Agent-based computational economics

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{{Multi-agent system}}

Agent-based computational economics (ACE) is the area of computational economics that studies economic processes, including whole economies, as dynamic systems of interacting agents. As such, it falls in the paradigm of complex adaptive systems.• W. Brian Arthur, 1994. "[https://ocw.tudelft.nl/wp-content/uploads/ElFarolArtur1994.pdf Inductive Reasoning and Bounded Rationality]," American Economic Review, 84(2), pp. [http://www-personal.umich.edu/~samoore/bit885f2011/arthur-inductive.pdf 406-411] {{Webarchive|url=https://web.archive.org/web/20130521145936/http://www-personal.umich.edu/~samoore/bit885f2011/arthur-inductive.pdf |date=21 May 2013 }}.
   • Leigh Tesfatsion, 2003. "Agent-based Computational Economics: Modeling Economies as Complex Adaptive Systems," Information Sciences, 149(4), pp. [http://copper.math.buffalo.edu/urgewiki/uploads/Literature/Tesfatsion2002.pdf 262-268] {{webarchive|url=https://web.archive.org/web/20120426000037/http://copper.math.buffalo.edu/urgewiki/uploads/Literature/Tesfatsion2002.pdf |date=26 April 2012 }}. In corresponding agent-based models, the "agents" are "computational objects modeled as interacting according to rules" over space and time, not real people. The rules are formulated to model behavior and social interactions based on incentives and information.Scott E. Page (2008). "agent-based models," The New Palgrave Dictionary of Economics, 2nd Edition. [http://www.dictionaryofeconomics.com/article?id=pde2008_A000218&edition=current&q=agent-based%20computational%20modeling&topicid=&result_number=1 Abstract]. Such rules could also be the result of optimization, realized through use of AI methods (such as Q-learning and other reinforcement learning techniques).Richard S. Sutton and Andrew G. Barto, Reinforcement Learning: An Introduction, The MIT Press, Cambridge, MA, 1998 [http://www.cs.ualberta.ca/~sutton/book/ebook/the-book.html] {{Webarchive|url=https://web.archive.org/web/20090904194934/http://www.cs.ualberta.ca/~sutton/book/ebook/the-book.html|date=4 September 2009}}

As part of non-equilibrium economics,{{cite book | title=Handbook of Computational Economics |volume=2 |date=2006 |pages=1551-1564 |chapter=Out-of-Equilibrium Economics and Agent-Based Modeling |last1= Arther |first1=W. Brian |authorlink = W. Brian Arthur}} the theoretical assumption of mathematical optimization by agents in equilibrium is replaced by the less restrictive postulate of agents with bounded rationality adapting to market forces.• John H. Holland and John H. Miller (1991). "Artificial Adaptive Agents in Economic Theory," American Economic Review, 81(2), pp. [http://www.santafe.edu/media/workingpapers/91-05-025.pdf 365-370] {{Webarchive|url=https://web.archive.org/web/20110105015853/http://www.santafe.edu/media/workingpapers/91-05-025.pdf |date=5 January 2011 }} p. 366.
   • Thomas C. Schelling (1978 [2006]). Micromotives and Macrobehavior, Norton. [http://books.wwnorton.com/books/978-0-393-32946-9/ Description] {{Webarchive|url=https://web.archive.org/web/20171102093240/http://books.wwnorton.com/books/978-0-393-32946-9/ |date=2 November 2017 }}, [https://books.google.com/books?id=DenWKRgqzWMC&pg=PA1= preview].
   •

Thomas J. Sargent, 1994. Bounded Rationality in Macroeconomics, Oxford. [http://www.oup.com/us/catalog/general/subject/Economics/MacroeconomicTheory/?view=usa&ci=9780198288695 Description] and chapter-preview 1st-page [https://www.questia.com/library/book/bounded-rationality-in-macroeconomics-thomas-j-sargent-by-thomas-j-sargent.jsp links.] ACE models apply numerical methods of analysis to computer-based simulations of complex dynamic problems for which more conventional methods, such as theorem formulation, may not find ready use.• Kenneth L. Judd, 2006. "Computationally Intensive Analyses in Economics," Handbook of Computational Economics, v. 2, ch. 17, Introduction, p. 883. [Pp. [https://books.google.com/books?id=6ITfRkNmKQcC&pg=PA881 881-] 893. Pre-pub [https://www2.econ.iastate.edu/tesfatsi/Judd.finalrev.pdf PDF].

