Related papers: Adaptive Expectations, Confirmatory Bias, and Info…
Following the idea of Bayesian learning via Gaussian mixture model, we organically combine the backward-looking information contained in the historical data and the forward-looking information implied by the market portfolio, which is…
This paper consists of two parts. In the first part, we develop a new information theory, in which it is not a coincidence that information and physical entropy share the same mathematical formula. It is an adaptation of mind to help search…
Agents, some with a bias, decide between undertaking a risky project and a safe alternative based on information about the project's efficiency. Only a part of that information is verifiable. Unbiased agents want to undertake only efficient…
We develop a theoretical framework for understanding how cognitive load affects information processing in financial markets and test it using exogenous variation in disclosure complexity. Our model distinguishes between attention allocation…
Shareholders' expectations of stock returns and fluctuations are constantly changing due to restrictions in financial status and undesirable capital structure, which constrain managers to limit the changes in price trends in order to cover…
Modern mainstream financial theory is underpinned by the efficient market hypothesis, which posits the rapid incorporation of relevant information into asset pricing. Limited prior studies in the operational research literature have…
Two agents trade an item in a simultaneous offer setting, where the exchange takes place if and only if the buyer's bid price weakly exceeds the seller's ask price. Each agent is randomly assigned the buyer or seller role. Both agents are…
In coordination games and speculative over-the-counter financial markets, solutions depend on higher-order average expectations: agents' expectations about what counterparties, on average, expect their counterparties to think, etc. We offer…
In many sequential decision problems, an agent performs a repeated task. He then suffers regret and obtains information that he may use in the following rounds. However, sometimes the agent may also obtain information and avoid suffering…
An agent acquires a costly flexible signal before making a decision. We explore to what degree knowledge of the agent's information costs helps predict her behavior. We establish an impossibility result: learning costs alone generate no…
We study sequential social learning with endogenous information acquisition when agents have a taste for nonconformity. Each agent observes predecessors' actions, chooses whether to acquire a private signal (and its precision), and then…
The present paper shows that it can be advantageous for traders to publish their information on the true value of an asset even if they (i) cannot build a position in the asset prior to the publication of their information and (ii) cannot…
We investigate a toy model of inductive interacting agents aiming to forecast a continuous, exogenous random variable E. Private information on E is spread heterogeneously across agents. Herding turns out to be the preferred forecasting…
The information ratio offers an approach to assessing the efficacy with which an agent balances between exploration and exploitation. Originally, this was defined to be the ratio between squared expected regret and the mutual information…
Traders in a market typically have widely different, private information on the return of an asset. The equilibrium price of the asset may reflect this information more accurately if the number of traders is large enough compared to the…
We study information aggregation in a dynamic trading model with partially informed traders. Ostrovsky [2012] showed that `separable' securities aggregate information in all equilibria, however, determining whether a security is separable…
Positive feedback trading, which buys when prices rise and sells when prices fall, has long been criticized for being destabilizing as it moves prices away from the fundamentals. Motivated by the relationship between positive feedback…
This work suggests modifications to a previously introduced class of heterogeneous agent models that allow for the inclusion of different types of agent motivations and behaviours in a unified way. The agents operate within a highly…
It has been long that literature in financial academics focuses mainly on price and return but much less on trading volume. In the past twenty years, it has already linked both price and trading volume to economic fundamentals, and explored…
We focus on the influence of external sources of information upon financial markets. In particular, we develop a stochastic agent-based market model characterized by a certain herding behavior as well as allowing traders to be influenced by…