Paradigm shifts

• Published in: Economics. The open-access, open-assessment e-journal Vol. 13; no. 2019-43; pp. 1 - 9
• Main Author: Guy Maugis, Pierre-André
• Format: Journal Article
• Language: English
• Published: Kiel Kiel Institute for the World Economy (IfW) 01-12-2019; De Gruyter
• Subjects: Agent based model; G40; herding behavior; information cascade
• ISSN: 1864-6042; 1864-6042
• DOI: 10.5018/economics-ejournal.ja.2019-43

The author studies the evolution of the number of coexisting beliefs in a financial market. Crucially, he undertakes to do so in a framework where the paradigms, beliefs, and models driving agents behavior are left totally unspecified; i.e., the author does not make any parametric or non-parametric model assumptions. The overreaching aim of this exercise is to characterise the dynamic of the variety of beliefs in an auction-based financial market independently of any assumptions on agents behaviors. The resulting framework may be seen as an abstract agent-based model. In a computer experiment the authors exhibits a cycle between two states, so that either all agents act according to the same belief, or there is no leading belief; i.e., there is one dominating belief, or none. Further, the author finds that the frequency of this cycle is positively linked to the quality of the information available to the agents.