   • _____, 1998. Numerical Methods in Economics, MIT Press. Links to [http://mitpress.mit.edu/catalog/item/default.asp?ttype=2&tid=3257 description] {{webarchive|url=https://web.archive.org/web/20120211061602/http://mitpress.mit.edu/catalog/item/default.asp?ttype=2&tid=3257 |date=11 February 2012 }} and [https://books.google.com/books?id=9Wxk_z9HskAC&pg=PR7 chapter previews]. Starting from initial conditions specified by the modeler, the computational economy evolves over time as its constituent agents repeatedly interact with each other, including learning from interactions. In these respects, ACE has been characterized as a bottom-up culture-dish approach to the study of economic systems.• Leigh Tesfatsion (2002). "Agent-Based Computational Economics: Growing Economies from the Bottom Up," Artificial Life, 8(1), pp.55-82. [http://www.mitpressjournals.org/doi/abs/10.1162/106454602753694765 Abstract] and pre-pub [http://www.econ.brown.edu/fac/Peter_Howitt/SummerSchool/Agent.pdf PDF] {{webarchive|url=https://web.archive.org/web/20130514143904/http://www.econ.brown.edu/fac/Peter_Howitt/SummerSchool/Agent.pdf |date=14 May 2013 }}.
   • _____ (1997). "How Economists Can Get Alife," in W. B. Arthur, S. Durlauf, and D. Lane, eds., The Economy as an Evolving Complex System, II, pp. 533-564. Addison-Wesley. Pre-pub [http://ageconsearch.umn.edu/bitstream/18196/1/er37.pdf PDF] {{Webarchive|url=https://web.archive.org/web/20120415135342/http://ageconsearch.umn.edu/bitstream/18196/1/er37.pdf |date=15 April 2012 }}.

ACE has a similarity to, and overlap with, game theory as an agent-based method for modeling social interactions.• Joseph Y. Halpern (2008). "computer science and game theory," The New Palgrave Dictionary of Economics, 2nd Edition. [http://www.dictionaryofeconomics.com/article?id=pde2008_C000566&edition=current&q=&topicid=&result_number=1 Abstract].
   • Yoav Shoham (2008). "Computer Science and Game Theory," Communications of the ACM, 51(8), pp.

[http://www.robotics.stanford.edu/~shoham/www%20papers/CSGT-CACM-Shoham.pdf 75-79] {{Webarchive|url=https://web.archive.org/web/20120426005917/http://www.robotics.stanford.edu/~shoham/www%20papers/CSGT-CACM-Shoham.pdf |date=26 April 2012 }}.
   • Alvin E. Roth (2002). "The Economist as Engineer: Game Theory, Experimentation, and Computation as Tools for Design Economics," Econometrica, 70(4), pp. [https://web.archive.org/web/20040414102216/http://kuznets.fas.harvard.edu/~aroth/papers/engineer.pdf 1341–1378]. But practitioners have also noted differences from standard methods, for example in ACE events modeled being driven solely by initial conditions, whether or not equilibria exist or are computationally tractable, and in the modeling facilitation of agent autonomy and learning.Tesfatsion, Leigh (2006), "Agent-Based Computational Economics: A Constructive Approach to Economic Theory," ch. 16, Handbook of Computational Economics, v. 2, part 2, ACE study of economic system. [http://www.sciencedirect.com/science/article/pii/S1574002105020162 Abstract] and pre-pub [http://econ2.econ.iastate.edu/tesfatsi/hbintlt.pdf PDF].

