DocumentCode
3415983
Title
Overconfident investors in the LLS agent-based artificial financial market
Author
Lovric, Milan ; Kaymak, Uzay ; Spronk, Jaap
Author_Institution
Dept. of Finance, Erasmus Univ. Rotterdam, Rotterdam
fYear
2009
fDate
March 30 2009-April 2 2009
Firstpage
58
Lastpage
65
Abstract
Agent-based artificial financial markets are bottom-up models of financial markets which explore the mapping from the micro level of individual investor behavior into the macro level of aggregate market phenomena. It has been recently recognized in the literature that such (agentbased) models are potentially a very suitable tool to generate or test various behavioral hypotheses. One of the psychological biases that received a lot of attention in financial studies, both mainstream and behavioral, is the phenomena of investor overconfidence. This paper studies overconfident investors in the agent-based artificial financial market based on the Levy, Levy, Solomon (2000) model. Overconfidence is modeled as miscalibration, i.e. as underestimated risk of expected returns. We find that overconfident investors create less frequent but more extreme bubbles and crashes when compared to the unbiased efficient market believers of the original model. When investors are modeled to exhibit a biased self-attribution, they quickly move to the state of high overconfidence and remain there. With an unbiased self-attribution, on the other hand, investor overconfidence varies greatly, but around a moderate level of overconfidence.
Keywords
investment; psychology; LLS agent-based artificial financial market; behavioral hypotheses; biased self-attribution; overconfident investors; psychological biases; Aggregates; Books; Costs; Decision making; Environmental economics; Finance; Humans; Psychology; Signal to noise ratio; Sociology;
fLanguage
English
Publisher
ieee
Conference_Titel
Computational Intelligence for Financial Engineering, 2009. CIFEr '09. IEEE Symposium on
Conference_Location
Nashville, TN
Print_ISBN
978-1-4244-2774-1
Type
conf
DOI
10.1109/CIFER.2009.4937503
Filename
4937503
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