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A Behavioral and Rational Investor Modeling to Explain Subprime Crisis: Multi Agent Systems Simulation in Artificial Financial Markets

  • Yosra Ben SaidEmail author
  • Dalel Kanzari
  • Marwa Bezzine
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Part of the Multiple Criteria Decision Making book series (MCDM)

Abstract

The aim of this paper is to explain the financial crisis via the investors’ psychological behavior and rational reasoning. We specifically focus on three main biases: overconfidence, loss aversion and mimetic behavior.

We propose a new conceptual model of financial decision-making representing the stock market dynamics during the crisis period. We construct an artificial financial market that has two types of investors: institutional and individual. The latter are classified into two groups: the noise traders and the mimetic investors.

A simple experimentation of our model is elaborated to simulate the behavior of the investors during the different phases of a crisis: the formation and the break-up of the speculative bubble. We conclude that the interaction between rational and irrational behavior and the investor’s psychology must be considered in the explanation of financial crises, overconfidence and loss aversion are two behavioral biases very relevant to explain the formation and bursting of bubbles. Finally, mimetic behavior amplifies disturbances in the financial market and limits arbitrage.

Keywords

Financial crisis Behavioral finance Rational behavior Investor’s psychology Overconfidence Loss aversion Mimetic behavior Multi-agents simulation 

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Copyright information

© Springer International Publishing AG 2018

Authors and Affiliations

  • Yosra Ben Said
    • 1
    • 2
    • 3
    Email author
  • Dalel Kanzari
    • 4
    • 5
  • Marwa Bezzine
    • 6
  1. 1.Financial and Accounting Methods DepartmentFSEGMahdiaTunisia
  2. 2.Monastir UniversityMonastirTunisia
  3. 3.E.A.S Research UnitMahdiaTunisia
  4. 4.Computer Science Department, ISSATSoSousse-UniversitySousseTunisia
  5. 5.COSMOS-ENSI LaboratoryTunisTunisia
  6. 6.ISG-SousseSousseTunisia

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