Evolutionary Game to Model Risk Appetite of Individual Investors

Zohreh Lashgari Department of Mathematics, Faculty of Mathematics, Semnan University, Semnan, Iran
Madjid Eshaghi Department of Mathematics, Faculty of Mathematics, Semnan University, Semnan, Iran
Alireza Bahiraie Department of Mathematics, Faculty of Mathematics, Semnan University, Semnan, Iran; HEC Montreal, 3000, Chemin de la Cote-Sainte Catherine, Montreal (Quebec), Canada
Abdul KM Azhar Graduate School of Management, Universiti Putra Malaysia, Serdang, Malaysia

Keywords: game theory, portfolio risk, expected payoff, evolutionary stable strategy, heard effect

Abstract

‎We present a novel mathematical model of development and progression of investments based on evolutionary game theory‎. ‎Four different investment types in market‎: ‎bank account‎, ‎bond‎, ‎stocks‎, ‎and risky derivatives‎. ‎Despite the relative sincerity of the model‎, ‎it supplies a way to explore the interactions between the different investment types in the market‎. ‎We assume the market is a complete and four assets constitute the total capital market‎. ‎And assume that the three risk-averse individual‎, ‎risk‎- ‎neutral individual and risk-seeking individual enter the market and each individual buys at least two assets‎. ‎We examine the interaction of the two assets and find evolutionary stable strategy in interactions and weights‎. ‎We explore the heard effect on decision making and investment‎.

Published

2022-04-20

Issue

Vol 22 No 1 (2022): Advances in Systems Science and Applications

Section

Articles