Humans, Robots and Market Crashes: A Laboratory Study âˆ—
We introduce human traders into an agent based ï¬nancial market simulation prone to bubbles and crashes. We ï¬nd that human traders earn lower proï¬ts overall than do the simulated agents (â€œrobotsâ€) but earn higher proï¬ts in the most crash-intensive periods. Inexperienced human traders tend to destabilize the smaller (10 trader) mar- kets, but otherwise they have little impact on bubbles and crashes in larger (30 trader) markets and when they are more experienced. Humansâ€™ buying and selling choices respond to the payoï¬€ gradient in a manner similar to the robot algorithm. Likewise, following losses, humansâ€™ choices shift towards faster selling. There are problems in properly identifying fundamentalist and trend-following strategies in our data.
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