Theory of agent-based market models with controlled levels of greed and anxiety

Abstract We use generating functional analysis to study minority-game-type market models with generalized strategy valuation updates that control the psychology of agents’ actions. The agents’ choice between trend-following and contrarian trading, and their vigor in each, depends on the overall state of the market. Even in ‘fake history’ models, the theory now involves an effective overall bid process (coupled to the effective agent process) which can exhibit profound remanence effects and new phase transitions. For some models the bid process can be solved directly, others require Maxwell-construction-type approximations.