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"Can stock markets, including volatility, be related to individuals through game theory?"

What I'm interested in is whether or not basic stock buy/sell behavior can be successfully modeled using individual players with some basic minimal set of characteristics, like an idea about what a fair price of a stock looks like. The idea is to derive individual properties and then relate that to stock market behavior through population level characteristics, using basic probability theory.

The first step would be to come up with several hypothesis for the essence of what is needed to describe an individual player in a stock market. So for example if notion of a fair price is all that is needed, then there's no need to htlothesize that individuals enter and exit stock markets at specific times. Occam's principle would favor the simplest explanation that works.

Next.

What’s X-Y Logic in a nutshell

The value of a stock is fair. When it's supply short and the demand is high, people will buy it up causing it's value to increase. 

When it's the other way around and more people are selling than buying, it's value goes down. 

That's how it's supposed to work and it's why people invest in the first place. 

When we look at a penny stock, that being shares that go for dirt cheap, no one complains, but when a stock explodes in value and become quite expensive to buy, and very profitable for early adopters to liquidate, then you might see some people carrying on about fairness. But it's fair. It's an open market and people can buy and sell whatever they want whenever they want.

If a single person or corporation bought out most/many shares of a stock, causing the price to increase significantly they're really sticking their neck out, cause smaller shareholders in mass have an opportunity to take profit, and if enough do it, the large buyer, whale as they're called, will be a bag holder at a loss. 

For an observant investor, they would then stay away from that stock, because it'll have "selling pressure" from the whale who'd rather wash their hands with the investment by breaking even.

It's also wise to look into the largest shareholders of a stock, to get a grasp on how badly the stock would crash if they decided to sell off their shares. In some cases, like Amazon, Facebook, Tesla and a few others, the largest shareholder of the stock would be the CEO, who has a fiduciary duty to play in the best interests of other shareholders, so in this case, they cannot simply sell off enough shares to flood the value of their stocks or else they can be sued. 

How did Elon acquire Twitter ?

He made himself the largest shareholder which gave him power in Twitter. They offered him a position on the board as a way to contain him, he said nah, cause he's smart. Imagine becoming the largest shareholder and the company wants to hire you to their board to keep you on a leash. It's laughable. 

Elon then made an offer to buy all shares, the offer was in the best interest of all shareholders. Twitter had a fiduciary duty to act in the best interest of the investors, which is "fair". So they had no choice but to sell, and history was made.

The MSM called that a hostile takeover. Then came the twitter files exposing what went on during election seasons. No more would the DNC tell Twitter what to bury or what to censor. Trump was back on the platform. Woke shit is still on X, but it doesn't run things anymore. 

Some might not believe it, but then we see Zuckerberg coming out saying how the same thing happened to him, and conservatives getting their way, seeing Trump survive the assassination attempts freed Facebook from being compliant to corrupt government. Funny enough, Zuckerberg looks less like an android and more like a stud now. More colour in this skin, looking good as if he's been liberated from demons. 

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That question, "what is a fair price for a stock ?" Isn't all there intellectually. It's an open market, and it's the combined buyers and sellers that determine it's market value. Each market has it's bulls and bears.

If someone wants to sell off their stock, they can list it, and when the price is met and it has a buyer it'll be gone, for this reason someone who is bearish will want it gone fast, so they'll sell it for a little less than it's market value. Cheaper stock will sell first, and next and next and next, until someone is no longer willing to sell for less, as they wanted more to begin with. Buyers will then pay more, but still at lower prices than higher asking prices. The market will eventually or not, get to the ones wanting to sell for more and in many cases they won't sell at their original asking price as the market could ramp up. People get greedy. 

No one is forced to buy anything, that is fair. What would be unfair is someone being able to buy a stock at whatever price they wanted, cause to them it's fair, then taking profit from that. That shits just dumb and unfair to those who were in on it before they.  

In my opinion a long term holder deserves their gains, why should someone who missed the boat have any say on what a fair price is ? Is it expected that the snowflake who complains would get their way and the market stops and bends a knee just for them to buy for cheaper over their tantrum, then when the stock blows up in the hands of the snowflake they'll call it fair when they take profit ? Nope. 

To say what's fair is but an opinion. The masses who participate don't give a fuck if people  who missed out think it's unfair while it certainly is, they want the value to go up, just as any investor professional or amature would. 

Saintly said: 

What’s X-Y Logic in a nutshell

 The X and Y represents whatever is assigned to them. It can be any value.

It can be made to represent a plug and a socket, then we see electrical engineers using algebra as a language to make panel boxes and other things with switches and connections. 

I also wrote this, so you can learn from me yet again, other than that I plan on shunning you on the most part. Thanks for reading. 

What I was thinking about is more like this--

Individual X thinks fair price of a Tesla share is 200 USD. She will buy if the price is below 200 USD, and sell otherwise.

