Physics Reports 564 (2015) 1–55 Contents lists available at ScienceDirect Physics Reports journal homepage: www.elsevier.com/locate/physrep Experimental econophysics: Complexity, self-organization, and emergent properties J.P. Huang ∗ Department of Physics and State Key Laboratory of Surface Physics, Fudan University, Shanghai 200433, China article info a b s t r a c t Article history: Experimental econophysics is concerned with statistical physics of humans in the labora- Accepted 27 November 2014 tory, and it is based on controlled human experiments developed by physicists to study Available online 15 December 2014 some problems related to economics or finance. It relies on controlled human experiments editor: D.K. Campbell in the laboratory together with agent-based modeling (for computer simulations and/or analytical theory), with an attempt to reveal the general cause–effect relationship between Keywords: specific conditions and emergent properties of real economic/financial markets (a kind of Experimental econophysics complex adaptive systems). Here I review the latest progress in the field, namely, stylized Statistical physics of humans in the laboratory facts, herd behavior, contrarian behavior, spontaneous cooperation, partial information, Controlled human experiment and risk management. Also, I highlight the connections between such progress and other Agent-based simulation topics of traditional statistical physics. The main theme of the review is to show diverse Theoretical analysis emergent properties of the laboratory markets, originating from self-organization due to Complexity the nonlinear interactions among heterogeneous humans or agents (complexity). Self-organization ' 2014 Elsevier B.V. All rights reserved. Emergent property Contents 1. Introduction.............................................................................................................................................................................................2 1.1. Physics needs economics/finance..............................................................................................................................................2 1.2. Economics/finance needs physics..............................................................................................................................................4 1.3. Combining physics and economics/finance gives birth to econophysics ...............................................................................4 1.4. Empirical econophysics versus experimental econophysics ...................................................................................................4 1.5. What is the methodology of experimental econophysics........................................................................................................5 1.6. Complexity, self-organization, and emergent properties ........................................................................................................5 2. Basic knowledge......................................................................................................................................................................................6 2.1. Hayek hypothesis: A pragmatic hypothesis..............................................................................................................................6 2.2. How to design controlled human experiments ........................................................................................................................7 2.3. El Farol bar problem versus minority game..............................................................................................................................7 2.3.1. El Farol bar problem ....................................................................................................................................................7 2.3.2. Minority game ............................................................................................................................................................. 10 2.4. How to model agent-based systems.......................................................................................................................................... 11 2.4.1. Abstracting real-world systems.................................................................................................................................. 11 2.4.2. Borrowing physical models......................................................................................................................................... 11 3. Stylized facts............................................................................................................................................................................................ 13 3.1. Market structure......................................................................................................................................................................... 14 ∗ Tel.: +86 21 55665227; fax: +86 21 55665239. E-mail address: [email protected]. http://dx.doi.org/10.1016/j.physrep.2014.11.005 0370-1573/' 2014 Elsevier B.V. All rights reserved. 2 J.P. Huang / Physics Reports 564 (2015) 1–55 3.1.1. Basic framework .......................................................................................................................................................... 14 3.1.2. Double-auction order book......................................................................................................................................... 14 3.1.3. Exogenous rewards ..................................................................................................................................................... 15 3.2. Controlled experiments.............................................................................................................................................................. 15 3.2.1. Platform and subjects.................................................................................................................................................. 15 3.2.2. Experimental settings.................................................................................................................................................. 15 3.2.3. Payoffs .......................................................................................................................................................................... 15 3.3. Results and discussion................................................................................................................................................................ 16 3.3.1. Price, volume and return series .................................................................................................................................. 16 3.3.2. Human behavior dynamics ......................................................................................................................................... 17 3.4. Concluding remarks.................................................................................................................................................................... 19 4. Herd behavior.......................................................................................................................................................................................... 19 4.1. Controlled experiments.............................................................................................................................................................. 20 4.2. Agent-based modeling ............................................................................................................................................................... 21 4.3. Simulation results....................................................................................................................................................................... 22 4.4. Theoretical analysis .................................................................................................................................................................... 24 4.5. Concluding remarks.................................................................................................................................................................... 24 5. Contrarian behavior ................................................................................................................................................................................ 25 5.1. Controlled experiments.............................................................................................................................................................. 26 5.2. Agent-based modeling ............................................................................................................................................................... 28 5.3. Simulation results....................................................................................................................................................................... 28 5.4. Theoretical analysis .................................................................................................................................................................... 30 5.5. Concluding remarks.................................................................................................................................................................... 33 6. Spontaneous cooperation......................................................................................................................................................................