Stochastic analysis of an agent-based model
Trading and Market Microstructure
2009-11-13 v1 Physics and Society
Abstract
We analyze the dynamics of a forecasting game which exhibits the phenomenon of information cascades. Each agent aims at correctly predicting a binary variable and he/she can either look for independent information or herd on the choice of others. We show that dynamics can be analitically described in terms of a Langevin equation and its collective behavior is described by the solution of a Kramers' problem. This provides very accurate results in the region where the vast majority of agents herd, which corresponds to the most interesting one from a game theoretic point of view.
Cite
@article{arxiv.0705.4025,
title = {Stochastic analysis of an agent-based model},
author = {A. Veglio and M. Marsili},
journal= {arXiv preprint arXiv:0705.4025},
year = {2009}
}