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Navigating the Stock Market: Modeling Wealth Exchange and Network Interaction with Loss Aversion, Disposition Effect and Anchoring and Adjustment Bias

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  • Ömür Saltık

Abstract

This study aims to integrate meta-analysis into agent-based models and provide foundational insights into biased agent interactions. It delves deeply into the effects of various behavioral biases such as anchoring, disposition effect, loss aversion, and others on market dynamics and investor decisions. Using agent-based models, it presents simulations of market scenarios and investor behaviors, emphasizing the impact of individual decisions on market dynamics. The innovative approach of this study lies in integrating behavioral finance theories with real market data, offering a nuanced analysis of market behaviors. This work contributes a new perspective to behavioral finance and encourages the use of agent-based models to deepen our understanding of market dynamics and investor behaviors, which can be helpful in financial market analysis and policy-making. This study aims to provide a foundational framework for those looking to integrate meta-analysis into agent-based models and explore biased agent behaviors. The findings demonstrate the ability to model the interactions of loss aversion, disposition effect, and anchoring and adjustment bias taking into account agents' socio-demographic and psychological factors, as close to the real world as possible. The results offer highly favorable forecasts for modeling human behaviors more accurately in portfolio optimizations and for expanding the applications of Generalized Artificial Intelligence in financial market implementations.

Suggested Citation

  • Ömür Saltık, 2024. "Navigating the Stock Market: Modeling Wealth Exchange and Network Interaction with Loss Aversion, Disposition Effect and Anchoring and Adjustment Bias," Journal of Research in Economics, Politics & Finance, Ersan ERSOY, vol. 9(1), pages 88-122.
    • Handle: RePEc:ahs:journl:v:9:y:2024:i:1:p:88-122
    DOI: 10.30784/epfad.1435009
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    References listed on IDEAS

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    1. Trejos, Cristian & van Deemen, Adrian & Rodríguez, Yeny E. & Gómez, Juan M., 2019. "Overconfidence and disposition effect in the stock market: A micro world based setting," Journal of Behavioral and Experimental Finance, Elsevier, vol. 21(C), pages 61-69.
    2. Liam C. Malloy, 2015. "Loss aversion, education, and intergenerational mobility," Education Economics, Taylor & Francis Journals, vol. 23(3), pages 318-337, June.
    3. Radu T. Pruna & Maria Polukarov & Nicholas R. Jennings, 2020. "Loss aversion in an agent-based asset pricing model," Quantitative Finance, Taylor & Francis Journals, vol. 20(2), pages 275-290, February.
    4. Sheharyar Bokhari & David Geltner, 2011. "Loss Aversion and Anchoring in Commercial Real Estate Pricing: Empirical Evidence and Price Index Implications," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 39(4), pages 635-670, December.
    5. Syed Aliya Zahera & Rohit Bansal, 2019. "A study of prominence for disposition effect: a systematic review," Qualitative Research in Financial Markets, Emerald Group Publishing Limited, vol. 11(1), pages 2-21, May.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Loss Aversion; Disposition Effect; Anchoring and Adjustment Bias; Agent Based Modelling;
    All these keywords.

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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