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I will give some background on the use of agent based models to understand the dynamics of financial markets along with some comparisons to more traditional financial theories. Some examples from a recent agent based market will be used to demonstrate the kinds of questions we can pose, and the outcomes that we see. Results are suggestive that markets may be best understood as an ecology of interacting traders and strategies. I will finish by discussing the advantages of this approach along with a few practical applications of these types of markets in business and finance.
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Blake LeBaron has a Ph.D. in Economics from the University of Chicago. He is a Professor of Finance at the Graduate School of Intenational Economics at Brandeis University, and was formerly at the University of Wisconsin - Madison. He is a Faculty Research Fellow at the National Bureau of Economic Research, a member of the external faculty of The Santa Fe Institute, and was a Sloan Fellow. LeBaron served as director of the Economics Program at The Santa Fe Institute in 1993. LeBaron's research has concentrated on the issue of nonlinear behavior of financial and macroeconomic time series. He has been influential both in the statistical detection of nonlinearities and in describing their qualitative behavior in many series. LeBaron's current interests are in understanding the quantitative dynamics of interacting systems of adaptive agents and how these systems replicate observed real world phenomenon. Also, LeBaron is interested in understanding some of the observed behavioral characteristics of traders in financial markets. This behavior includes strategies such as technical analysis and portfolio optimization, along with policy questions such as foreign exchange intervention. In general, he seeks to find out the empirical implications of learning and adaptation as applied to finance and macroeconomics.
