The Minority Game is a physicist's attempt to explain market behavior by the interaction between traders. With a minimal set of ingredients and drastic assumptions, this model reproduces market ecology among different types of traders. Its emphasis is on speculative trading and information flow. The book first describes the philosophy lying behind the conception of the Minority Game in 1997, and includes in particular a discussion about the El Farol bar problem. Then it reviews the main steps in later developments, including both the theory and its applications to market phenomena. This book gives a colorful and stylized, but also realistic picture of how financial markets operate.
Author(s): Damien Challet, Matteo Marsili, Yi-Cheng Zhang
Series: Oxford Finance
Publisher: Oxford University Press, USA
Year: 2005
Language: English
Pages: 361
Contents......Page 14
Part I......Page 18
1. Introduction......Page 20
1.1 Why do physicists study financial markets?......Page 21
1.2 Market modelling: simple yet complex......Page 23
1.3 Information efficiency and information food-chains......Page 27
1.4 Minority situations in economic life......Page 28
1.5 What's next?......Page 30
2.1 Background......Page 31
2.2 Brian Arthur's El Farol Bar......Page 32
2.3 Minority Game......Page 35
2.4 Geometrical structure of the Minority Game......Page 39
2.5 Regimes and phases of the Minority Game......Page 40
2.6 Herding effects......Page 42
3. Understanding the Minority Game dynamics......Page 44
3.1 A computer code for the Minority Game dynamics......Page 46
3.2 Generic behaviour of the Minority Game......Page 52
3.3 Analytic approaches......Page 58
3.4 Extensions......Page 75
4.1 Introduction......Page 80
4.2 From real markets to Minority Games......Page 82
4.3 Market ecology in Minority Games......Page 88
4.4 From Minority Games to real markets......Page 91
4.5 Extensions......Page 99
5. Quest for better cooperation......Page 104
5.1 Cooperation in simple Minority Games......Page 105
5.2 Market impact and Nash equilibria......Page 110
5.3 Human behaviour in the Minority Game......Page 119
A.2 Understanding the Minority Game dynamics......Page 122
A.4 Quest for better cooperation......Page 123
Appendix B. Source code......Page 126
Part II: Reprinted papers......Page 130
Inductive reasoning and bounded rationality: the EI Farol problem......Page 132
Emergence of cooperation and organization in an evolutionary game......Page 141
Evolving models of financial markets......Page 153
Adaptive competition, market efficiency, and phase transitions......Page 157
Crowd–anticrowd theory of multi-agent market games......Page 161
Irrelevance of memory in the minority game......Page 165
Symmetry breaking and phase transition in the minority game......Page 169
Thermal model for adaptive competition in a market......Page 173
Statistical mechanics of systems with heterogeneous agents: minority games......Page 177
Continuum time limit and stationary states of the minority game......Page 181
Generating functional analysis of the dynamics of the batch minority game with random external information......Page 193
Modeling market mechanism with minority game......Page 209
Physicists attempt to scale the ivory towers of finance......Page 241
From market games to real-world markets......Page 255
Predictability of large future changes in a competitive evolving population......Page 264
On a universal mechanism for long-range volatility correlations......Page 268
Criticality and market efficiency in a simple realistic model of the stock market......Page 273
Market mechanism and expectations in minority and majority games......Page 277
The $-game......Page 288
Dynamical spin-glass-like behavior in an evolutionary game......Page 293
A stochastic strategy for the minority game......Page 304
Self-segregation versus clustering in the evolutionary minority game......Page 313
Broken ergodicity and memory in the minority game......Page 317
Self-organized networks of competing Boolean agents......Page 324
Dynamics of interacting neural networks......Page 328
Intelligent systems in the context of surrounding environment......Page 335
The interactive minority game: a web-based investigation of human market interactions......Page 343
Bibliography......Page 352
M......Page 360
V......Page 361
