Information flows in the market: An evolutionary game approach.

Abstract

Information influences the decisions that investors make in the markets. Whether this information is true or false can be quantified and distinguished by markets. To study how information propagates through markets, we propose an information flow game based on an evolutionary game approach. In reality, investors transmit profits or losses when they transmit information, because there are values associated with information in the market. In the information flow game, information is represented by its value. Investors in the game can choose to be sharers or silencers. Sharers share their information with their neighbors according to a sharing rate α, which is a key quantity in the model. In the evolutionary process, we show that more sharers emerge when the market is full of rumors, especially as the sharing rate increases. Higher values of the sharing rate reduce the standard deviation of the information value in such markets, whereas the opposite occurs in markets that largely consist of true information. The reactions of the investors are asymmetric, which indicates that investors are more sensitive to losses than to profits. Furthermore, as the network becomes more random, a higher sharing rate becomes more beneficial for the stability of the emergence of sharers if information is generally false, whereas a lower sharing rate is helpful for the stability of the emergence of sharers if information is generally true.