communication: Convex Incentives in Financial Markets: an AgentBased
speaker: Annalisa Fabrettispeaker: Tommy Garling
speaker: Stefano Herzel
speaker: Martin Holmen
abstract: What is the influence of convex incentives, e.g. option-like compensation, on financial markets? We use agentbased simulations to replicate and extend the results of a laboratory experiment performed by Holmen et al. (2014). By replicating the experiment we identify some behaviors among participants which deviate from expected utility maximization and point out how they affected the outcomes of the experiment. By extending the simulations to a more general setting we show that convex incentives produces higher prices, lower liquidity and higher volatility. We also show that the influence of convex incentives on the decisions of the traders is much stronger than that of their risk preferences and that increasing the number of agents with convex incentives has a similar effect as that of increasing the inequality between agents’ endowments.
timetable:
Thu 28 Jan, 17:30 - 19:00, Aula Bianchi Scienze
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