Expectation formation in Agent Based Models of financial, credit and good markets.

Invited talk at SSC2016 by Prof. Giulia Iori, City University London.


Unlike conventional macroeconomic models which stress forward looking behaviour by far-sighted and rational, often representative, agents at the expense of the “plumbing” (i.e. the inter-connections) of an actual economy, ABMs have the advantage of simplifying behavior at the individual level by assuming that agents follow given but evolving rules-of-thumb, and this allows them to explore the multiplicity of agent types and their set of inter-connections in far greater detail. ABM typically assume large populations of heterogeneous agents, specifying agents individual behaviour, the environment, and modes of interaction. Agents are not only heterogenous and interacting but also adaptive; they have different circumstances, different histories and adapt continuously to the overall situation they create. To handle real-world features, it is essential to permit agents to engage in comprehensive forms of learning that include inductive reasoning (experimentation with new ideas) as well as aspects of reinforcement learning, social mimicry, and forecasting of future events. In ABM, agents can range from passive automatons with no cognitive function, to active data-gathering decision makers with sophisticated learning capabilities.
In this talk I will review some mechanisms of agents learning and expectation formation that provide the micro-fundation of economic and financial ABMs, focusing on their stabilizing/destabilizing effects on the resulting macro-dynamics of financial, credit and goods markets.

Short Bio:

Professor Giulia Iori obtained a BSc and a PhD in Physics from the University of Rome. She has been a physics research fellow at several international research institutes and Universities. Before joining City University London as a Professor of Economics in 2005, she worked at the University of Essex as a Lecturer of Finance and at Kings College London as a Reader in Financial Mathematics. Her current research interests include: market microstructure, financial stability, agent based modelling, complexity, networks, high-frequency trading, option pricing and hedging. She is the author of several peer-reviewed papers in leading journals in finance and physics, and her work has been funded by the British Academy, the European Commission, the EPSRC plus a number of small grants from national and international awarding bodies. She was awarded the Lamfalussy Fellowship from the European Central Bank in 2003. She is an associate editor of Journal of Economics Dynamics and Control and of Journal of Economic Interaction and Coordination. She regularly serves as expert grant evaluator for the ESRC and the European Commission. She is a member of the London Mathematical Society and a member of the Institute of Physics.

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