Modeling a large population of traders: Mimesis and stability

Ahmet Omurtag, Lawrence Sirovich

Research output: Contribution to journalArticle

8 Scopus citations

Abstract

We introduce a method of accurately and efficiently modeling a large population of participants in a financial market. Each participant is modeled as having an internal preference state affected by the continual arrival of exogenous information and by the behavior of others. In order to describe a community of traders, we introduce a population equation that is derived rigorously from the underlying single-agent model. The population equation is used to investigate collective behavior with mimetic interactions. We observe and study the sharp transitions in parameter space from a stable time-independent regime to instability where the demand and supply diverge sharply.

Original languageEnglish (US)
Pages (from-to)562-576
Number of pages15
JournalJournal of Economic Behavior and Organization
Volume61
Issue number4
DOIs
StatePublished - Dec 1 2006

Keywords

  • Collective decision making
  • Financial markets
  • Herd behavior
  • Mimesis
  • Stability

ASJC Scopus subject areas

  • Economics and Econometrics
  • Organizational Behavior and Human Resource Management

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