Micro Motives, Macro Behavior: Agent Based Modeling in Economics
From Agent Based Models
In brief, agent based models consist of purposeful agents who interact in space and time whose micro level interactions create emergent patterns. Agent based models consist not of real people but of computational objects. These objects then interact according to rules. An economy also consists of diverse agents who interact in space and time and who act purposefully choosing their actions, their strategies, and their locations with some objective in mind. This purposefulness implies that they respond to incentives and information in predictable ways at the individual level but makes for complex aggregation. The aggregation of micro level behaviors and interactions can create trading patterns, prices, bubbles, and business cycles that were not built into the economy. They emerge from the bottom up. It is these patterns and regularities which economists seek to understand, explain, and predict and which policy makers try to alter for the better.
The four primary features of agent based models: learning, networks, externalities, and heterogeneity have all been the focus of growing interest within mainstream economics over the past two decades. None of these ideas were central to neoclassical economics. Yet, now all are part of the mainstream. That said, despite what their advocates claim, agent based models are not likely to lead to a complete rethinking of economics or of social science. No matter how they are implemented be it mathematically or computationally, economic models will always have consumers and producers. Consumers will still choose bundles of goods with an eye toward getting high utility. Producers will still try to buy low and sell high. Markets, generally speaking, will come close to efficiently allocating goods and services most of the time. As Holland and Miller (1991) stated early on, agent based models occupy a middle ground between stark, dry rigorous mathematics and loose, possibly inconsistent descriptive accounts. If they are correct, we should not expect that middle ground to differ in kind from the two end points. We might though, expect a better, more comprehensive economics. The contribution of agent based models more likely will be to push theory into places it has heretofore ignored or avoided. Thus, we should not expect a revolution based on this new methodology, but we should expect absorption. Like experimental economics, agent based modeling should become one more row of streetlights for economists to stand underneath (de Marchi 2005).
From Varieties of agents in agent-based computational economics: A historical and an interdisciplinary perspective
The title of this paper suggests two lines of development in this paper. The first line is to place agent-based computational economics (ACE) in a historical context and to trace some of its origins, and the second one is then to focus on the notions of ‘‘agents’’ in each of these origins and to see how these notions have been changing and have been enriched within an interdisciplinary environment. The four origins of ACE considered in this paper are, in chronological order, the markets origin (with a long history), the cellular-automata origin in the 1970s, the economic-tournaments origin (the game theory origin) in the 1980s, and the experimental-economics origin in the 1990s. These four origins are, of course, not independent of each other. They can be imagined to be four gates to the same castle, with the markets origin being the main gate. While tourists may enter the castle through different gates, their experiences of the castle will be similar if they all explore the castle long enough. The four origins selected above are then very much like the answer to the question, ‘‘Where did you start your tour in ACE?’’ Hence, the answer may be Thomas Schelling’s segregation model (Schelling, 1971), Robert Axelrod’s simulation of the iterated prisoner’s dilemma tournament (Axelrod, 1987), Jasmina Arifovic’s simulation of cobweb experiments (Arifovic, 1994), Alan Kirman and Nicolaas Vriend’s fish market model (Kirman and Vriend, 2001), or a long list like this.
From Modeling Macroeconomies as Open-Ended Dynamic Systems of Interacting Agents
Macroeconomists seek to understand the structure and performance of economies at a national or regional level and the manner in which government policy makers attempt to influence this structure and performance over time. Such understanding would seem to require a systematic exploration of the intricate feedback loops connecting micro behaviors, interaction patterns, and macro regularities as observed in real-world economies.
In fact, however, mainstream macroeconomic theory remains firmly rooted in general equilibrium microfoundations (David Colander, 2006). Emphasis is on the isolated optimal choice behaviors of utility-maximizing households and profit-maximizing firms subject to budget and technological feasibility constraints, and on the equilibrium states attained through external imposition of conditions requiring fulfilled expectations and market clearing. Potentially important real-world factors such as subsistence needs, incomplete markets, imperfect competition, inside money, strategic behavioral interactions, and open-ended learning that tremendously complicate analytical formulations are typically not incorporated.