Individual Y thinks fair price of tesla is 500 USD. He will buy tesla stocks if he can and sell if he can make more money than 500 USD.

Then add 10^5 people in between. It's then a question of how to model the interaction between the individuals. The interactions determine the market price.

If the model can successfully capture a subset of basic stock market behavior, then the model is successful. If it cannot, then something is missing in the model, either in modelling the individual or the interactions between the individuals. 

That question, "what is a fair price for a stock ?" Isn't all there intellectually.

Youre right that there is no universal fair price, and that the market price is determined by the market. This aligns with my suggestion. That quote is not from me.

The idea is not that there is a universal fair price. Rather what I proposed is a question of whether game theory can be used to explain a subset of basic stock price behavior. The basic premise I am making is that the stock market pricing is an emergent property of individual entities. I think it's a correct premise.

The difference with, say, models using geometric brownian motion, is that if we start with the individual, then the model is explanatory in nature (it explains stock behavior as an emergent behavior from individual choices), rather than descriptive (modelling how the stock market behaves as a matter of fact). Whether or not the idea works I dont know. It would need to be tested against other stochastic models, or even better, real stock market data.

Next project.

Jada said: 

What I was thinking about is more like this--

Individual X thinks fair price of a Tesla share is 200 USD. She will buy if the price is below 200 USD, and sell otherwise.

Individual Y thinks fair price of tesla is 500 USD. He will buy tesla stocks if he can and sell if he can make more money than 500 USD.

Then add 10^5 people in between. It's then a question of how to model the interaction between the individuals. The interactions determine the market price.

If the model can successfully capture a subset of basic stock market behavior, then the model is successful. If it cannot, then something is missing in the model, either in modelling the individual or the interactions between the individuals. 

You have to factor in business news. That has a lot to do with market behavior. Something can happen that will scare the market into selling. Or something will turn them on to buy up more shares. 

Tesla became the world's most valuable car company around 2019. Maybe sooner, but thats when it started seeing rapid growth from 22 dollars a share. Also the last time to really make lots of gains from it. 

Tesla remains the most valuable car company, and it's only a teenager compared to other car companies which are older than everyone I think. That alone will make people flock around it, but at this point buying TSLA is vanity. Anyone who bought TSLA from the past.... 5 years has a weak hand in it regardless of how much money they put into it from then on. 

The whales that buy TSLA, bought it back with the same money they made selling it, increasing their stash.

At any given time people will want to buy TSLA and they will. It's a bad idea if you ask me. By the time it makes it to 1,000 someone who bought it today will have only doubled their capital investment. 4x won't make you rich either. 

That question, "what is a fair price for a stock ?" Isn't all there intellectually.

Youre right that there is no universal fair price, and that the market price is determined by the market. This aligns with my suggestion. That quote is not from me.

 

 Nah. I'm sure it's from you and there's a reason for that. 

Remember your Bitcoin Poppin thread ? How you argued it's price isn't justified, and that "It isn't fair" and how ALL of the BTC should be confiscated ( not happening with this blockchain sorry) and redistributed to everyone around the world to make things fair ? That the masses will demand that happen for all "fairness" ? That came from you. 

Remember that Legga ?

The correct term is "their price" not fair price. All investments have different values to it's investors who bought it as various prices and different times and seen different kinds of growth. If it's too much it's too much. Forget the sailed ships and don't buy big tech stocks. Find something new, and cheap. Research it for it's potential. Find them all and keep the radar up and running and snipe cheap shit.

If you find a stock at 1 penny, and it goes to 10 cents, it would have outperformed the "Oh I won't buy that cause the price isn't right, I want TSLA it at $200" But please, do not buy a 200 dollar stock even if you can invest 1 billion dollars.  Do not buy FAANG, do not buy MANGO. These are for whales, and people who think these will make them rich at this point. 

The idea is not that there is a universal fair price. Rather what I proposed is a question of whether game theory can be used to explain a subset of basic stock price behavior. The basic premise I am making is that the stock market pricing is an emergent property of individual entities. I think it's a correct premise.

The difference with, say, models using geometric brownian motion, is that if we start with the individual, then the model is explanatory in nature (it explains stock behavior as an emergent behavior from individual choices), rather than descriptive (modelling how the stock market behaves as a matter of fact). Whether or not the idea works I dont know. It would need to be tested against other stochastic models, or even better, real stock market data.

You're trying to discover something that has already been discovered. We have trading tool y'know. Every pattern on a chart indicates what's most likely to happen. We have tools for outlining these patterns, and we have various golden ration gauges. Do you know how insane it is, that we use fibonacci tools to make decisions ? That is nature itself demanding it's way even in an open market.  

