Generalized minority games with adaptive trend-followers and contrarians

Abstract

We introduce a simple extension of the minority game in which the market rewards contrarian (resp. trend-following) strategies when it is far from (resp. close to) efficiency. The model displays a smooth crossover from a regime where contrarians dominate to one where trend-followers dominate. In the intermediate phase, the stationary state is characterized by non-Gaussian features as well as by the formation of sustained trends and bubbles.

4 pages, 6 figures

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• Solvable Stochastic Dealer Models for Financial Markets
• Detecting the traders' strategies in Minority-Majority games and real stock-prices
• Coordination, intermittency and trends in generalized Minority Games
• Theory of agent-based market models with controlled levels of greed and anxiety
• Effects of payoff functions and preference distributions in an adaptive population
• Evolutionary dynamics in financial markets with heterogeneities in strategies and risk tolerance