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Mesoscale effects of trader learning behaviors in financial markets: A multi-agent reinforcement learning study

Johann Lussange¹, Stefano Vrizzi¹, Stefano Palminteri^1,2

¹Laboratoire des Neurosciences Cognitives, Département des Études Cognitives, INSERM U960, Paris, France.

|April 1, 2024

Abstract:

Recent advances in the field of machine learning have yielded novel research perspectives in behavioural economics and financial markets microstructure studies. In this paper we study the impact of individual trader leaning characteristics on markets using a stock market simulator designed with a multi-agent architecture. Each agent, representing an autonomous investor, trades stocks through reinforcement learning, using a centralized double-auction limit order book. This approach allows us to study the impact of individual trader traits on the whole stock market at the mesoscale in a bottom-up approach. We chose to test three trader trait aspects: agent learning rate increases, herding behaviour and random trading. As hypothesized, we find that larger learning rates significantly increase the number of crashes. We also find that herding behaviour undermines market stability, while random trading tends to preserve it.

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