Market simulation with agents

In the market, the adjustment of supply and demand via pricing plays an important roll in allocating limited resources among various participants with heterogeneous interests. We expect that the equilibrium price, where supply and demand coincide with each other, will be realized, through a process of the price and balance of supply and demand affecting each other with some adjustment effects. However, there sometimes occurs a situation where the price differs from the equilibrium one (the bubble ). We are going to reproduce such price movements by simulations with simple agents.

In this simulation, we use the market model of Prof. Ken Steiglitz, Princeton University, that contains production and consumption. In this virtual market, there exist two commodities called food and gold . They are traded in the central auction. The roles of auctioneer is to collect bids from agents and to determine the price, where supply and demand become the same.

We take three types of agents. A regular agent produces food or gold, and consumes food. It tries to keep the stock level of food by trading in the market. A value trader does not produce or consume, but estimates fundamental value. It attempts to profit by buying low and selling high. A trend trader also does not produce or consume, but estimates price trend by the price movement alone, rather than any estimate of fundamental value.

Here we show an experiment results using such types of agents. We add three groups of agents one by one, and look at the price movement. We introduced a periodic ramping in the production ability of the regular agent, so that there exist a trend in the market.

First, when there exit only regular agents, we see the price oscillation with a large amplitude. If we add value traders, we see the rapid stabilization of the price movements. On top of that, we add trend traders, then we observe a phenomenon that the amplitude of price oscillation occasionally soars much greater than the previously observed normal case. This looks like the price bubble . The balance of two different speculators affect significantly the occurrence of this phenomenon.

We saw that the value trader can stabilize the price. But, is it even possible to realize such equilibrium without value traders but with changes in the price signal of which an auctioneer informs regular agents ?

First, the figure a) displays the results of the signal that are the average of all collected bids (P0). This shows slow convergence of price oscillation. Second, in the figure b), we see the price oscillation with a large amplitude, where we used the one that are weighed average with food amount (P1). This resembles the case of the Pr signal. Then, in reverse, we use anti-weighted average of [food amount + constant] as the new signal (P2). This leads into the rapid convergence of the price, as in the figure c).