Artificial Agents and Speculative Bubbles

TL;DR

This paper introduces two agent-based models within ACE to simulate the emergence and collapse of speculative bubbles, highlighting key parameters and conditions that influence bubble formation in asset markets.

Contribution

It presents novel models for speculative bubbles based on exchange mechanisms and the greater fool hypothesis, advancing understanding of bubble dynamics in agent-based economic simulations.

Findings

Parameters influencing bubble formation identified

Conditions necessary for bubbles to appear elucidated

Simulation results demonstrate bubble lifecycle dynamics

Abstract

Pertaining to Agent-based Computational Economics (ACE), this work presents two models for the rise and downfall of speculative bubbles through an exchange price fixing based on double auction mechanisms. The first model is based on a finite time horizon context, where the expected dividends decrease along time. The second model follows the {\em greater fool} hypothesis; the agent behaviour depends on the comparison of the estimated risk with the greater fool's. Simulations shed some light on the influent parameters and the necessary conditions for the apparition of speculative bubbles in an asset market within the considered framework.