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Modelling Expectations With Genefer- An Artificial Intelligence Approach

  • Stefan Kooths

    (Westfaelische Wilhelms-Universitaet Muenster)

  • Eric Ringhut

    (University of Muenster)

Economic modelling of financial markets means to model highly complex systems in which expectations can be the dominant driving forces. Therefore it is necessary to focus on how agents form their expectations. We believe that they look for patterns, hypothesize, try, make mistakes, learn and adapt. AgentsÆ bounded rationality leads us to a rule-based approach which we model using Fuzzy Rule-Bases. E. g. if a single agent believes the exchange rate is determined by a set of possible inputs and is asked to put their relationship in words his answer will probably reveal a fuzzy nature like: "IF the inflation rate in the EURO-Zone is low and the GDP growth rate is larger than in the US THEN the EURO will rise against the USD". æLowÆ and ælargerÆ are fuzzy terms which give a gradual linguistic meaning to crisp intervalls in the respective universes of discourse. In order to learn a Fuzzy Fuzzy Rule base from examples we introduce Genetic Algorithms and Artificial Neural Networks as learning operators. These examples can either be empirical data or originate from an economic simulation model. The software GENEFER (GEnetic NEural Fuzzy ExplorER) has been developed for designing such a Fuzzy Rule Base. The design process is modular and comprises Input Identification, Fuzzification, Rule-Base Generating and Rule-Base Tuning. The two latter steps make use of genetic and neural learning algorithms for optimizing the Fuzzy Rule-Base.

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Paper provided by Society for Computational Economics in its series Computing in Economics and Finance 2000 with number 80.

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Date of creation: 05 Jul 2000
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Handle: RePEc:sce:scecf0:80
Contact details of provider: Postal: CEF 2000, Departament d'Economia i Empresa, Universitat Pompeu Fabra, Ramon Trias Fargas, 25,27, 08005, Barcelona, Spain
Fax: +34 93 542 17 46
Web page: http://enginy.upf.es/SCE/
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  1. J. Doyne Farmer, 1999. "Physicists Attempt to Scale the Ivory Towers of Finance," Working Papers 99-10-073, Santa Fe Institute.
  2. repec:att:wimass:9625 is not listed on IDEAS
  3. Vriend, Nicolaas J., 2000. "An illustration of the essential difference between individual and social learning, and its consequences for computational analyses," Journal of Economic Dynamics and Control, Elsevier, vol. 24(1), pages 1-19, January.
  4. Daniel McFadden, 1998. "Rationality for Economists?," Working Papers 98-09-086, Santa Fe Institute.
  5. Beltrametti, Luca & Fiorentini, Riccardo & Marengo, Luigi & Tamborini, Roberto, 1997. "A learning-to-forecast experiment on the foreign exchange market with a classifier system," Journal of Economic Dynamics and Control, Elsevier, vol. 21(8-9), pages 1543-1575, June.
  6. Richard B. Olsen & Michel M. Dacorogna & Ulrich A. Muller, & Olivier V. Pictet, . "Going Back to the Basics - Rethinking Market Efficiency," Working Papers 1992-09-07., Olsen and Associates.
  7. Arthur, W Brian, 1994. "Inductive Reasoning and Bounded Rationality," American Economic Review, American Economic Association, vol. 84(2), pages 406-11, May.
  8. W. Brian Arthur & John H. Holland & Blake LeBaron & Richard Palmer & Paul Taylor, 1996. "Asset Pricing Under Endogenous Expectation in an Artificial Stock Market," Working Papers 96-12-093, Santa Fe Institute.
  9. Marengo, Luigi & Tordjman, Helene, 1996. "Speculation, Heterogeneity and Learning: A Simulation Model of Exchange Rates Dynamics," Kyklos, Wiley Blackwell, vol. 49(3), pages 407-38.
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