tag:blogger.com,1999:blog-6185556901551957929.post4267122983774038492..comments2023-06-04T07:40:18.152-07:00Comments on Ken Karakotsios on Simulation: Market Signals & Financial EngineeringAnonymoushttp://www.blogger.com/profile/09249744878753899562noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-6185556901551957929.post-81712809913664088012009-05-19T18:24:36.340-07:002009-05-19T18:24:36.340-07:00Hi Ken, been a long time since we chatted.
This i...Hi Ken, been a long time since we chatted.<br /><br />This is very interesting but I think the key issue is the risk equation. That equation is a moving target, sometimes affected by psychology and sometimes by the eurphoria of economic bubbles. Surely that equation was different during the hay day of sub-prime mortgages but that equation has now changed dramatically. This is a key issue that requires lots of research and the development of a theory of economic bubbles. The mortgage meltdown was one example as well as the dot-com implosion of several years ago. If you can figure that out and embed it into ABM, you have something that is very interesting.<br /><br />M WolfeAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-6185556901551957929.post-36134580622429942892009-04-21T16:33:00.000-07:002009-04-21T16:33:00.000-07:00Price Signals vs. Individual Psychology?
In ponde...Price Signals vs. Individual Psychology?<br /><br />In pondering Ken's discussion of how price signals affect market behavior, another aspect of their influence came to my mind.<br /><br />Price signals don't exist in a vacuum, after all. The degree to which a price signal affects a given consumer's actions is dependent also on that consumer's evaluation of their own potential as an earner in the context of the current and future economy. For example, reducing the price of gasoline won't lead to as much of an increase in driving among those people who have been recently unemployed for a significant period, even if they are working again now. They are "gun shy" about spending since they are concerned that the past may repeat itself. In aggregate, these effects are measured as the "Consumer Confidence Index".<br /><br />But in the real world, each person's individual consumer confidence index is different, and developing a model which includes that effect would allow us to investigate the distribution of confidence and its changes over time. While this would be difficult, if not impossible, to accomplish using algebraic models, an agent-based model such those Ken specializes in would be the perfect basis! <br /><br />I'm personally curious if current conditions of the economy are leading to a bimodal distribution of confidence, wherein the pessimistic people are in effect becoming "trapped" in that state because of the perceived distance (in terms of level of confidence) between their positions and that of the typical optimist is so large.Anonymousnoreply@blogger.com