Transition from coherence to bistability in a model of financial markets

R. D'Hulst and G.J. Rodgers
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R. D'Hulst: Department of Mathematical Sciences, Brunel University, Uxbridge, Middlesex UB8 3PH, UK
G.J. Rodgers: Department of Mathematical Sciences, Brunel University, Uxbridge, Middlesex UB8 3PH, UK

The European Physical Journal B: Condensed Matter and Complex Systems, 2001, vol. 20, issue 4, 619-625

Abstract: 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.

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 (search for similar items in EconPapers)
Date: 2001
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DOI: 10.1007/s100510170250

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