Evolutionary and adaptive learning in complex markets: a brief summary

Cars H. Hommes

doi:10.1117/12.724883

15 June 2007 Evolutionary and adaptive learning in complex markets: a brief summary

Cars H. Hommes

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Proceedings Volume 6601, Noise and Stochastics in Complex Systems and Finance; 66010P (2007) https://doi.org/10.1117/12.724883
Event: SPIE Fourth International Symposium on Fluctuations and Noise, 2007, Florence, Italy

Abstract

We briefly review some work on expectations and learning in complex markets, using the familiar demand-supply cobweb model. We discuss and combine two different approaches on learning. According to the adaptive learning approach, agents behave as econometricians using time series observations to form expectations, and update the parameters as more observations become available. This approach has become popular in macro. The second approach has an evolutionary flavor and is sometimes referred to as reinforcement learning. Agents employ different forecasting strategies and evaluate these strategies based upon a fitness measure, e.g. past realized profits. In this framework, boundedly rational agents switch between different, but fixed behavioral rules. This approach has become popular in finance. We combine evolutionary and adaptive learning to model complex markets and discuss whether this theory can match empirical facts and forecasting behavior in laboratory experiments with human subjects.

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Cars H. Hommes "Evolutionary and adaptive learning in complex markets: a brief summary", Proc. SPIE 6601, Noise and Stochastics in Complex Systems and Finance, 66010P (15 June 2007); https://doi.org/10.1117/12.724883

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