Modeling an Artificial Stock Market

Modeling an Artificial Stock Market

S. Lavigne (Toulouse Business School, France) and S. Sanchez (Université Toulouse 1, France)
DOI: 10.4018/978-1-59140-984-7.ch058
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Abstract

This chapter presents an artificial stock market created to analyze market dynamics from the behavior of investors. It argues that information—delivered by financial intermediaries as rating agencies and considered as cognitive institution—directs the decisions of investors who are heterogeneous agents endowed with capabilities of learning in a changing environment. The objective is to demonstrate that information influences market dynamics as it allows the coordination of the decisions of investment in the same direction: information is a focal point for investors and contributes to generate a speculative dynamic on the market.

Key Terms in this Chapter

Complex System: (1) A system that constantly evolve and unfolded over time (Arthur, 2000 AU17: The in-text citation "Arthur, 2000" is not in the reference list. Please correct the citation, add the reference to the list, or delete the citation. ). (2) A system with multiple elements adapting or reacting to the pattern these elements create (Arthur, 2000 AU18: The in-text citation "Arthur, 2000" is not in the reference list. Please correct the citation, add the reference to the list, or delete the citation. ). (3) A system in which the information-processing capacities of agents are limited relative to the information available to them ( Moss & Rae, 1992 ).

Path-Dependent Learning: The decisions of an agent result from the history of the interactions of investors in the market ( David, 1985 ).

Cognitive Institution: An institution which allows the polarization of the anticipations formed by actors with different representations on their environment or their respective characteristics ( Walliser, 2000 ).

Market Dynamics: The result of the interactions between the decisions of the various investors evolving in a complex environment. This result can be described on a global level without referring to the specific attributes of the microeconomic agents composing the market and depends on the initial conditions of the system ( Lane, 1993 ).

Limited Rationality: Each agent (1) does not know all the options offered to him (informational limits), or (2) is not able to evaluate all the consequences of his choices (computational limits) ( Simon, 1979 ). This concept implies a satisficing behavior for each investor.

Self-Organization: A global structure, which did not exist at the start, can appear as the result of the many interactions between investors ( Lesourne, 1991 ). Self-organization design the capacity of a system to produce—in a way that is not necessarily voluntary or conscious—a structure, an organization, a behavior, and/or its own rules of functioning ( Paulré, 1997 ; Lesourne, 1991 ).

Information: A signal, message, or perception that produces an effect (a decision) on agents’ behavior or on their cognitive state.

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