Book Reviews

Christophre Georges of the Department of Economics, Hamilton College reviews “Economics with Heterogeneous Interacting Agents: A Practical Guide to Agent-Based Modeling,” edited by Alessandro Caiani, Alberto Russo, Antonio Palestrini, and Mauro Gallegati. The Econlit abstract for this book begins: “Text for graduate and PhD students, as well as undergraduates with some knowledge of computers and economics comprises four papers emerging from a workshop on agent-based modeling held by the Dipartimento di Scienze Economiche e Sociali at the Università Politecnica delle Marche. Presents a guide to agent-based models (ABM) and the technicalities that need to be solved in order to evaluate the effect of different rules and their switching.”

Herd behavior, bubbles and social interactions in financial markets

This paper studies herd behavior, bubbles and social interactions in financial markets through the asset pricing models with heterogeneous interacting agents. The relationship between social interactions, herd behavior and bubbles is examined. It is found that herd behavior arises naturally when there are strong enough social interactions among individual investors. In addition, an extremely small bubble may cause a sufficiently large number of traders to engage in herd behavior when the social interactions among traders are strong.