A kinetic description of the impact of agent competence and psychological factors on investment decision-making

The kinetic theory is employed to analyze influence of agent competence and psychological factors on investment decision-making. We assume that the wealth held by agents in the financial market is non-negative, and agents set their own investment strategies. The herding behavior is considered when analyzing the impact of an agent's psychological factors on investment decision-making. A nonlinear Boltzmann model containing herding behavior, agent competence and irrational behavior is employed to investigate investment decision-making. To characterize the agent's irrational behavior, we utilize a value function which includes current and ideal-investment decisions to describe the agent's irrational behavior. Employing the asymptotic procedure, we obtain the Fokker-Planck equation from the Boltzmann equation. Numerical results and the stationary solution of the obtained Fokker-Planck equation illustrate how herding behavior, agent competence, psychological factors, and irrational behavior affect investment decision-making, i.e., herding behavior has both advantages and disadvantages for investment decision-making, and the agent's competence to invest helps the agent to increase income and to reduce loss.