1. Emergence of a Global Equilibrium from Local Information Only
Wenzhi Zheng and Jiping Huang
Department of physics Fudan University, Shanghai China
Market B
Market A
Introduction
In our group’s past publications, we designed experimental markets and agent-based models to study the phase transitions, the herd behaviors and the relationship between return and risk preference. Based on this approach, the data from the real games and the simulations helped us to perform deep analysis of the economic behaviors of human beings and the state evolution of the market (as the macroscopic of these behaviors).
An important issues in economics is about how powerful the “invisible hand” is. While Adam Smith believed the invisible hand as a conjunction of the force of self-interest and competition, was capable of allocating resources in society, the New Keynesians argued that the market equilibrium theory should be revised because the incomplete information was more realistic and this would make the market less efficient. Now we designed a game in which the agents/human players can only get local information to simulate the imperfect market and study the global equilibrium under such condition. ? ? ? ? ? ? ?
Fig. 1. Players should choose to enter market A or B to share the resource in it. In this game, the players needed to make their decisions based on local information.
Experiment and Simulation
Fig. 2b
Fig. 2c
Fig. 2a, 2b, 2c. <N1>/<N2>, efficiency and stability as functions of M1/ M2. In experiment, we tested each resource distribution 14 rounds. In simulation, we ran 100 times per ratio and each over 800 rounds. In both experiment and simulation, we took first half for equilibration and the remaining half for statistics. The line with slope = 1 indicates the efficient states: <N1>/<N2> = M1/M2.
Fig. 2a
Conclusion
Both in our experiment and computer simulation, whether the human players/agents could access a complete information set seemed to be a key for the invisible hand of the market to play its role. The information set was very important in some cases. The efficiency and stability of the market was highly sensitive to the information in the cases when the resource was distributed in a highly biased way.
So in such a complex adaptive system, both the Adam Smith and the New Keynesians won. When the distribution of resource was smaller than M1/M2=3, the market could reach equilibrium when the human players/agents could only access local information. But if the distribution of resource was highly biased, lack of global information could lead to unbalances and loss of efficiency. This may imply that the information disclosure is extremely important in the real market. But in real world it’s almost impossible to achieve so the government interventions will be necessary sometimes.
W. Wang, Y. Chen, and J.P. Huang. Proc Natl Acad Sci USA vol.106, no (2009)
L. Zhao, G. Yang, W. Wang, Y. Chen, J. P. Huang, H. Ohashi, and H. E. Stanley. Proc Natl Acad Sci USA volume 108, (2011)
K. Y. Song, K. N. An, G. Yang, J.P. Huang. PLoS One volume 7, e (2012)