Transition from coherence to bistability in a model of financial markets |
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| Authors: | R D'Hulst GJ Rodgers |
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| Institution: | (1) Department of Mathematical Sciences, Brunel University, Uxbridge, Middlesex UB8 3PH, UK, GB |
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| Abstract: | We present a model describing the competition between information transmission and decision making in financial markets. The
solution of this simple model is recalled, and possible variations discussed. It is shown numerically that despite its simplicity,
it can mimic a size effect comparable to a crash localized in time. Two extensions of this model are presented that allow
to simulate the demand process. One of these extensions has a coherent stable equilibrium and is self-organized, while the
other has a bistable equilibrium, with a spontaneous segregation of the population of agents. A new model is introduced to
generate a transition between those two equilibriums. We show that the coherent state is dominant up to an equal mixing of
the two extensions. We focus our attention on the microscopic structure of the investment rate, which is the main parameter
of the original model. A constant investment rate seems to be a very good approximation.
Received 7 August 2000 and Received in final form 10 September 2000 |
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| Keywords: | PACS 02 50 Le Decision theory and game theory – 02 50 Ng Distribution theory and Monte Carlo studies – 05 65 +b Self-organized systems |
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