Guoshun Ma, Jianlin Xu
Noise trading can lead to drastic stock price fluctuations and affect investors' rational decisions, which is a persistent problem in the stock market. To explore the evolutionary process of noise traders in the stock market, this paper introduces prospect theory into the evolutionary game analysis process, constructs a payment function different from the expected utility theory, and analyzes the evolutionary mechanism of noise trading and rational investing in the stock market. Theoretical research and numerical simulation results show that: in the stock market, there are multiple possible states of existence for noise traders and rational investors; the proportion of rational investors affects the utility of both strategies, and the distribution of traders' earnings in the market has a greater impact on the equilibrium point; when there is an evolutionary stabilization strategy, the strategy chosen by the first traders determines the direction of evolution; in immature markets, the use of rational investing strategies, higher earnings tend to be achieved.
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