Agent-Based Models of Financial Markets: A Comparison with Experimental Markets

Abstract

We construct a computer simulation of a repeated double-auction market, designed to match those in experimental-market settings with human subjects, to model complex interactions among artificially-intelligent traders endowed with varying degrees of learning capabilities. In the course of six different experimental designs, we investigate a number of features of our agent-based model: the price efficiency of the market, the speed at which prices converge to the rational expectations equilibrium price, the dynamics of the distribution of wealth among the different types of AI-agents, trading volume, bid/ask spreads, and other aspects of market dynamics. We are able to replicate several endings of human-based experimental markets, however, we also and intriguing differences between agent-based and human-based experiments.

Keywords: Agent-Based Models, Artificial Markets, Experimental Markets, Market Microstructure