The Apparent Madness of Crowds: Irrational Collective Behavior Emerging from Interactions among Rational Agents

  • Sitabhra Sinha
Part of the New Economic Windows book series (NEW)


Standard economic theory assumes that agents in markets behave rationally. However, the observation of extremely large fluctuations in the price of financial assets that are not correlated to changes in their fundamental value, as well as the extreme instance of financial bubbles and crashes, imply that markets (at least occasionally) do display irrational behavior. In this paper, we briefly outline our recent work demonstrating that a market with interacting agents having bounded rationality can display price fluctuations that are quantitatively similar to those seen in real markets.


Market Equilibrium Excess Demand Real Market Irrational Behavior Neighboring Agent 
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Copyright information

© Springer-Verlag Italia 2006

Authors and Affiliations

  • Sitabhra Sinha
    • 1
  1. 1.C. I. T. CampusThe Institute of Mathematical SciencesTaramani, ChennaiIndia

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