scholarly journals Three Different Ways Synchronization Can Cause Contagion in Financial Markets

Risks ◽  
2018 ◽  
Vol 6 (4) ◽  
pp. 104 ◽  
Author(s):  
Naji Massad ◽  
Jørgen Andersen
Keyword(s):  
Decision Making ◽  
Financial Markets ◽  
Financial Market ◽  
Change Blindness ◽  
Market Performance ◽  
Large Change ◽  
Fire Dynamics ◽  
Agent Based ◽  
Integrate And Fire ◽  
Human Decision

We introduce tools to capture the dynamics of three different pathways, in which the synchronization of human decision-making could lead to turbulent periods and contagion phenomena in financial markets. The first pathway is caused when stock market indices, seen as a set of coupled integrate-and-fire oscillators, synchronize in frequency. The integrate-and-fire dynamics happens due to “change blindness”, a trait in human decision-making where people have the tendency to ignore small changes, but take action when a large change happens. The second pathway happens due to feedback mechanisms between market performance and the use of certain (decoupled) trading strategies. The third pathway occurs through the effects of communication and its impact on human decision-making. A model is introduced in which financial market performance has an impact on decision-making through communication between people. Conversely, the sentiment created via communication has an impact on financial market performance. The methodologies used are: agent based modeling, models of integrate-and-fire oscillators, and communication models of human decision-making.

scholarly journals Three Different Ways Synchronization can Cause Contagion in Financial Markets

2018 ◽  
Author(s):  
Jorgen Vitting Andersen ◽  
Naji Masaad
Keyword(s):  
Decision Making ◽  
Financial Markets ◽  
Financial Market ◽  
Change Blindness ◽  
Market Performance ◽  
Large Change ◽  
Trading Strategies ◽  
Fire Dynamics ◽  
Integrate And Fire ◽  
Human Decision

We introduce tools to capture the dynamics of three different pathways, in which the synchronization of human decision making could lead to turbulent periods and contagion phenomena in financial markets. The first pathway is caused when stock market indices, seen as a set of coupled integrate-and-fire oscillators, synchronize in frequency. The integrate-and-fire dynamics happens due to "change blindness", a trait in human decision making where people have the tendency to ignore small changes, but take action when a large change happens. The second pathway happens due to feedback mechanisms between market performance and the use of certain (decoupled) trading strategies. The third pathway occurs through the effects of communication and its impact on human decision making. A model is introduced in which financial market performance has an impact on decision making through communication between people. Conversely, the sentiment created via communication has an impact on financial market performance.

scholarly journals Theoretical foundations of human decision-making in agent-based land use models – A review

2017 ◽  
Vol 87 ◽  
pp. 39-48 ◽  
Author(s):  
J. Groeneveld ◽  
B. Müller ◽  
C.M. Buchmann ◽  
G. Dressler ◽  
C. Guo ◽  
...  
Keyword(s):  
Decision Making ◽  
Land Use ◽  
Agent Based ◽  
Human Decision ◽  
Land Use Models ◽  
Theoretical Foundations

Modern Financial Market Theory – A Critique Based on the Logic of Human Action

2021 ◽  
Vol 54 (3) ◽  
pp. 447-467
Author(s):  
Thorsten Polleit
Keyword(s):  
Decision Making ◽  
Financial Markets ◽  
Financial Market ◽  
Real World ◽  
Rational Expectation ◽  
Efficient Market Hypothesis ◽  
Human Action ◽  
Market Theory ◽  
Expectation Theory ◽  
Market Economics

The modern financial market theory (MFMT) – based on the efficient market hypothesis, rational expectation theory, and modern portfolio theory – has become the standard approach in financial market economics. In this article, the MFMT will be critically ­reviewed using the logic of human action (or: praxeology) as an epistemological meta­theory. It will be shown that the MFMT exhibits (praxeo-)logical deficiencies so that it cannot provide investors with well-founded decision-making support in real-world financial markets.