Key People:
- J Doyne Farmer
- Robert Axtell
- Thomas Schelling
- Robert Axelrod
- Leigh Tesfatsion
- Alan Kirman
- Shu-Heng Chen
- Axel Leijonhufvud
- Mauro Gallegati
- Scott E Page
- Kimmo Soramäki
- Joshua Epstein
- Giovanni Dosi
- Silvano Cincotti
- Domenico Delli Gatti
- Joseph Stiglitz
- Cars H. Hommes
- Matteo Richiardi
- Richard Bookstaber
Key Sources of Research:
The economy needs agent-based modelling
J. Doyne Farmer and Duncan Foley.
Click to access EconomyNeedsABM.NatureAug2009.FarmerFoley.pdf
INTRODUCTORY TUTORIAL: AGENT-BASED MODELING AND SIMULATION
Charles Macal Michael North
Click to access 2014-macal-north.pdf
How to Do Agent-Based Simulations in the Future: From Modeling Social Mechanisms to Emergent Phenomena and Interactive Systems Design
Dirk Helbing1,2 and Stefano Balietti1
Click to access 0fcfd50bafbc3a75a0000000.pdf
Varieties of agents in agent-based computational economics: A historical and an interdisciplinary perspective
Shu-Heng Chen
Click to access ACEHistoricalSurvey.SHCheng2011.pdf
Agent-Based Macroeconomic Modeling and Policy Analysis: The Eurace@Unibi Model⋆
Herbert Dawidb, Simon Gemkowb, Philipp Hartingb, Sander van der Hoogb, Michael Neugartd
May 2014
GETTING AT SYSTEMIC RISK VIA AN AGENT-BASED MODEL OF THE HOUSING MARKET
By
John Geanakoplos, Robert Axtell, Doyne J. Farmer, Peter Howitt, Benjamin Conlee, Jonathan Goldstein, Matthew Hendrey, Nathan M. Palmer, and Chun-Yi Yang
March 2012
Click to access Geanakoplos_et_al__2012_.pdf
Agent-Based Modeling and the Fallacies of Individualism
BY BRIAN EPSTEIN
Agent-based macroeconomics: A baseline model
Matthias Lengnick
Click to access jebo_2013_agent_based_macroeconomics_a_baseline_model.pdf
Agent-Based Economic Models and Econometrics
SHU-HENG CHEN1, CHIA-LING CHANG1 and YE-RONG DU
Agent-based financial markets and New Keynesian macroeconomics: A
synthesis
Lengnick, Matthias; Wohltmann, Hans-Werner
Using Agent-Based Modelsfor Analyzing Threats to Financial Stability
Richard Bookstaber
Click to access OFR_Working_Paper_No3_ABM_Bookstaber_Final.pdf
Credit Money and Macroeconomic Instability in the Agent-Based Model and Simulator Eurace
Silvano Cincotti Marco Raberto Andrea Teglio
2010
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1753514
EXPLORING AGENT-BASED METHODS FOR THE ANALYSIS OF PAYMENT SYSTEMS: A CRISIS MODEL FOR STARLOGO TNG
Luca Arciero+, Claudia Biancotti*, Leandro D’Aurizio*, Claudio Impenna
Click to access en_tema_686.pdf
Designing large value payment systems: An agent-based approach
Sheri Markose*, Amadeo Alentorn*, Stephen Millard# and Jing Yang
Click to access 734_S_Markose.pdf
Multi-Agent Financial Network Analysis For Systemic Risk Management: New Complexity Perspectives Post 2007 Financial Crisis For G10 and BRICs
Sheri M. Markose
Click to access 24NovFinancial%20StabilitySheriMarkose.pdf
Axelrod, Robert. (1997).
The Complexity of Cooperation: Agent-Based Models of Competition and Collaboration.
Princeton, NJ: Princeton University Press.
Axelrod, Robert.
“Agent-based modeling as a bridge between disciplines.”
Handbook of Computational Economics 2, no. 2 (2006): 1565-1584. North-Holland.
