Wealth distribution across communities of adaptive financial agents

TL;DR

This study introduces an agent-based financial market model with adaptive communities and investigates how different taxation policies influence wealth distribution and trading behaviors, highlighting the role of community leaders and herding effects.

Contribution

The paper presents a novel adaptive agent model with community interactions and compares taxation impacts, revealing effects on wealth distribution and trading volumes.

Findings

Communities benefit from leaders with successful strategies.

Taxation systems influence wealth distribution and trading volumes.

Adaptive emulation mitigates negative effects of Tobin-like taxes.

Abstract

This paper studies the trading volumes and wealth distribution of a novel agent-based model of an artificial financial market. In this model, heterogeneous agents, behaving according to the Von Neumann and Morgenstern utility theory, may mutually interact. A Tobin-like tax (TT) on successful investments and a flat tax are compared to assess the effects on the agents' wealth distribution. We carry out extensive numerical simulations in two alternative scenarios: i) a reference scenario, where the agents keep their utility function fixed, and ii) a focal scenario, where the agents are adaptive and self-organize in communities, emulating their neighbours by updating their own utility function. Specifically, the interactions among the agents are modelled through a directed scale-free network to account for the presence of community leaders, and the herding-like effect is tested against the reference scenario. We observe that our model is capable of replicating the benefits and drawbacks of the two taxation systems and that the interactions among the agents strongly affect the wealth distribution across the communities. Remarkably, the communities benefit from the presence of leaders with successful trading strategies, and are more likely to increase their average wealth. Moreover, this emulation mechanism mitigates the decrease in trading volumes, which is a typical drawback of TTs.