Opinion formation model for markets with a social temperature and fear

TL;DR

This paper introduces a social temperature-based opinion formation model for markets, incorporating feedback mechanisms that reflect market nervousness and risk, and analyzes its phase transition behavior and metastable states.

Contribution

It presents a novel variant of the 2D Voter Model with a dynamic social temperature influenced by market conditions, linking opinion dynamics to market risk behavior.

Findings

Identifies critical fixed points using phase transition analysis.

Shows metastable phases with structured lattice states.

Demonstrates intermittent excursions from fixed points.

Abstract

In the spirit of behavioral finance, we study the process of opinion formation among investors using a variant of the 2D Voter Model with a tunable social temperature. Further, a feedback acting on the temperature is introduced, such that social temperature reacts to market imbalances and thus becomes time dependent. In this toy market model, social temperature represents nervousness of agents towards market imbalances representing speculative risk. We use the knowledge about the discontinuous Generalized Voter Model phase transition to determine critical fixed points. The system exhibits metastable phases around these fixed points characterized by structured lattice states, with intermittent excursions away from the fixed points. The statistical mechanics of the model is characterized and its relation to dynamics of opinion formation among investors in real markets is discussed.