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Market mechanism and expectations in minority and majority games

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  • Marsili, Matteo

Abstract

We present a derivation of the minority game from a market mechanism. This shows that the minority nature of the interaction crucially depends on the expectation model of agents. The same market mechanism with different expectations leads indeed to the majority game. We study in detail the minority game without information and clarify the role of initial conditions on the dynamics. The stronger and the more heterogeneous the prior beliefs which agents hold on the best choice, the more efficient is the final stationary state. We also review the effect of market impact. Finally we discuss mixed minority–majority games in order to address the issue of whether the dynamics of the market satisfies the expectations of agents. We find that in both a minority and a majority game expectations are self-fulfilled.

Suggested Citation

  • Marsili, Matteo, 2001. "Market mechanism and expectations in minority and majority games," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 299(1), pages 93-103.
    • Handle: RePEc:eee:phsmap:v:299:y:2001:i:1:p:93-103
    DOI: 10.1016/S0378-4371(01)00285-0
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    References listed on IDEAS

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    1. Matteo Marsili & Damien Challet, 2001. "Trading Behavior And Excess Volatility In Toy Markets," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 4(01), pages 3-17.
    2. Challet, Damien & Marsili, Matteo & Zhang, Yi-Cheng, 2001. "Stylized facts of financial markets and market crashes in Minority Games," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 294(3), pages 514-524.
    3. J. Berg & M. Marsili & A. Rustichini & R. Zecchina, 2001. "Statistical mechanics of asset markets with private information," Quantitative Finance, Taylor & Francis Journals, vol. 1(2), pages 203-211.
    4. Colin Camerer & Teck-Hua Ho, 1999. "Experience-weighted Attraction Learning in Normal Form Games," Econometrica, Econometric Society, vol. 67(4), pages 827-874, July.
    5. Thomas Lux & Michele Marchesi, 1999. "Scaling and criticality in a stochastic multi-agent model of a financial market," Nature, Nature, vol. 397(6719), pages 498-500, February.
    6. D. Challet & A. Chessa & M. Marsili & Y-C. Zhang, 2001. "From Minority Games to real markets," Quantitative Finance, Taylor & Francis Journals, vol. 1(1), pages 168-176.
    7. Carl Chiarella, 1992. "The Dynamics of Speculative Behaviour," Working Paper Series 13, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    8. Challet, Damien & Marsili, Matteo & Zhang, Yi-Cheng, 2001. "Minority games and stylized facts," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 299(1), pages 228-233.
    9. Challet, D. & Zhang, Y.-C., 1997. "Emergence of cooperation and organization in an evolutionary game," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 246(3), pages 407-418.
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    Cited by:

    1. J. Wiesinger & D. Sornette & J. Satinover, 2013. "Reverse Engineering Financial Markets with Majority and Minority Games Using Genetic Algorithms," Computational Economics, Springer;Society for Computational Economics, vol. 41(4), pages 475-492, April.
    2. Kiniwa, Jun & Koide, Takeshi & Sandoh, Hiroaki, 2009. "Analysis of price behavior in lazy $-game," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 388(18), pages 3879-3891.
    3. Challet, Damien, 2008. "Inter-pattern speculation: Beyond minority, majority and $-games," Journal of Economic Dynamics and Control, Elsevier, vol. 32(1), pages 85-100, January.
    4. Vee-Liem Saw & Lock Yue Chew, 2020. "No-boarding buses: Synchronisation for efficiency," PLOS ONE, Public Library of Science, vol. 15(3), pages 1-34, March.
    5. Lucas Fievet & Didier Sornette, 2018. "Calibrating emergent phenomena in stock markets with agent based models," PLOS ONE, Public Library of Science, vol. 13(3), pages 1-17, March.
    6. Lustosa, Bernardo C. & Cajueiro, Daniel O., 2010. "Constrained information minority game: How was the night at El Farol?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(6), pages 1230-1238.
    7. Alfi, V. & De Martino, A. & Pietronero, L. & Tedeschi, A., 2007. "Detecting the traders’ strategies in minority–majority games and real stock-prices," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 382(1), pages 1-8.
    8. Gao, Yan & Li, Honggang, 2011. "A consolidated model of self-fulfilling expectations and self-destroying expectations in financial markets," Journal of Economic Behavior & Organization, Elsevier, vol. 77(3), pages 368-381, March.
    9. Damien Challet & Tobias Galla, 2005. "Price return autocorrelation and predictability in agent-based models of financial markets," Quantitative Finance, Taylor & Francis Journals, vol. 5(6), pages 569-576.
    10. Bianconi, Ginestra & Galla, Tobias & Marsili, Matteo & Pin, Paolo, 2009. "Effects of Tobin taxes in minority game markets," Journal of Economic Behavior & Organization, Elsevier, vol. 70(1-2), pages 231-240, May.
    11. Chen, Fang & Gou, Chengling & Guo, Xiaoqian & Gao, Jieping, 2008. "Prediction of stock markets by the evolutionary mix-game model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(14), pages 3594-3604.
    12. Andre Cardoso Barato & Iacopo Mastromatteo & Marco Bardoscia & Matteo Marsili, 2011. "Impact of meta-order in the Minority Game," Papers 1112.3908, arXiv.org, revised Nov 2012.
    13. Wu, Jinshan & Di, Zengru & Yang, Zhanru, 2003. "Division of labor as the result of phase transition," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 323(C), pages 663-676.
    14. Matthew Dicks & Andrew Paskaramoorthy & Tim Gebbie, 2023. "Many learning agents interacting with an agent-based market model," Papers 2303.07393, arXiv.org, revised Aug 2024.
    15. Mello, Bernardo A. & Cajueiro, Daniel O., 2008. "Minority games, diversity, cooperativity and the concept of intelligence," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 387(2), pages 557-566.
    16. Ginestra Bianconi & Tobias Galla & Matteo Marsili, 2006. "Effects of Tobin Taxes in Minority Game markets," Papers cond-mat/0603134, arXiv.org.
    17. Michael E Roberts & Robert L Goldstone, 2011. "Adaptive Group Coordination and Role Differentiation," PLOS ONE, Public Library of Science, vol. 6(7), pages 1-8, July.
    18. Ferreira, Fernando F. & Marsili, Matteo, 2005. "Real payoffs and virtual trading in agent based market models," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 345(3), pages 657-675.

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