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The Role of Liquidity Individuals in the Decision-Making

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  • Steinbacher, Matjaz

Abstract

We simulate social network games of a portfolio selection to analyze the role of liquidity individuals for the developments in individuals’ decision-making in financial markets. Liquidity individuals prove to be a significant element in the decision-making process of the entire network, as they keep the information of non-dominant strategies alive. Their role is especially significant under omniscient individuals, whereas a little less under non-omniscient individuals. As long as individuals do not lose the information of all the alternatives, their role is insignificant.

Suggested Citation

  • Steinbacher, Matjaz, 2009. "The Role of Liquidity Individuals in the Decision-Making," MPRA Paper 13566, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:13566
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    References listed on IDEAS

    as
    1. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
    2. David Hirshleifer, 2001. "Investor Psychology and Asset Pricing," Journal of Finance, American Finance Association, vol. 56(4), pages 1533-1597, August.
    3. Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(3), pages 797-817.
    4. Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 1998. "Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 151-170, Summer.
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    Cited by:

    1. Steinbacher, Matjaz, 2009. "Value-at-Risk versus Non-Value-at-Risk Traders," MPRA Paper 14295, University Library of Munich, Germany.
    2. Steinbacher, Matjaz, 2009. "What is the “value” of value-at-risk in a simulated portfolio decision-making game?," MPRA Paper 13866, University Library of Munich, Germany.
    3. Steinbacher, Matjaz, 2009. "Behavior of Investors on a Multi-Asset Market," MPRA Paper 15898, University Library of Munich, Germany.

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    More about this item

    Keywords

    social networks; portfolio analysis; stochastic finance;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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