Bounded Rationality

About this model

This diagram simulates a cryptocurrency trading environment focusing on Ethereum (ETH) and Tether (USDT) trades between two investors (Investor A and Investor B) over time, with fluctuations in ETH/USDT price. The environment encompasses sources to increase or decrease the price of ETH, pools for ETH and USDT holdings for both investors, and a mechanism to track the current and previous prices of ETH. Day-to-day price changes are captured and influence trading decisions, emulating real-world market dynamics.

Key mechanisms include the calculation of percentage changes in ETH price to simulate market volatility, and scheduled events such as weekly increases and specific day isolated increases to reflect external market influences. The interaction between investors' decisions based on price changes—such as selling ETH when its price surpasses their threshold percentages—is modeled through converters, illustrating the strategic aspect of trading with bounded rationality. This setup provides insights into decision-making processes under market volatilities, portraying how different strategies (quick gains vs. waiting for higher returns) play out over time within a simplified economic model.

"Bounded Rationality" is a public Machinations diagram shared in the Community by Nicolás Alejandro Munafó, with 48 components.

It was created in July 2023 and last edited in July 2023.

Open the diagram in the Machinations app and press Play to watch the resources move, adjust its values to test how the system responds, or remix it to make an editable copy in My diagrams.