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ABSTRACT: We investigate the use of Kelly's strategy in the construction of an optimal
portfolio of assets. For lognormally distributed asset returns, we derive
approximate analytical results for the optimal investment fractions in various
settings. We show that when mean returns and volatilities of the assets are
small and there is no risk-free asset, the Kelly-optimal portfolio lies on
Markowitz Efficient Frontier. Since in the investigated case the Kelly approach
forbids short positions and borrowing, often only a small fraction of the
available assets is included in the Kelly-optimal portfolio. This phenomenon,
that we call condensation, is studied analytically in various model scenarios.
12/2007;
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ABSTRACT: The unprecedented access offered by the World Wide Web brings with it the potential to gather huge amounts of data on human activities. Here we exploit this by using a toy model of financial markets, the Minority Game (MG), to investigate human speculative trading behaviour and information capacity. Hundreds of individuals have played a total of tens of thousands of game turns against computer-controlled agents in the Web-based Interactive Minority Game. The analytical understanding of the MG permits fine-tuning of the market situations encountered, allowing for investigation of human behaviour in a variety of controlled environments. In particular, our results indicate a transition in players' decision-making, as the markets become more difficult, between deductive behaviour making use of short-term trends in the market, and highly repetitive behaviour that ignores entirely the market history, yet outperforms random decision-making.
03/2004;
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ABSTRACT: We analyze different methods of sorting and selecting a set of objects by their intrinsic value, via pairwise comparisons whose outcome is uncertain. After discussing the limits of repeated Round Robins, two new methods are presented: The {\it ran-fil} requires no previous knowledge on the set under consideration, yet displaying good performances even in the least favorable case. The {\it min-ent} method sets a benchmark for optimal dynamic tournaments design.
EconWPA, Game Theory and Information. 01/2004;
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ABSTRACT: This paper presents an experiment performed to test the properties of an innovative bargaining mechanism (called automated negotiation) used to resolve disputes arising from Internet-based transactions. The main result shows that the settlement rule tends to chill bargaining as it creates incentives for individuals to misrepresent their true valuations, which implies that automated negotiation is not able to promote agreements. However, this perverse effect depends strongly on the conflict situation. When the threat that a disagreement occurs is more credible, the strategic effect is reduced since defendants are more interested in maximizing the efficiency of a settlement than their own expected profit. The implications of these results are then used to discuss the potential role of public regulation and reputation mechanisms in Cyberspace.
arXiv.org, Quantitative Finance Papers. 01/2002;
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ABSTRACT: We propose a continuum model for the description of buyer and seller dynamics in an Internet market. The relevant variables are the research effort of buyers and the sellers’ reputation building process. We show that, if a commercial website gives consumers the possibility to rate credibly sellers they bargained with, vendors are forced to be more honest. This leads to mutual beneficial symbiosis between buyers and sellers; the overall enhanced volume of transactions contributes ultimately to the website, which facilitates the matchmaking service.
Physica A: Statistical Mechanics and its Applications.
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ABSTRACT: Advances in information technology reduce barriers to information propagation, but at the same time they also induce the information overload problem. For the making of various decisions, mere digestion of the relevant information has become a daunting task due to the massive amount of information available. This information, such as that generated by evaluation systems developed by various web sites, is in general useful but may be noisy and may also contain biased entries. In this study, we establish a framework to systematically tackle the challenging problem of information decoding in the presence of massive and redundant data. When applied to a voting system, our method simultaneously ranks the raters and the ratees using only the evaluation data, consisting of an array of scores each of which represents the rating of a ratee by a rater. Not only is our approach effective in decoding information, it is also shown to be robust against various hypothetical types of noise as well as intentional abuses.
Physica A: Statistical Mechanics and its Applications.
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ABSTRACT: We analyze some voting models mimicking online evaluation systems intended to reduce the information overload. The minimum number of operations needed for a system to be effective is analytically estimated. When herding effects are present, linear preferential attachment marks a transition between trustful and biased reputations.
Physica A: Statistical Mechanics and its Applications.