Simply put, the ones who win are paying attention. The ones who buy in the heat of large red candles aren't paying attention, and just decided to get that cool stock they always wanted. That is actually the majority. They  usually when it's too late, they often sell to avoid crashing even worse so they'll take a loss, then run away instead of buying it back at a lower price. By the time they lose, the market is already turning around, that's called a shakeout, and it's done on purpose to take people's money. It's a game of resilience.

Every single buy and sell, is done by real people. Or a well played bot created for the purpose or playing off of indicators. Someone using a trading bot should still monitor it.

There are reasons behind everything happening in an open market. 

News, fear and greed moves the market, and despite the chaos, it's uniform to the golden ratio.  

You have to factor in business news. That has a lot to do with market behavior. Something can happen that will scare the market into selling. Or something will turn them on to buy up more shares.

So your proposal is that one of the fundamental behaviors that influence how stocks behave is business news. 

Yes, it can certainly have an effect. However, I think that it's a secondary effect. Whatever signal is in the data is very weak compared to the noise. The bulk of the stock behavior is more likely determined by other things, would be my bet. I.e., basic stock behavior can be predicted in isolation of business news.

But its testable! Instead of arguing over hypothetical, you can demonstrate your point. I reckon you can find select examples where news are relevant, but if I whipped a random stock curve, you'd not be able to connect it with business news. No doubt you agree.

Remember your Bitcoin Poppin thread ? How you argued it's price isn't justified, and that "It isn't fair" and how ALL of the BTC should be confiscated ( not happening with this blockchain sorry) and redistributed to everyone around the world to make things fair ? That the masses will demand that happen for all "fairness" ? That came from you.

...Yeah Im not even going to respond to that after I spent a post explicitly explaining why that's not what I think nor ever said. 

Of course it can. I do it all the time. There are several indicators, but I like to use 2 of them in particular.

Great, the point of the project is to prove it, instead of merely talking about it. So.. Prove it.

You're trying to discover something that has already been discovered.

I'm not. Im also not talking about indicators. 

It's like you heard about mathematics and now anyone who works in mathematics is trying to discover calculus... So you laugh at them, what are those people doing with those numbers, Isaac Newton discovered calculus in the 1600s!

Of course I know that technical trading was invented a long time ago. 

If the model Im proposing exists, then why don't you go ahead and point me to it? Give me a statistical model that derives stock behavior from first principles, starting with individual entities. Agent based models are not what I'm looking for. 

I think you both underestimate my knowledge and overestimate your own.

Jada said: 

You have to factor in business news. That has a lot to do with market behavior. Something can happen that will scare the market into selling. Or something will turn them on to buy up more shares.

So your proposal is that one of the fundamental behaviors that influence how stocks behave is business news. 

Big time. 

If Warren Buffett announced he's going to cut a stock loose, that stock will crash that same minute. One time the SEC sued Elon and Tesla 40M over a tweet when he said he'd buy up Tesla stock and take it private. He was charged for impacting tesla stock price.

As mentioned earlier, this falls under a CEO or corporations fiduciary to protect their investors. 

Yes, it can certainly have an effect. However, I think that it's a secondary effect. Whatever signal is in the data is very weak compared to the noise. The bulk of the stock behavior is more likely determined by other things, would be my bet. I.e., basic stock behavior can be predicted in isolation of business news.

See the difference between us, I'm not making any guesses here. 

But its testable! Instead of arguing over hypothetical, you can demonstrate your point. I reckon you can find select examples where news are relevant, but if I whipped a random stock curve, you'd not be able to connect it with business news. No doubt you agree.

As usual you want me to do your homework for you. You have search engines and Ai, yet you're head is so in the clouds you require a demonstration from someone you doubt. such is the way with you. 

Grok

This one's a beauty. From the time he said good morning, the market started crashing to hell. 

Remember your Bitcoin Poppin thread ? How you argued it's price isn't justified, and that "It isn't fair" and how ALL of the BTC should be confiscated ( not happening with this blockchain sorry) and redistributed to everyone around the world to make things fair ? That the masses will demand that happen for all "fairness" ? That came from you.

...Yeah Im not even going to respond to that after I spent a post explicitly explaining why that's not what I think nor ever said. 

You also associated people who hold Bitcoin as people who don't work, as if obtaining it was cheap or free. Not the case dude. And yes you made it about fairness. That worf fair. Stop using it.  I'll spare the quotes unless I have to use them.

Of course it can. I do it all the time. There are several indicators, but I like to use 2 of them in particular.

Great, the point of the project is to prove it, instead of merely talking about it. So.. Prove it.

You don't know anything about technical analysis it seems. Like you believe what you say can be done, but you don't seem to believe it's been done, or rather, I can't do it. I been doing on here for years though.

You're trying to discover something that has already been discovered.

I'm not. Im also not talking about indicators. 

