The traders then randomly choose one of their rules and use it to start buying and selling. Adapting to the market After the first round of trading, each agent assesses how good its current rule is by comparing it with the way all its other rules would have performed. It then generates a new rule, and chooses the best rule for the next round of trading. And so the process goes, period after period, buying, selling, placing money in bonds, modifying and generating rules, estimating how good the rules are, and, in general, acting in the same way that traders act in real financial markets. On the virtual exchange, share price moves just as in the real market.
Pink areas are where the market crashes.
A frozen moment in this artificial market is displayed in the Diagram. It shows the time history of the share price and the fundamental value of the stock, where the price of the share is the white line and the top of the red region is the fundamental value. In the pink region, where the white line sinks far below the top of the red, the market has crashed. After many periods of trading and modification of trading rules, what emerges is a kind of ecology of predictors, with different traders employing different rules to make their decisions. Furthermore, the price of the share always settles down to a random fluctuation about its fundamental value.