Financial Revolution through Agent-based Artificial Simulation Computational Models for Predicting Market Behavior

Abstract

The fundamental theory of the Efficient market hypothesis (EMH), which states that market participants are rational, has received a lot of criticism. The complexity of behavior in the capital market is still a black box, especially when psychological biases influence aggressively on decision-making amid uncertainty. Experimental research on finance and capital markets in the form of AI using machine learning seeks to predict the results of more complex interactions. This multidisciplinary approach offers efforts to explain social phenomena from the micro level to macro descriptions which are built artificially through the computational world. The processing modeling approach is preferred because it includes the complexes that emerge from the behavior and interactions of individuals in the real world. Agent Based Model (ABM) is an AI approach in the form of computational simulation that performs a bottom-up approach by combining irrational–rational agent interactions through networks in microenvironments. Using the ABM approach through Netlogo computing, this study proves that AI can be used to analyze investor behavior in the capital market. Keywords: Agent Based Model, artificial intelligence, investor behavior