Agent-Based Modeling of Economic Systems: The EURACE Project Experience
Mehmet Gen ̧cer, Bu ̈lent O ̈zel
Click to access ecomod2010.pdf
EURACE: A Massively Parallel Agent-Based Model of the European Economy ⋆
Christophe Deissenberg a,∗, Sander van der Hoog a, Herbert Dawid
https://halshs.archives-ouvertes.fr/halshs-00339756/document
Click to access EURACE-AMC.pdf
An agent-based model of payment systems
Marco Galbiati and Kimmo Soramäki
Schelling, Thomas.
“Dynamic models of segregation.”
Journal of Mathematical Sociology, (1971): 143-186.
The impact of banks’ capital adequacy regulation on the economic system: an agent-based Approach
Andrea Teglio Marco Raberto Silvano Cincotti
Click to access teglioetal2011.pdf
An Agent Based Decentralized Matching Macroeconomic Model
Luca Riccetti and Alberto Russo and Mauro Gallegati
Click to access MPRA_paper_42211.pdf
Agent-Based Computational Economics: Growing Economies from the Bottom Up
LEIGH TESFATSION
2002
AGENT-BASED COMPUTATIONAL ECONOMICS:
A CONSTRUCTIVE APPROACH TO ECONOMIC THEORY
LEIGH TESFATSION
A. Borshchev and A. Filippov.
From System Dynamics and Discrete Event to Practical Agent Based Modeling: Reasons, Techniques, Tools.
The 22nd International Conference of the System Dynamics Society, July 25 – 29, 2004, Oxford, England
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.511.9644&rep=rep1&type=pdf
Tutorial on agent-based modelling and simulation
CM Macal and MJ North
Click to access ABMTutorial.MacalNorth.JOS2010.pdf
Agent-based and System Dynamics Modeling : A Call for Cross Study and Joint Research
Hans J. (Jochen) Scholl
Click to access School-ABM-and-SD-A-call-for-cross-study.pdf
Agent-based Models of Financial Markets
E. Samanidou, E. Zschischang, D. Stauffer, and T. Lux
Agent Based Models
Scott E Page
October 18, 2005
Click to access page-palgrave-version3.pdf
Artificial adaptive agent in economic Theory
John Holland and John Miller
HANDBOOK OF COMPUTATIONAL ECONOMICS VOLUME 2
AGENT-BASED COMPUTATIONAL ECONOMICS
LEIGH TESFATSION
KENNETH L. JUDD
2006
Agent-Based Computational Economics
LEIGH TESFATSION
Click to access intro_tesfatsion_ace_research_survey.pdf
AGENT-BASED COMPUTATIONAL MODELLING AND MACROECONOMICS
LEIGH TESFATSION
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.457.7137&rep=rep1&type=pdf
AGENT-BASED MACRO
AXEL LEIJONHUFVUD
UCLA, USA
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.207.494&rep=rep1&type=pdf
Economics: the next physical science?
J. Doyne Farmer, Martin Shubik, and Eric Smith
Critical Overview of Agent-Based Models for Economics
M. Cristelli, L. Pietronero, and A. Zaccaria
Agent Based Models in Economics and Complexity
MAURO GALLEGATI, MATTEO G. RICHIARDI
Click to access Chapter%203%20%20Agent%20Based%20Models%20in%20Economics%20and%20Complexity.pdf
A new approach to business fluctuations: heterogeneous interacting agents, scaling laws and financial fragility
Domenico Delli Gatti,a Corrado Di Guilmi,b Edoardo Gaffeo,c Gianfranco Giulioni,b Mauro Gallegati,b* Antonio Palestrini,
Emergent Macroeconomics
An Agent-Based Approach to Business Fluctuations
DOMENICO DELLI GATTI EDOARDO GAFFEO –
MAURO GALLEGATI – GIANFRANCO GIULIONI –ANTONIO PALESTRINI
2006
Click to access Emergent_Macroeconomics.GattiEtAl2006.pdf
Macroeconomic Policy in DSGE and Agent-Based Models Redux: New Developments and Challenges Ahead
Giorgio Fagiolo
Andrea Roventini
June 5, 2016
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2763735
Income Distribution, Credit and Fiscal Policies in an Agent-Based Keynesian Model
Giovanni Dosi∗ Giorgio Fagiolo† Mauro Napoletano‡ Andrea Roventini§
January 24, 2012
Click to access IncomeDistributionCreditFiscalPolicies.pdf
Micro and Macro Policies in the Keynes+Schumpeter Evolutionary Models
Giovanni Dosi, Mauro Napoletano, Andrea Roventini and Tania Treibich
Bankruptcy Cascades in Interbank Markets
Gabriele Tedeschi, Amin Mazloumian, Mauro Gallegati, Dirk Helbing
Click to access pone.0052749.pdf
No Man Is an Island: The Impact of Heterogeneity and Local Interactions on Macroeconomic Dynamics
Mattia Guerini∗, Mauro Napoletano†, Andrea Roventini‡
May 31, 2016
Click to access working_paper_2016_20.pdf
Some elements on Agent-Based Modeling and Economic Theory.
