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Evolution of sunspot like behavior in the agent based economies of bank runs

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  • Jasmina Arifovic

    (Simon Fraser University)

Abstract

This paper describes evolution and adaptation of an agent-based model in a version of the Diamond-Dybvig, bank-run economy. In addition to pure strategy, run and no-run equilibria, the theoretical model also has a multiplicity of sunspot equilibria where agents’ expectations and subsequent actions are driven by coordination on an extrinsic random variable. In this paper, agents that adapt using the individual evolutionary (IEL) algorithm make decisions on whether or not to follow extrinsic random variable announcement on whether to ‘wait’ (not run) or ‘withdraw’ (run). Their strategies also advise them as what to do if they do not follow the announcements. The results of simulations, that are robust for a number of different parameterizations, show ‘no-run’ and ‘run’ outcomes for low levels of strategic uncertainty. However, for high level of strategic uncertainty, the IEL agents evolve strategies that follow sunspot announcements. These results correspond to those obtained in the experiments with human subjects. Moreover, the results scale-up when the number of agents increases ten-fold and twenty-fold.

Suggested Citation

  • Jasmina Arifovic, 2019. "Evolution of sunspot like behavior in the agent based economies of bank runs," Journal of Evolutionary Economics, Springer, vol. 29(1), pages 365-389, March.
    • Handle: RePEc:spr:joevec:v:29:y:2019:i:1:d:10.1007_s00191-018-0598-9
    DOI: 10.1007/s00191-018-0598-9
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    More about this item

    Keywords

    Sunspots; Evolution; Learning; Bank runs;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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