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- Title
Evolutionary Game to Model Risk Appetite of Individual Investors.
- Authors
Lashgari, Zohreh; Eshaghi, Madjid; Bahiraie, Alireza; Azhar, Abdul K. M.
- Abstract
In this paper, we present a novel mathematical model of the development and progression of investments based on evolutionary game theory. We consider four different types of investments in the market: bank account, bond, stocks, and risky derivatives. Despite the relative sincerity of the model, it supplies a way to explore the interactions between the different investment types in the market. We assume the market is complete and four assets constitute the total capital market. We also assume that the risk-averse individual, the risk-neutral individual, and the risk-seeking individual enter the market, and that each of these three individuals buys at least two assets. We examine the interaction of the two assets and find evolutionary stable strategy in interactions and weights. We explore the heard effect on decision-making and investment. By providing examples in the capital market, we find that the results are consistent with the conditions in the capital market. The results show that investors who enter the market may change their behavior due to their herds effect and tend to other strategies that are more appropriate according to evolutionary game theory.
- Subjects
GAME theory; PORTFOLIO management (Investments); CAPITAL market; ASSET management; STRATEGIC planning
- Publication
Advances in Systems Science & Applications, 2022, Vol 22, Issue 1, p35
- ISSN
1078-6236
- Publication type
Article