Agent-Based Modeling of Efficient Markets

Abstract

We consider the Minority Game which models the collective behavior of agents simultaneously and adaptively competing in a market, or distributively performing load balancing tasks. The variance of the buy-sell decisions is a measure of market inefficiency. When the initial condition of the strategies picked by the agents are the same, the market is inefficient in the regime of low agent complexity, caused by the maladaptive behavior of the agents. However, the market becomes increasingly efficient when the randomness in the initial condition increases. Implications to the occurence of maladaptation, the prediction of market trend and the search for optimal load balancing are discussed. © Springer-Verlag 2003.