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Dynamic Learning, Herding and Guru Effects in Networks

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  • Sheri Markose

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  • Amadeo Alentorn
  • Andreas Krause

Abstract

It has been widely accepted that herding is the consequence of mimetic responses by agents interacting locally on a communication network. In extant models, this communication network linking agents, by and large, has been assumed to be fixed. In this paper we allow it to evolve endogenously by enabling agents to adaptively modify the weights of their links to their neighbours by reinforcing �good� advisors and breaking away from �bad� advisors with the latter being replaced randomly from the remaining agents. The resulting network not only allows for herding of agents, but crucially exhibits realistic properties of socio-economic networks that are otherwise difficult to replicate: high clustering, short average path length and a small number of highly connected agents, called "gurus". These properties are now well understood to characterize �small world networks� of Watts and Strogatz (1998).

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Bibliographic Info

Paper provided by University of Essex, Department of Economics in its series Economics Discussion Papers with number 582.

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Date of creation: 12 Oct 2004
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Handle: RePEc:esx:essedp:582

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  1. Sheri M. Markose, 2001. "The New Evolutionary Computational Paradigm of Complex Adaptive Systems: Challenges and Prospects for Economics and Finance," Economics Discussion Papers 532, University of Essex, Department of Economics.
  2. Vriend, Nicolaas J, 1995. "Self-Organization of Markets: An Example of a Computational Approach," Computational Economics, Society for Computational Economics, vol. 8(3), pages 205-31, August.
  3. Sheri M. Markose, 2005. "Computability and Evolutionary Complexity: Markets as Complex Adaptive Systems (CAS)," Economic Journal, Royal Economic Society, vol. 115(504), pages F159-F192, 06.
  4. Challet, Damien & Zhang, Yi-Cheng, 1998. "On the minority game: Analytical and numerical studies," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 256(3), pages 514-532.
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Cited by:
  1. Tedeschi, Gabriele & Iori, Giulia & Gallegati, Mauro, 2012. "Herding effects in order driven markets: The rise and fall of gurus," Journal of Economic Behavior & Organization, Elsevier, vol. 81(1), pages 82-96.
  2. Sami Al-Suwailem, 2012. "Complexity and Endogenous Instability," ASSRU Discussion Papers 1203, ASSRU - Algorithmic Social Science Research Unit.
  3. Sheri Markose & Simone Giansante & Mateusz Gatkowski & Ali Rais Shaghaghi, 2010. "Too Interconnected To Fail: Financial Contagion and Systemic Risk in Network Model of CDS and Other Credit Enhancement Obligations of US Banks," Economics Discussion Papers 683, University of Essex, Department of Economics.

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