A kinetic description of the impact of agent competence and psychological factors on investment decision-making

doi:10.1088/1674-1056/accb4a

Abstract The kinetic theory is employed to analyze influence of agent competence and psychological factors on investment decision-making. We assume that the wealth held by agents in the financial market is non-negative, and agents set their own investment strategies. The herding behavior is considered when analyzing the impact of an agent's psychological factors on investment decision-making. A nonlinear Boltzmann model containing herding behavior, agent competence and irrational behavior is employed to investigate investment decision-making. To characterize the agent's irrational behavior, we utilize a value function which includes current and ideal-investment decisions to describe the agent's irrational behavior. Employing the asymptotic procedure, we obtain the Fokker-Planck equation from the Boltzmann equation. Numerical results and the stationary solution of the obtained Fokker-Planck equation illustrate how herding behavior, agent competence, psychological factors, and irrational behavior affect investment decision-making, i.e., herding behavior has both advantages and disadvantages for investment decision-making, and the agent's competence to invest helps the agent to increase income and to reduce loss.

Keywords: kinetic theory investment decisions Fokker-Planck equation value function

Received: 17 February 2023
Revised: 03 April 2023
Accepted manuscript online: 07 April 2023

PACS:	89.65.Gh	(Economics; econophysics, financial markets, business and management)
	47.45.Ab	(Kinetic theory of gases)
	05.20.Dd	(Kinetic theory)
	05.10.Gg	(Stochastic analysis methods)

Fund: Project supported by the Fundamental Research Funds for the Central Universities and Southwest Minzu University (Grant No.2022SJQ002).

Corresponding Authors: Chunhua Hu
E-mail: chunhuahu@swun.edu.cn

Cite this article:

Chunhua Hu(胡春华) and Hongjing Chen(陈弘婧) A kinetic description of the impact of agent competence and psychological factors on investment decision-making 2023 Chin. Phys. B 32 088901

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A kinetic description of the impact of agent competence and psychological factors on investment decision-making

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