Related papers: Adaptive Expectations, Confirmatory Bias, and Info…
The efficient market hypothesis (EMH) famously stated that prices fully reflect the information available to traders. This critically depends on the transfer of information into prices through trading strategies. Traders optimise their…
We introduce a mathematical theory called market connectivity that gives concrete ways to both measure the efficiency of markets and find inefficiencies in large markets. The theory leads to new methods for testing the famous efficient…
Individual and social biases undermine the effectiveness of human advisers by inducing judgment errors which can disadvantage protected groups. In this paper, we study the influence these biases can have in the pervasive problem of fake…
Human decision-making in real-life deviates significantly from the optimal decisions made by fully rational agents, primarily due to computational limitations or psychological biases. While existing studies in behavioral finance have…
We determine the amount of information contained in a time series of price returns at a given time scale, by using a widespread tool of the information theory, namely the Shannon entropy, applied to a symbolic representation of this time…
How do algorithmic decision aids introduced in business decision processes affect task performance? In a first experiment, we study effective collaboration. Faced with a decision, subjects alone have a success rate of 72%; Aided by a…
We study strategic interactions in a broker-mediated market in which agents learn and exploit each other's private information. A broker provides liquidity to an informed trader and to noise traders while managing inventory in a lit market.…
A decision maker is choosing between an active action (e.g., purchase a house, invest certain stock) and a passive action. The payoff of the active action depends on the buyer's private type and also an unknown state of nature. An…
People are often reluctant to sell a house, or shares of stock, below the price at which they originally bought it. While this is generally not consistent with rational utility maximization, it does reflect two strong empirical regularities…
We propose an agent-based model of collective opinion formation to study the wisdom of crowds under social influence. The opinion of an agent is a continuous positive value, denoting its subjective answer to a factual question. The wisdom…
It has been assumed that arbitrage profits are not possible in efficient markets, because future prices are not predictable. Here we show that predictability alone is not a sufficient measure of market efficiency. We instead propose to…
Data-based decisionmaking must account for the manipulation of data by agents who are aware of how decisions are being made and want to affect their allocations. We study a framework in which, due to such manipulation, data becomes less…
In decision-making, individuals often rely on intuition, which can occasionally yield suboptimal outcomes. This study examines the impact of intuitive decision-making on individuals who are confronted with limited position information in…
In this paper, we derive and analyze a continuous of a binary option market with exogenous information. The resulting non-linear system has a discontinuous right hand side, which can be analyzed using zero-dimensional Filippov surfaces.…
Critical decisions in hiring, college admissions, and credit lending are guided by predictions made in the presence of uncertainty. While uncertainty imparts errors across all demographic groups, this paper shows that the types of errors…
In recent studies of political decision-making, apparently anomalous behavior has been observed on the part of voters, in which negative information about a candidate strengthens, rather than weakens, a prior positive opinion about the…
We investigate asymmetry of information in the context of robust approach to pricing and hedging of financial derivatives. We consider two agents, one who only observes the stock prices and another with some additional information, and…
We develop a model of social learning from overabundant information: Short-lived agents sequentially choose from a large set of (flexibly correlated) information sources for prediction of an unknown state. Signal realizations are public. We…
This paper is part of an ongoing investigation of "pragmatic information", defined in Weinberger (2002) as "the amount of information actually used in making a decision". Because a study of information rates led to the Noiseless and Noisy…
An agent choosing between various actions tends to take the one with the lowest cost. But this choice is arguably too rigid (not adaptive) to be useful in complex situations, e.g., where exploration-exploitation trade-off is relevant in…