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Impact of Qualitative Characteristics on Market Equilibrium: Simulation with Agent-Based Modeling

Author

Listed:
  • Safae Badraoui

    (Research & Development Department, Societe Generale Africa Technologies & Services, Casablanca, Morocco)

  • Khalid Bensaid

    (Islamic Financial Engineering Laboratory, Laboratory of Study and Research in Applied Mathematics (LERMA), Mohamadia School of Engineering (EMI), Mohammed V University of Rabat, Morocco)

  • Ahmed Mouad El Haloui

    (Islamic Financial Engineering Laboratory, Laboratory of Study and Research in Applied Mathematics (LERMA), Mohamadia School of Engineering (EMI), Mohammed V University of Rabat, Morocco)

  • Rajae Aboulaich

    (Islamic Financial Engineering Laboratory, Laboratory of Study and Research in Applied Mathematics (LERMA), Mohamadia School of Engineering (EMI), Mohammed V University of Rabat, Morocco)

Abstract

This paper involves developing financial utility function that considers compliance to a certain qualitative characteristic and studies the impact on market equilibrium prices, should this criterion be Sharia compliance, fair-trade, environmental, social and governance principles or other ethical aspect. The goal is to show that individual utility can depend on other parameters than wealth and risk aversion, that therefore influence equilibrium market prices. This has been done by examining a possible utility function that takes into account individual sensitivity to the criterion and the intrinsic quality of compliance of this parameter. In order to prove the effectiveness of the proposed utility function, a simulation is made using agent-based approach with NetLogo platform. Upon examination of the impact of these parameters, it becomes clear that compliance to a qualitative characteristic would impact individual utility, supply and demand and result in equilibrium prices. This research highlights the importance of ethical arguments on individual decision making and how markets behave to this.

Suggested Citation

  • Safae Badraoui & Khalid Bensaid & Ahmed Mouad El Haloui & Rajae Aboulaich, 2017. "Impact of Qualitative Characteristics on Market Equilibrium: Simulation with Agent-Based Modeling," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 20(02), pages 1-22, June.
    • Handle: RePEc:wsi:rpbfmp:v:20:y:2017:i:02:n:s0219091517500138
    DOI: 10.1142/S0219091517500138
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    References listed on IDEAS

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    1. Sami Al-Suwailem, 2010. "Behavioural Complexity," ASSRU Discussion Papers 1012, ASSRU - Algorithmic Social Science Research Unit.
    2. Aggarwal, Rajesh K & Yousef, Tarik, 2000. "Islamic Banks and Investment Financing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 93-120, February.
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