Modeling Speculators with Genetic Programming

Abstract

In spirit of the earlier works done by Arthur (1992) and Palmer et al. (1993), this paper models speculators with genetic programming (GP) in a production economy (Muthian Economy). Through genetic programming, we approximate the consequences of “speculating about the speculations of others”, including the price volatility and the resulting welfare loss. Some of the patterns observed in our simulations are consistent with findings in experimental markets with human subjects. For example, we show that GP-based speculators can be noisy by nature. However, when appropriate financial regulations are imposed, GP-based speculators can also be more informative than noisy.