Social and individual learning in the Minority Game

TL;DR

This paper investigates how social and individual learning influence the efficiency of the Minority Game model of financial markets, revealing that social learning can cause inefficiencies, but individual learning can mitigate these effects.

Contribution

It introduces a detailed analysis of social versus individual learning impacts on market dynamics within the Minority Game framework, highlighting mechanisms leading to inefficiency and potential remedies.

Findings

Social learning can reduce market efficiency due to strategy homogenization.

Negative frequency dependent selection can cause the population to become locked in inefficient states.

Individual learning can help escape from inefficient equilibria caused by social learning.

Abstract

We study the roles of social and individual learning on outcomes of the Minority Game model of a financial market. Social learning occurs via agents adopting the strategies of their neighbours within a social network, while individual learning results in agents changing their strategies without input from other agents. In particular, we show how social learning can undermine efficiency of the market due to negative frequency dependent selection and loss of strategy diversity. The latter of which can lock the population into a maximally inefficient state. We show how individual learning can rescue a population engaged in social learning from such inefficiencies.