Just Don

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(No Transcript)
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Just Dont Do It

• Minority Games and the Stock Market

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To start the ball rollingwe go back to where it
all began

• Comparisons with P Beauty Contest
• If we assume rationality (game theorists
  playing), perfect information, we can derive a
  dominant strategy 0
• No matter what our assumptions, any dominant
  strategy would always fail in a minority game

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Some features of MG

• Negative feedback
• Market entry games
• Phase transitions
• As z increases
• Other properties
• Frustrationspin glasses
• Individual heterogeneity
• Collective coordinationcollusion?

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Stock markets basics

• Efficient market hypothesis
• No arbitrage hypothesis
• Random walk prices

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Stock markets basics??

• Who puts information in prices?
• If markets are unpredictable, why are people
  wasting their time?
• Prices over the short term do not follow random
  walks

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Stock markets and MG

• When there are fewer sellers than buyers, prices
  go up, sellers profit.
• When there are fewer buyers than sellers.
• Gi(t)-ai(t)A(t)
• Minority always wins???

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The Game

• Assume at t-1/2, agent thinks that
• p(t) gt p(t1)
• What should the agent do?
• Place sell order
• Again if p(t) lt p(t1)
• Place buy order
• Agent gain/loss is
• Gi(t1/2)ai(t-1/2)A(t1/2)

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The Game

• The game with a Market Maker
• R(t) A(t)-SM(t)/l
• Market Maker provides clearing mechanism

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The Game

• Low values of m, lesser strategies
• Coordination to only buy or only sell
• Arbitrage the market maker
• Positive feedback
• Non ideal/boom scenariosfinally limited.

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The Game

• High values of m, too many strategies
• Curse of intelligence
• Market maker arbitrages agents as a group.
• Some agents with non equilibrium strategies still
  manage to profit.

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The Game Conclusions

• MGs have a small contribution to self
  organization of markets
• Driving force among agents is to make money and
  not be in the minority
• Best strategy is to shift opportunistically

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• Thank You