Rational Actor Model
The Rational Actor Model assumes that individuals make decisions that maximize their personal utility based on all available information and a logical evaluation of risks. In options trading and financial derivatives, this model is the bedrock of pricing formulas like Black-Scholes, which assume traders will exercise options in a way that maximizes profit.
However, in the crypto space, behavioral game theory suggests that participants often act irrationally due to fear, greed, or lack of understanding of complex protocol mechanics. This discrepancy between the rational model and actual market behavior creates opportunities for arbitrageurs and market makers.
By recognizing when other participants are acting irrationally, sophisticated traders can adjust their strategies to capitalize on the resulting price dislocations. The model remains a necessary starting point for building predictive quantitative frameworks.