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Simulating the Madness of Crowds: Price Bubbles in an Auction-Mediated Robot Market

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  • Steiglitz, Ken
  • Shapiro, Daniel

Abstract

We simulate a multiagent market with production, consumption, and exchange mediated by a sealed-bid double auction. Marked price bubbles and subsequent crashes occur when value-based (fundamentals-driven) and trend-based traders are both present, and the market equilibrium price is ramped up exogenously. Similarly, negative price bubbles and recoveries occur when the equilibrium price is ramped down. Because the simulated market is auction-mediated, we can observe the operations of traders during these events, and study the interactions that produce and resolve bubbles. Some preliminary circuit-breaker experiments are described, in which bubbles are interrupted during their formation. Citation Copyright 1998 by Kluwer Academic Publishers.

Suggested Citation

  • Steiglitz, Ken & Shapiro, Daniel, 1998. "Simulating the Madness of Crowds: Price Bubbles in an Auction-Mediated Robot Market," Computational Economics, Springer;Society for Computational Economics, vol. 12(1), pages 35-59, August.
    • Handle: RePEc:kap:compec:v:12:y:1998:i:1:p:35-59
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    Cited by:

    1. Marco Licalzi & Paolo Pellizzari, 2003. "Fundamentalists clashing over the book: a study of order-driven stock markets," Quantitative Finance, Taylor & Francis Journals, vol. 3(6), pages 470-480.
    2. Panagiotis Papaioannnou & Lucia Russo & George Papaioannou & Constantinos Siettos, 2013. "Can social microblogging be used to forecast intraday exchange rates?," Papers 1310.5306, arXiv.org.
    3. Mizuta, Hideyuki & Steiglitz, Ken & Lirov, Erez, 2003. "Effects of price signal choices on market stability," Journal of Economic Behavior & Organization, Elsevier, vol. 52(2), pages 235-251, October.
    4. Jason Childs, 2007. "Rate of Return Parity with Robot Asset Traders," Computational Economics, Springer;Society for Computational Economics, vol. 29(1), pages 1-12, February.
    5. Panagiotis Papaioannou & Lucia Russo & George Papaioannou & Constantinos Siettos, 2013. "Can social microblogging be used to forecast intraday exchange rates?," Netnomics, Springer, vol. 14(1), pages 47-68, November.

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