priority queueing model and mean field theory shows the emergence of traders' swarm behavior, even when each has a subjective prediction of the market driven by a limit order book. Using a nonlinear Markov model, we analyze the dynamics of traders who select a favorable order price taking into account the waiting cost incurred by others. We find swarm behavior emerges because of the delay in trader reactions to the market, and the direction of the swarm is decided by the current market position and the intensity of zero-intelligent random behavior, rather than subjective tra…
We study the informational efficiency of a market with a single traded asset. The price initially differs from the fundamental value, about which the agents have noisy private information (which is, on average, correct). A fraction of traders revise their price expectations in each period. The price at which the asset is traded is public information. The agents' expectations have an adaptive component and a social-interactions component with confirmatory bias. We show that, taken separately, each of the deviations from rationality worsen the information efficiency of the market. However, when …
The substantial turmoil created by both 2000 dot-com crash and 2008 subprime crisis has fueled the belief that the two classical paradigms of economics, which are the invisible hand and the rational agent, are not appropriate to describe market dynamics and should be abandoned at the benefit of alternative new theoretical concepts. At odd with such a view, using a simple model of choice dynamics from sociophysics, the invisible hand and the rational agent paradigms are given a new legitimacy. Indeed, it is sufficient to introduce the holding of a few intermediate mini market aggregations by ag…
We review the recent approaches to modelling financial markets based on multi-agent systems. After a brief summary of the basic stylised facts observed in real-market time-series we discuss some simple agent-based systems which are currently used to model financial markets. One of the most prominent examples is here the Minority Game (MG), which we address in some more detail. After a brief discussion of its basic setup and general phenomenology we summarise the main findings of the statistical mechanics analysis and discuss the emergence of stylised facts in extensions of the MG near their ph…
An agent-based computational economical toy model for the emergence of money from the initial barter trading, inspired by Menger's postulate that money can spontaneously emerge in a commodity exchange economy, is extensively studied. The model considered, while manageable, is significantly complex, however. It is already able to reveal phenomena that can be interpreted as emergence and collapse of money as well as the related competition effects. In particular, it is shown that - as an extra emerging effect - the money lifetimes near the critical threshold value develop multiscaling, which all…
To investigate the universality of the structure of interactions in different markets, we analyze the cross-correlation matrix C of stock price fluctuations in the National Stock Exchange (NSE) of India. We find that this emerging market exhibits strong correlations in the movement of stock prices compared to developed markets, such as the New York Stock Exchange (NYSE). This is shown to be due to the dominant influence of a common market mode on the stock prices. By comparison, interactions between related stocks, e.g., those belonging to the same business sector, are much weaker. This lack o…
