Adaptive Behavior and Strategy Switching

Abstract

Using the Agent-based Computational Finance (ACF) method, we build an artificial stock market with heterogeneous adaptive investors and investigate the evolutionary and interacting relationship between rational investors and irrational investors. We find that with strategy switching, there is a symbiosis among the three kinds of investors in the ACF experiments, although the rational investors are often dominant in the market. And our main findings are robust with agents' scale. When the initial values change, the market ecology achieves new equilibrium.