Agent Psychology, Bids, and Phase Transitions in Minority-Game Markets

Summary

The document uses generating functional analysis to study minority-game-style market models. Agents update strategy valuations according to rules that represent differing degrees of greed and anxiety. Their tendencies toward trend following or contrarian trading, and the strength of those actions, vary with the overall market state. The analysis therefore links agent behavior to market-wide conditions rather than treating strategy choice as fixed.

Even in models with artificial histories, the theory includes an effective aggregate bid process coupled to the behavior of an effective agent. This bid process can show remanence, in which its state retains an effect from prior conditions, and can undergo phase transitions. Some versions can be solved directly, while others require approximations based on Maxwell constructions. The document outlines theoretical tools and possible dynamics, but does not provide empirical market validation, quantitative trading rules, or performance results. Its findings should therefore be read as properties of specified agent-based models, not as direct predictions about live markets.

Key ideas

• Agent strategy valuation rules encode psychological tendencies such as greed and anxiety.
• Agents’ trend-following or contrarian behavior depends on the market’s overall state.
• The aggregate bid process can retain memory and exhibit phase transitions, even with artificial histories.
• Some model cases have direct solutions, while others rely on Maxwell-construction approximations.

Tags

# Theory of agent-based market models with controlled levels of greed and anxiety


# Theory of agent-based market models with controlled levels of greed and anxiety









We use generating functional analysis to study minority-game type market models with generalized strategy valuation updates that control the psychology of agents' actions. The agents' choice between trend following and contrarian trading, and their vigor in each, depends on the overall state of the market. Even in `fake history' models, the theory now involves an effective overall bid process (coupled to the effective agent process) which can exhibit profound remanence effects and new phase transitions. For some models the bid process can be solved directly, others require Maxwell-construction type approximations.

Shown in full with attribution under the source's licence. Licence: abstract CC0

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.