Abstract
In this paper, we investigate bubble and crash in the artificial financial market. Based on Ball and Holt (1998)’s experiment in the laboratory with real human beings, we create a simple artificial financial market using an agent-based simulation. In this simulation, we model each agent with different characteristics with respect to expectation formation and time discounting. We found that the case of prospect theory plus exponential time discounting is most resemble with the price dynamics found in Ball and Holt’s experiment and real world price bubble and crash. We also examine whether Ball and Holt’s and our experiment are really judged as a bubble and crush with some indexes so far proposed. Then, Ball and Holt’ experimental result is judged not as a price bubble but as a divergent oscillation, while our result is judged as a bubble.
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Karino, Y., Kawagoe, T. (2009). Bubble and Crash in the Artificial Financial Market. In: Hernández, C., Posada, M., López-Paredes, A. (eds) Artificial Economics. Lecture Notes in Economics and Mathematical Systems, vol 631. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-02956-1_13
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DOI: https://doi.org/10.1007/978-3-642-02956-1_13
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