Analyzing the Influences of Passive Investment Strategies on Financial Markets via Agent-Based Modeling

2008 ◽  
pp. 224-238 ◽  
Author(s):  
Hiroshi Takahashi ◽  
Satoru Takahashi ◽  
Takao Terano
Keyword(s):  
Asset Pricing ◽  
Financial Markets ◽  
Financial Market ◽  
Investment Strategy ◽  
Agent Based Modeling ◽  
Investment Strategies ◽  
Agent Based Model ◽  
Efficient Market ◽  
Agent Based ◽  
Price Fluctuations

This chapter develops an agent-based model to analyze microscopic and macroscopic links between investor behaviors and price fluctuations in a financial market. This analysis focuses on the effects of Passive Investment Strategy in a financial market. From the extensive analyses, we have found that (1) Passive Investment Strategy is valid in a realistic efficient market, however, it could have bad influences such as instability of market and inadequate asset pricing deviations, and (2) under certain assumptions, Passive Investment Strategy and Active Investment Strategy could coexist in a Financial Market.

scholarly journals Emergence of Coordination in Growing Decision-Making Organizations: The Role of Complexity, Search Strategy, and Cost of Effort

Complexity ◽  
2019 ◽  
Vol 2019 ◽  
pp. 1-26
Author(s):  
Friederike Wall
Keyword(s):  
Decision Making ◽  
Decision Problem ◽  
Search Strategy ◽  
Decision Makers ◽  
Agent Based ◽  
Distributed Decision Making ◽  
Human Decision ◽  
Nk Fitness Landscapes ◽  
The Cost ◽  
Different Levels

Coordination among decision-makers of an organization, each responsible for a certain partition of an overall decision-problem, is of crucial relevance with respect to the overall performance obtained. Among the challenges of coordination in distributed decision-making systems (DDMS) is to understand how environmental conditions like, for example, the complexity of the decision-problem to be solved, the problem’s predictability and its dynamics shape the adaptation of coordination mechanisms. These challenges apply to DDMS resided by human decision-makers like firms as well as to systems of artificial agents as studied in the domain of multiagent systems (MAS). It is well known that coordination for increasing decision-problems and, accordingly, growing organizations is in a particular tension between shaping the search for new solutions and setting appropriate constraints to deal with increasing size and intraorganizational complexity. Against this background, the paper studies the adaptation of coordination in the course of growing decision-making organizations. For this, an agent-based simulation model based on the framework of NK fitness landscapes is employed. The study controls for different levels of complexity of the overall decision-problem, different strategies of search for new solutions, and different levels of cost of effort to implement new solutions. The results suggest that, with respect to the emerging coordination mode, complexity subtly interferes with the search strategy employed and cost of effort. In particular, results support the conjecture that increasing complexity leads to more hierarchical coordination. However, the search strategy shapes the predominance of hierarchy in favor of granting more autonomy to decentralized decision-makers. Moreover, the study reveals that the cost of effort for implementing new solutions in conjunction with the search strategy may remarkably affect the emerging form of coordination. This could explain differences in prevailing coordination modes across different branches or technologies or could explain the emergence of contextually inferior modes of coordination.

scholarly journals Using a coupled agent-based modeling approach to analyze the role of risk perception in water management decisions

2019 ◽  
Vol 23 (5) ◽  
pp. 2261-2278 ◽  
Author(s):  
Jin-Young Hyun ◽  
Shih-Yu Huang ◽  
Yi-Chen Ethan Yang ◽  
Vincent Tidwell ◽  
Jordan Macknick
Keyword(s):  
Decision Making ◽  
Risk Perception ◽  
Regional Scale ◽  
Agent Based ◽  
Natural Processes ◽  
Complex Adaptive ◽  
San Juan River ◽  
Human Decision ◽  
Decision Making Processes ◽  
Engineered Systems

Abstract. Managing water resources in a complex adaptive natural–human system is a challenge due to the difficulty of modeling human behavior under uncertain risk perception. The interaction between human-engineered systems and natural processes needs to be modeled explicitly with an approach that can quantify the influence of incomplete/ambiguous information on decision-making processes. In this study, we two-way coupled an agent-based model (ABM) with a river-routing and reservoir management model (RiverWare) to address this challenge. The human decision-making processes is described in the ABM using Bayesian inference (BI) mapping joined with a cost–loss (CL) model (BC-ABM). Incorporating BI mapping into an ABM allows an agent's psychological thinking process to be specified by a cognitive map between decisions and relevant preceding factors that could affect decision-making. A risk perception parameter is used in the BI mapping to represent an agent's belief on the preceding factors. Integration of the CL model addresses an agent's behavior caused by changing socioeconomic conditions. We use the San Juan River basin in New Mexico, USA, to demonstrate the utility of this method. The calibrated BC-ABM–RiverWare model is shown to capture the dynamics of historical irrigated area and streamflow changes. The results suggest that the proposed BC-ABM framework provides an improved representation of human decision-making processes compared to conventional rule-based ABMs that do not take risk perception into account. Future studies will focus on modifying the BI mapping to consider direct agents' interactions, up-front cost of agent's decision, and upscaling the watershed ABM to the regional scale.