Gerard Ballot, Antoine Mandel, Annick Vignes
February 22, 2014
Click to access ballot2014elements.pdf
Complex Dynamics and Financial Fragility in an Agent Based Model
Mauro Gallegati Gianfranco Giulioni Nozomi Kichiji
May 30, 2003
http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.104.4078&rep=rep1&type=pdf
An Agent-based Model for Crisis Liquidity Dynamics
Richard Bookstaber
Mark Paddrik
2015
Click to access OFRwp-2015-18_Agent-based-Model-for-Crisis-Liquidity-Dynamics.pdf
Heterogeneous Interacting Agent Models for Understanding Monetary Economies
Joseph E. Stiglitz Mauro Gallegati
2011
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1735192
HETEROGENEOUS AGENT MODELS IN ECONOMICS AND FINANCE
CARS H. HOMMES
Click to access HomHBchapter23.pdf
Financial Instability after Minsky: Heterogeneity, Agent Based Models and Credit Networks
Domenico Delli Gatti
April 10, 2012
Click to access delli-gatti-domenico-berlin-paper.pdf
The future of agent-based modelling.
Matteo Richiardi
2015
Click to access delli-gatti-domenico-berlin-paper.pdf
Increasing Inequality, Consumer Credit and Financial Fragility in an Agent Based Macroeconomic Model
Alberto Russo∗1, Luca Riccetti2, and Mauro Gallegati
Click to access 15-Russo_et_al_Inequality_ABMacro.pdf
Complex agent-based macroeconomics: a research agenda for a new paradigm
Domenico Delli Gatti
Edoardo Gaffeo
Mauro Gallegati
Click to access delligatti_gallegati.pdf
Adaptive Microfoundations for Emergent Macroeconomics
Edoardo Gaffeo, Domenico Delli Gatti, Saul Desiderio and
Mauro Gallegati
Click to access 0912f513f4f7e3e7d3000000.pdf
Macroeconomics from the Bottom-up
By Domenico Delli Gatti, Saul Desiderio, Edoardo Gaffeo, Pasquale Cirillo, Mauro Gallegati
Liaisons dangereuses: Increasing connectivity, risk sharing, and systemic risk
Stefano Battiston, Domenico Delli Gatti , Mauro Gallegati , Bruce Greenwald , Joseph E. Stiglitz
Business fluctuations and bankruptcy avalanches in an evolving network economy
Domenico Delli Gatti · Mauro Gallegati · Bruce C. Greenwald · Alberto Russo · Joseph E. Stiglitz
Click to access 2009_Business_Fluctuations_and_Bankruptcy_Avalances.pdf
Online Resource page for ACE maintained by Leigh Tesfatsion
Modeling Macroeconomies as Open-Ended Dynamic Systems of Interacting Agents
Blake LeBaron and Leigh Tesfatsion
AER Papers & Proceedings, 98(2), 2008, 246-25
Click to access AEAPP2008.LeBaronTesfatsion.ACEMacroModeling.Final.pdf