It's like you heard about mathematics and now anyone who works in mathematics is trying to discover calculus... So you laugh at them, what are those people doing with those numbers, Isaac Newton discovered calculus in the 1600s!

But Legga, you're the one who wants to run some experiment to see if you can discover game theory in stock markets. Yes it's there. Also indicators use multiple forms of mathematics. There are many of them, and they are outstanding in this conversation despite you dismissing them. 

Of course I know that technical trading was invented a long time ago. 

First thing you asked for was for proof of that. 

If the model Im proposing exists, then why don't you go ahead and point me to it?

Because it's your proposition and not mine.

Sorry that made me laugh.

As you mentioned, your model is geared toward the discovery of game theory. You believe a stock can be traded successfully without any external information. That assumption would then suggest ANY investment is a good one. Not the case.  

My claim is that game theory exists in the markets. It's what I do Legga. Sometimes the market is all I have to talk about. Hype is an element. So is fear and greed. Headlines matter, and can make or break a market in real time so fast your head will spin.

Give me a statistical model that derives stock behavior from first principles, starting with individual entities. Agent based models are not what I'm looking for. 

I think you both underestimate my knowledge and overestimate your own.

 Individual entities come with multiple variables. I'm not you, and you're not me. The difference between us is I'd look before I leap before investing in anything. You on the other hand, leave it to the bank, while your bank will do things more along my way on your behalf.

Most individuals get wrecked in the market. They're often manipulated, and when time comes to sell, it'll often be too late for them. Most will sell off when they feel at a loss, and then they really lose cause they sold off their only way to recover from a pullback. A panic sell. 

I talked about those types, I talked about banks, and whales, what they do. I talked about live trading. But you need a barebones model based on individuals, which there is a multitude of individuals that will trade all kinds of ways, most of them will trade in the dark. Or they'll go buy something trendy, like Bitcoin or TSLA and never make it. 

Most investors are not skilled investors. Those who make money in the market, are the ones who take money. If the majority won, well that's not even possible but if it were, there would be no such thing and large gain. 

Kinda repeating myself here right ? It's all first principal at its core.

I talked about individual entities such as banks and corporations, wall street. Basically whales. 

For a whale to pump the price of an item on the market, they are really sticking their neck out. If you have 100 shares of TSLA, and for some reason Blackrock decided to pump the living shit out of it and it went to 10k per share, you'd be good selling those 100 shares, as thousands of investors will totally sell their shares, maybe more shares than what Blackrock bought will get sold off for life changing gains.  In the process of selling off shares, the price will trickle down, sell orders will not be met, so it would be a constant sell of 9k 8k 7k. Honestly if this happens and it goes to 10k, sell the whole damn thing for 9k and watch it all vanish, and you'll walk away with more than selling at cost as it goes down. When the dust settles and if Blackrock never took any action they would be holding a bag worth less than what they paid for. They could do it again where the masses will get greedy and hop on board and ride the value train up, but then Blackrock has a chance to pull the rug and the price will crash lower than it was when they started, then buy half of what they initially bought.

I see this happen ALL THE TIME with parabolic spikes. Example after example when a chart goes parabolic, expect a 50% pullback right away. 

Now you can go process this with your chatGPT then try to school me on something else. 

See the difference between us, I'm not making any guesses here.

Yes, you assert without presenting proof whereas I dont.

As usual you want me to do your homework for you. You have search engines and Ai, yet you're head is so in the clouds you require a demonstration from someone you doubt. such is the way with you.

How condescending and arrogant of you.

Now let me see... I said:

I reckon you can find select examples where news are relevant,

Then you find a select example:

This one's a beauty. From the time he said good morning, the market started crashing to hell.

I guess I was right. Shocking.

You said that there's a derivation starting from game theory and first principles to stock market behavior, and a model that cn do that. I asked for evidence, you got this:

Individual entities come with multiple variables. I'm not you, and you're not me. The difference between us is I'd look before I leap before investing in anything. You on the other hand, leave it to the bank, while your bank will do things more along my way on your behalf.

There is no math here, no derivation, no first principles. You assert that what I'm asking for is doable, and has been done, dont do it, and dont point to anything or anyone who does it. Instead you post some long prose about difference between us. Of course in the "philosophical" there are individual differences and those play a role in the stock market. This is easy to say. However, this is entirely different from "I can make a model that reproduces basic behavior of the stock market from first principles and probability theory, starting with a simple model for individuals". 

What youre suggesting is an attempt at a starting point, and you think it's the end point.

This is why I ask for evidence, because then you have to say things that are actually true and think about it. Such is the nature of communication, and the point of this thread. The point is similar to the train experiment -- you can claim things and wing it when there's not foothold, but when you actually run an experiment it's clear that ideas like dont pull the lever to save people dont work. Same here. 

Of course I ask for evidence.