Illusionary Finance and Trading Behavior

One important aspect of flnancial markets is that there might be some traders that intentionally mislead other market participants by creating illusions in order to obtain a proflt. We call this new concept illusionary flnance. We present an analysis of how illusions can be created and disseminated in flnancial markets based on certain psy- chological principles that explain agents' decisions under time pressure and polysemous signals. We develop a simple model that incorporates the illusions in the price forma- tion process. Furthermore, using powerful simulations, we show how illusions can be incorporated, directly or indirectly, in the expected prices of the traders.