A thermal model for adaptive competition in a market

TL;DR

This paper introduces a stochastic extension of the minority game to better model competitive markets, revealing the importance of randomness in agent decisions and providing new dynamic equations.

Contribution

It presents a novel stochastic formulation of the minority game that captures key market features without restrictive assumptions and offers exact nonlinear dynamic equations.

Findings

Stochastic decision-making is crucial for realistic market modeling.

The new model reproduces key features of the original minority game.

Provides exact nonlinear equations for system dynamics.

Abstract

New continuous and stochastic extensions of the minority game, devised as a fundamental model for a market of competitive agents, are introduced and studied in the context of statistical physics. The new formulation reproduces the key features of the original model, without the need for some of its special assumptions and, most importantly, it demonstrates the crucial role of stochastic decision-making. Furthermore, this formulation provides the exact but novel non-linear equations for the dynamics of the system.