Exact solution of a modified El Farol's bar problem: Efficiency and the role of market impact

Matteo Marsili, Damien Challet and Riccardo Zecchina

Physica A: Statistical Mechanics and its Applications, 2000, vol. 280, issue 3, 522-553

Abstract: We discuss a model of heterogeneous, inductive rational agents inspired by the El Farol Bar problem and the Minority Game. As in markets, agents interact through a collective aggregate variable — which plays a role similar to price — whose value is fixed by all of them. Agents follow a simple reinforcement-learning dynamics where the reinforcement, for each of their available strategies, is related to the payoff delivered by that strategy. We derive the exact solution of the model in the “thermodynamic” limit of infinitely many agents using tools of statistical physics of disordered systems. Our results show that the impact of agents on the market price plays a key role: even though price has a weak dependence on the behavior of each individual agent, the collective behavior crucially depends on whether agents account for such dependence or not. Remarkably, if the adaptive behavior of agents accounts even “infinitesimally” for this dependence they can, in a whole range of parameters, reduce global fluctuations by a finite amount. Both global efficiency and individual utility improve with respect to a “price taker” behavior if agents account for their market impact.

Date: 2000
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S037843719900610X
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:280:y:2000:i:3:p:522-553

DOI: 10.1016/S0378-4371(99)00610-X

Access Statistics for this article

Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis

More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Bibliographic data for series maintained by Catherine Liu ().