Each trader has a collection of such rules, but uses only one of them at a time. This rule is the one the trader views as its current, most accurate rule. As buying and selling proceeds, traders can re-evaluate their rules and bring another into play if it has proved profitable in the past. Suppose I'm an agent using one rule, but I know that another is useful when the inflation rate rises. When inflation does goes up, I will abandon the existing rule in favour of the other.
Traders can also recombine successful rules to form new ones that they can then test in the market.
This is carried out using what is called a genetic algorithm, an invention of Holland's that mimics the way the genes of two parents are mixed in a fertilised egg. This simulated market, which trades just one company's shares, runs on a desktop computer. Before trading begins, the traders are fed a particular history of stock prices, interest rates and dividends, and are assigned a set of rules. 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.