Evolutionary dynamics of information in the market: Transmission and trust

Liping Zheng, Hedong Xu, Cunzhi Tian and Suohai Fan

Physica A: Statistical Mechanics and its Applications, 2021, vol. 581, issue C

Abstract: Information that contains profit or loss is transmitted by investors in markets. The information transmission depends on both the sharer and the receiver. To illustrate the information flows in the market, the information processing game is proposed. Investors have two strategies in this game, including the continuous sharing proportion of their information and the discrete trusting strategy. Based on the learning mechanism in the particle swarm optimization, the simulation on Watts–Strogatz (WS) small-world networks shows that investors are sensitive to the information quality in markets, leading to the extreme distribution of strategies. When the market is full of rumors, investors will prefer to share everything but trust nothing, pursuing fewer losses. When the market is full of true words, investors will prefer to share nothing but trust their neighbors, pursuing more payoffs. Inappropriate trusting strategies bring greater losses or fewer payoffs to investors. Everyone may lie and create noise when communicating his/her strategies and payoffs with his/her neighbors. Noise does not affect the final state of investors’ strategies equilibrium, but it reduces the ability of investors to distinguish the quality of information, which reduces the transmission speed of real information among investors. As a result, investors spend more time on information or value exchange and strategies updating, which slows down the speed of strategy evolution.

Keywords: Investors’ information processing game; Multiple strategies; Share and trust; Evolutionary process (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:581:y:2021:i:c:s037843712100501x

DOI: 10.1016/j.physa.2021.126228

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