Minority Games: Interacting agents in financial markets (Oxford Finance Series)

The Minority Game is a physicist's attempt to explain market behaviour by the interaction between traders. With a minimal set of ingredients and drastic assumptions, this model reproduces market ecology among different types of traders. Its emphasis is on speculative trading and information flow. The book first describes the philosophy lying behind the conception of the Minority Game in 1997, and includes in particular a discussion about the El Farol bar problem. It then reviews the main steps in later developments, including both the theory and its applications to market phenomena. 'Minority Games' gives a colourful and stylized, but also realistic picture of how financial markets operate. Contents 14 Part I 18 1. Introduction 20 1.1 Why do physicists study financial markets? 21 1.2 Market modelling: simple yet complex 23 1.3 Information efficiency and information food-chains 27 1.4 Minority situations in economic life 28 1.5 What's next? 30 2. Early works 31 2.1 Background 31 2.2 Brian Arthur's El Farol Bar 32 2.3 Minority Game 35 2.4 Geometrical structure of the Minority Game 39 2.5 Regimes and phases of the Minority Game 40 2.6 Herding effects 42 3. Understanding the Minority Game dynamics 44 3.1 A computer code for the Minority Game dynamics 46 3.2 Generic behaviour of the Minority Game 52 3.3 Analytic approaches 58 3.4 Extensions 75 4. Minority Games as market models 80 4.1 Introduction 80 4.2 From real markets to Minority Games 82 4.3 Market ecology in Minority Games 88 4.4 From Minority Games to real markets 91 4.5 Extensions 99 5. Quest for better cooperation 104 5.1 Cooperation in simple Minority Games 105 5.2 Market impact and Nash equilibria 110 5.3 Human behaviour in the Minority Game 119 Appendix A. List of selected publications 122 A.1 Early works 122 A.2 Understanding the Minority Game dynamics 122 A.3 Financial markets 123 A.3.1 Minority Games 123 A.3.2 Beyond Minority Games 123 A.4 Quest for better cooperation 123 Appendix B. Source code 126 Part II: Reprinted papers 130 Inductive reasoning and bounded rationality: the EI Farol problem 132 Emergence of cooperation and organization in an evolutionary game 141 Evolving models of financial markets 153 Adaptive competition, market efficiency, and phase transitions 157 Crowd–anticrowd theory of multi-agent market games 161 Irrelevance of memory in the minority game 165 Symmetry breaking and phase transition in the minority game 169 Thermal model for adaptive competition in a market 173 Statistical mechanics of systems with heterogeneous agents: minority games 177 Continuum time limit and stationary states of the minority game 181 Generating functional analysis of the dynamics of the batch minority game with random external information 193 Modeling market mechanism with minority game 209 Physicists attempt to scale the ivory towers of finance 241 From market games to real-world markets 255 Predictability of large future changes in a competitive evolving population 264 On a universal mechanism for long-range volatility correlations 268 Criticality and market efficiency in a simple realistic model of the stock market 273 Market mechanism and expectations in minority and majority games 277 The $-game 288 Dynamical spin-glass-like behavior in an evolutionary game 293 A stochastic strategy for the minority game 304 Self-segregation versus clustering in the evolutionary minority game 313 Broken ergodicity and memory in the minority game 317 Self-organized networks of competing Boolean agents 324 Dynamics of interacting neural networks 328 Intelligent systems in the context of surrounding environment 335 The interactive minority game: a web-based investigation of human market interactions 343 Bibliography 352 Index 360 A 360 B 360 C 360 D 360 E 360 F 360 G 360 H 360 I 360 L 360 M 360 N 361 P 361 R 361 S 361 T 361 V 361

physicist Challet (mathematics, Oxford University, Uk), And One Of His Co-authors, Yi-cheng Zhang, Conceived Of The Minority Game, A Model Problem Explaining Market Behavior By The Interaction Between Traders, In 1997. Here, They Describe The Philosophy Behind The Model, Discuss The El Farol Bar Problem, And Review The Main Steps In Later Developments, Including Both The Theory And Its Applications To Market Phenomena. An Appendix Explains How To Use Numerical Simulations And Gives Source Code In C. In Addition To A Primary Readership Of Physicists, The Book Is Written To Be Accessible To Economists And Researchers And Practitioners In Financial Markets. Annotation ©2004 Book News, Inc., Portland, Or

The Minority Game, invented in the late 1990s, makes it possible to understand stock market fluctuations in terms of information ecology between traders. With a minimal set of ingredients and drastic assumptions, this model reproduces market ecology among different types of traders. Its emphasis is on speculative trading and information flow.