Dynamics of Interacting Strategies

Abstract

This paper presents the model of the dynamics process of switching the strategies adopted by a large number of agents according to their views of what they deem as the most advantageous strategy in relation to the behavior of other agents and/or exogenous environments. The process of switching the strategies is modeled by the master equation by suitably specifying the transition rates of continuous time Markov chains. The computer simulation explains the effects of demand-supply imbalance created by short-medium term traders in the dollar-yen foreign exchange market.