Predicting investment behavior: An augmented reinforcement learning model

The goal of this paper is to augment the ordinal temporal-difference type (TD-type) reinforcement learning model in order to detect the most suitable learning model of the human decision-making process in financial investment tasks. The simplicity and robustness of the TD-type learning model is fascinating. However, the available evidence and our observation suggest the necessity of introducing the nonlinear effect in learning and the possibility that additional factors might play important roles in the investment decision-making process. To extend the ordinal TD-type learning model, we adopt a three-layered perceptron as the basis function and the hierarchical Bayesian method to calibrate the parameter values. The result of the predictive test suggests that the augmented TD-type learning model constructed in this paper can evade the overfitting and can predict people's investment behavior well as compared to other familiar learning models.