Agent-based models of financial markets

Financial markets are the most widely studied examples of economic systems, both at the empirical and the theoretical level. The study of price, supply and demand in these markets reveals interesting empirical observations whose explanation in the framework of standard equilibrium models is a challenge. Representing a financial market as a system of agents with simple behavioral rules leads to models with interesting properties which can explain some of these empirical observations. We will examine in these lectures several modelling approaches which depart from the “representative agent” approach by introducing various ingredients: heterogeneity, herd behavior, social interactions and disequilibrium feedback effects.