Overconfident agents and evolving financial networks

Authored by Iudice Francesco Lo, Lellis Pietro De, Meglio Anna Di

Date Published: 2018

DOI: 10.1007/s11071-017-3780-y

Sponsors: No sponsors listed

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

In this paper, we investigate the impact of agent personality on the complex dynamics taking place in financial markets. Leveraging recent findings, we model the artificial financial market as a complex evolving network: we consider discrete dynamics for the node state variables, which are updated at each trading session, while the edge state variables, which define a network of mutual influence, evolve continuously with time. This evolution depends on the way the agents rank their trading abilities in the network. By means of extensive numerical simulations in selected scenarios, we shed light on the role of overconfident agents in shaping the emerging network topology, thus impacting on the overall market dynamics.

Tags

Agent-based model Complex networks Artificial financial market behavioral finance Markets Economy Evolving networks