ItemArticle

Behavioral Biases as Drivers of Complexity in Stock Markets: An Agent-Based Modeling Approach

Title
Behavioral Biases as Drivers of Complexity in Stock Markets: An Agent-Based Modeling Approach
Creator
Joseph, David; Joseph, Alwin; James, Blesson; Dass, Kajal
Description
By modeling financial systems as Complex Adaptive Systems, this study investigates how behavioral biases influence emergent complexity in stock markets. The study integrates heterogeneous agents, such as rational traders, herding agents, overconfident traders, and anchoring/disposition-driven investors, within a Limit Order Book framework calibrated to both U.S. and Indian market conditions using an Agent-Based Modeling (ABM) approach implemented through the high-fidelity ABIDES simulation environment. Price dynamics, volatility patterns, and liquidity structures were analyzed by Monte Carlo simulation experiments with different behavioral compositions. The results show that behavioral biases cause nonlinear price reactions, produce heavy-tailed return distributions that distort order-book complexity, and greatly increase volatility. The market shifts from a stable, rational regime to a highly volatile, complex regime characterized by contagion and fragile liquidity as the proportion of biased actors rises. Overall, the findings show that the complexity and systemic instability of emerging markets are primarily driven by behavioral heterogeneity. 2026 Binghamton University Libraries. All rights reserved.
Source
Northeast Journal of Complex Systems;Volume;8;Issue;1;Article No.;4;
Date
01-01-2026
Publisher
Binghamton University Libraries
Subject
Agent-Based Modeling; Behavioral Finance; Complex Adaptive Systems; Emerging Markets; Limit Order Book
Coverage
Joseph D., Christ University, India; Joseph A., Christ University, India; James B., Christ University, India; Dass K., Christ University, India
Rights
All Open Access; Gold Open Access
Relation
ISSN: 25778439;
Format
online
Language
English
Type
Article

Citation

Joseph, David; Joseph, Alwin; James, Blesson; Dass, Kajal, “Behavioral Biases as Drivers of Complexity in Stock Markets: An Agent-Based Modeling Approach,” CHRIST (Deemed To Be University) Institutional Repository, accessed June 18, 2026, https://archives.christuniversity.in/items/show/23744.

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