Dynamical instabilities in a simple minority game with discounting

We explore the effect of discounting and experimentation in a simple model of interacting adaptive agents. Agents belong to either of two types and each has to decide whether to participate a game or not, the game being profitable when there is an excess of players of the other type. We find the emergence of large fluctuations as a result of the onset of a dynamical instability which may arise discontinuously (increasing the discount factor) or continuously (decreasing the experimentation rate). The phase diagram is characterized in detail and noise amplification close to a bifurcation point is identified as the physical mechanism behind the instability.Comment: 8 page

Quantifying trading behavior in financial markets using Google Trends

Crises in financial markets affect humans worldwide. Detailed market data on trading decisions reflect some of the complex human behavior that has led to these crises. We suggest that massive new data sources resulting from human interaction with the Internet may offer a new perspective on the behavior of market participants in periods of large market movements. By analyzing changes in Google query volumes for search terms related to finance, we find patterns that may be interpreted as “early warning signs” of stock market moves. Our results illustrate the potential that combining extensive behavioral data sets offers for a better understanding of collective human behavior

Overcoming cross-cultural group work tensions: mixed student perspectives on the role of social relationships

As universities worldwide rapidly internationalise, higher education classrooms have become unique spaces for collaboration between students from different countries. One common way to encourage collaboration between diverse peers is through group work. However, previous research has highlighted that cross-cultural group work can be challenging and has hinted at potential social tensions. To understand this notion better, we have used robust quantitative tools in this study to select 20 participants from a larger classroom of 860 students to take part in an in-depth qualitative interview about cross-cultural group work experiences. Participant views on social tensions in cross-cultural group work were elicited using a unique mediating artefact method to encourage reflection and in-depth discussion. In our analysis of emergent interview themes, we compared student perspectives on the role of social relationships in group work by their academic performance level. Our findings indicated that all students interviewed desired the opportunity to form social relationships with their group work members, but their motivations for doing so varied widely by academic performance level

Heterogeneous Agent Models: Two Simple Case Studies

These notes review two simple heterogeneous agent models in economics and finance. The first is a cobweb model with rational versus naive agents introduced in Brock and Hommes (1997). The second is an asset pricing model with fundamentalists versus technical traders introduced in Brock and Hommes (1998). Agents are boundedly rational and switch between different trading strategies, based upon an evolutionary fitness measure given by realized past profits. Evolutionary switching creates a nonlinearity in the dynamics. Rational routes to randomness, that is, bifurcation routes to complicated dynamical behaviour occur when agents become more sensitive to differences in evolutionary fitness

Triggering receptor expressed on myeloid cells (TREM)-2 Impairs host defense in experimental melioidosis

Triggering receptor expressed on myeloid cells (TREM) -1 and TREM-2 are key regulators of the inflammatory response that are involved in the clearance of invading pathogens. Melioidosis, caused by the "Tier 1" biothreat agent Burkholderia pseudomallei, is a common form of community-acquired sepsis in Southeast-Asia. TREM-1 has been suggested as a biomarker for sepsis and melioidosis. We aimed to characterize the expression and function of TREM-1 and TREM-2 in melioidosis.Wild-type, TREM-1/3 (Trem-1/3-/-) and TREM-2 (Trem-2-/-) deficient mice were intranasally infected with live B. pseudomallei and killed after 24, and/or 72 h for the harvesting of lungs, liver, spleen, and blood. Additionally, survival studies were performed. Cellular functions were further analyzed by stimulation and/or infection of isolated cells. TREM-1 and TREM-2 expression was increased both in the lung and liver of B. pseudomallei-infected mice. Strikingly, Trem-2-/-, but not Trem-1/3-/-, mice displayed a markedly improved host defense as reflected by a strong survival advantage together with decreased bacterial loads, less inflammation and reduced organ injury. Cellular responsiveness of TREM-2, but not TREM-1, deficient blood and bone-marrow derived macrophages (BMDM) was diminished upon exposure to B. pseudomallei. Phagocytosis and intracellular killing of B. pseudomallei by BMDM and alveolar macrophages were TREM-1 and TREM-2-independent.We found that TREM-2, and to a lesser extent TREM-1, plays a remarkable detrimental role in the host defense against a clinically relevant Gram-negative pathogen in mice: TREM-2 deficiency restricts the inflammatory response, thereby decreasing organ damage and mortality

Quantifying the behavior of stock correlations under market stress

Understanding correlations in complex systems is crucial in the face of turbulence, such as the ongoing financial crisis. However, in complex systems, such as financial systems, correlations are not constant but instead vary in time. Here we address the question of quantifying state-dependent correlations in stock markets. Reliable estimates of correlations are absolutely necessary to protect a portfolio. We analyze 72 years of daily closing prices of the 30 stocks forming the Dow Jones Industrial Average (DJIA). We find the striking result that the average correlation among these stocks scales linearly with market stress reflected by normalized DJIA index returns on various time scales. Consequently, the diversification effect which should protect a portfolio melts away in times of market losses, just when it would most urgently be needed. Our empirical analysis is consistent with the interesting possibility that one could anticipate diversification breakdowns, guiding the design of protected portfolios

Bubble Formation and (In)Efficient Markets in Learning-to-Forecast and -Optimise Experiments

This experiment compares the price dynamics and bubble formation in an asset market with a price adjustment rule in three treatments where subjects (1) submit a price forecast only, (2) choose quantity to buy/sell and (3) perform both tasks. We find deviation of the market price from the fundamental price in all treatments, but to a larger degree in treatments (2) and (3). Mispricing is therefore a robust finding in markets with positive expectation feedback. Some very large, recurring bubbles arise, where the price is 3 times larger than the fundamental value, which were not seen in former experiments

Crises and collective socio-economic phenomena: simple models and challenges

Financial and economic history is strewn with bubbles and crashes, booms and busts, crises and upheavals of all sorts. Understanding the origin of these events is arguably one of the most important problems in economic theory. In this paper, we review recent efforts to include heterogeneities and interactions in models of decision. We argue that the Random Field Ising model (RFIM) indeed provides a unifying framework to account for many collective socio-economic phenomena that lead to sudden ruptures and crises. We discuss different models that can capture potentially destabilising self-referential feedback loops, induced either by herding, i.e. reference to peers, or trending, i.e. reference to the past, and account for some of the phenomenology missing in the standard models. We discuss some empirically testable predictions of these models, for example robust signatures of RFIM-like herding effects, or the logarithmic decay of spatial correlations of voting patterns. One of the most striking result, inspired by statistical physics methods, is that Adam Smith's invisible hand can badly fail at solving simple coordination problems. We also insist on the issue of time-scales, that can be extremely long in some cases, and prevent socially optimal equilibria to be reached. As a theoretical challenge, the study of so-called "detailed-balance" violating decision rules is needed to decide whether conclusions based on current models (that all assume detailed-balance) are indeed robust and generic.Comment: Review paper accepted for a special issue of J Stat Phys; several minor improvements along reviewers' comment

As If or What? - Expectations and Optimization in a Simple Macroeconomic Environment

In this paper we report the results of a laboratory experiment, in which we observed the behavior of agents in a simple macroeconomic setting. The structure of the economy was only partially known to the players which is a realistic feature of our experiment. We investigate whether subjects manage to approach optimal behavior even if they lack important information. Furthermore, we analyze subjects' perceptions of the model and whether their behavior is consistent with their perceptions. The full information model predicts changes of employment correctly, but not the level of employment. In the aggregate, subjects have correct perceptions, although individual perceptions are biased. We finally show that deviations from the full information solution are due to optimization failures than than misperceptions