scholarly journals Approaches to Modeling the Gas-Turbine Maintenance Process

2011 ◽  
Vol 12 (1) ◽  
Author(s):  
Tai-Tuck Yu ◽  
James P. Scanlan ◽  
Richard M. Crowder ◽  
Gary B. Wills
Keyword(s):  
Decision Making ◽  
Gas Turbine ◽  
Discrete Event ◽  
Agent Based Modeling ◽  
Agent Based ◽  
Event Modeling ◽  
Human Decision ◽  
Event Model ◽  
Discrete Event Model

Discrete-event modeling has long been used for logistics and scheduling problems, while multi-agent modeling closely matches human decision-making process. In this paper, a metric-based comparison between the traditional discrete-event and the emerging agent-based modeling approaches is reported. The case study involved the implementation of two functionally identical models based on a realistic, nontrivial, civil aircraft gas turbine global repair operation. The size, structural complexity, and coupling metrics from the two models were used to gauge the benefits and drawbacks of each modeling paradigm. The agent-based model was significantly better than the discrete-event model in terms of execution times, scalability, understandability, modifiability, and structural flexibility. In contrast, and importantly in an engineering context, the discrete-event model guaranteed predictable and repeatable results and was comparatively easy to test because of its single-threaded operation. However, neither modeling approach on its own possesses all these characteristics nor can each handle the wide range of resolutions and scales frequently encountered in problems exemplified by the case study scenario. It is recognized that agent-based modeling can emulate high-level human decision-making and communication closely while discrete-event modeling provides a good fit for low-level sequential processes such as those found in manufacturing and logistics.

Heterogeneity and Self-Organization of Complex Systems Through an Application to Financial Market with Multiagent Systems

2017 ◽  
Vol 27 (14) ◽  
pp. 1750219 ◽  
Author(s):  
Iris Lucas ◽  
Michel Cotsaftis ◽  
Cyrille Bertelle
Keyword(s):  
Financial Markets ◽  
Multiagent Systems ◽  
Financial Market ◽  
Complex Dynamics ◽  
Global Market ◽  
Self Organization ◽  
Empirical Literature ◽  
Agent Based ◽  
Multi Scale ◽  
And Behavior

Multiagent systems (MAS) provide a useful tool for exploring the complex dynamics and behavior of financial markets and now MAS approach has been widely implemented and documented in the empirical literature. This paper introduces the implementation of an innovative multi-scale mathematical model for a computational agent-based financial market. The paper develops a method to quantify the degree of self-organization which emerges in the system and shows that the capacity of self-organization is maximized when the agent behaviors are heterogeneous. Numerical results are presented and analyzed, showing how the global market behavior emerges from specific individual behavior interactions.

scholarly journals Can Central Banking Policies Make a Difference in Financial Market Performance in Emerging Economies? The Case of India

Economies ◽  
2019 ◽  
Vol 7 (2) ◽  
pp. 49
Author(s):  
Gagan Deep Sharma ◽  
Mandeep Mahendru ◽  
Mrinalini Srivastava
Keyword(s):  
Financial Markets ◽  
Financial Market ◽  
Market Performance ◽  
Fixed Effect Model ◽  
Central Banking ◽  
Currency Markets ◽  
Reserve Bank ◽  
Effect Model ◽  
Egarch Model ◽  
The Impact

This paper explores the importance of central banking policies in financial market performance, using the case of India. For this purpose, the paper comparatively analyzes the performance of financial markets during the regimes of last three governors of the Reserve Bank of India—Y V Reddy, D Subbarao, and Raghuram Rajan. The paper discusses the central banking policies in these periods with respect to monetary stability, inflation, and growth challenges. The paper presents an analysis of returns and volatility in stock markets and currency markets in their tenures in comparison with those from other selected emerging markets (Brazil, Russia, China, South Africa) and developed markets (USA and UK). The paper also brings out the leverage effect by applying the exponential generalized autoregressive conditional heteroskedasticity (EGARCH) model in addition to comparatively analyzing the performance of financial markets. Further, the paper assesses the impact of central banking policies on financial markets by using the fixed effect model on the reference countries for the period under reference.

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