The method has benefited from continuing improvements in modeling techniques of computer science and increased computer capabilities. The ultimate scientific objective of the method is to "test theoretical findings against real-world data in ways that permit empirically supported theories to cumulate over time, with each researcher’s work building appropriately on the work that has gone before."• Leigh Tesfatsion (2006). "Agent-Based Computational Economics: A Constructive Approach to Economic Theory," ch. 16, Handbook of Computational Economics, v. 2, [pp. 831-880] sect. 5. [http://www.sciencedirect.com/science/article/pii/S1574002105020162 Abstract] and pre-pub [http://econ2.econ.iastate.edu/tesfatsi/hbintlt.pdf PDF].
   • Kenneth L. Judd (2006). "Computationally Intensive Analyses in Economics," Handbook of Computational Economics, v. 2, ch. 17, pp. [https://books.google.com/books?id=6ITfRkNmKQcC&pg=PA881 881-] 893. Pre-pub [https://www2.econ.iastate.edu/tesfatsi/Judd.finalrev.pdf PDF].
   • Leigh Tesfatsion and Kenneth L. Judd, ed. (2006). Handbook of Computational Economics, v. 2. [http://www.elsevier.com/wps/find/bookdescription.cws_home/660847/description#description Description] {{Webarchive|url=https://web.archive.org/web/20120306100156/http://www.elsevier.com/wps/find/bookdescription.cws_home/660847/description#description |date=6 March 2012 }} & and chapter-preview

[http://www.sciencedirect.com/science?_ob=PublicationURL&_hubEid=1-s2.0-S1574002105X02003&_cid=273377&_pubType=HS&_auth=y&_acct=C000228598&_version=1&_urlVersion=0&_userid=10&md5=e4757b4f65755ed6340a11fee9615200 links.] The subject has been applied to research areas like asset pricing,B. Arthur, J. Holland, B. LeBaron, R. Palmer, P. Taylor (1997), 'Asset pricing under endogenous expectations in an artificial stock market,' in The Economy as an Evolving Complex System II, B. Arthur, S. Durlauf, and D. Lane, eds., Addison Wesley. energy systems,{{Cite journal |last=Harder |first=Nick |last2=Qussous |first2=Ramiz |last3=Weidlich |first3=Anke |date=2023-10-01 |title=Fit for purpose: Modeling wholesale electricity markets realistically with multi-agent deep reinforcement learning |url=https://www.sciencedirect.com/science/article/pii/S2666546823000678 |journal=Energy and AI |volume=14 |pages=100295 |doi=10.1016/j.egyai.2023.100295 |issn=2666-5468|doi-access=free }} competition and collaboration,Robert Axelrod (1997). The Complexity of Cooperation: Agent-Based Models of Competition and Collaboration, Princeton. [http://press.princeton.edu/titles/6144.html Description], [http://press.princeton.edu/titles/6144.html#TOC contents], and [https://books.google.com/books?id=J0dgRGMdjmQC&pg=PR11 preview]. transaction costs,Tomas B. Klosa and Bart Nooteboom, 2001. "Agent-based Computational Transaction Cost Economics," Journal of Economic Dynamics and Control 25(3–4), pp. 503–52. [http://www.sciencedirect.com/science/article/pii/S0165188900000348 Abstract.] market structure and industrial organization and dynamics,• Roberto Leombruni and Matteo Richiardi, ed. (2004), Industry and Labor Dynamics: The Agent-Based Computational Economics Approach. World Scientific Publishing {{ISBN|981-256-100-5}}. [http://www.worldscibooks.com/economics/5706.html Description] {{Webarchive|url=https://web.archive.org/web/20100727221149/http://www.worldscibooks.com/economics/5706.html |date=27 July 2010 }} and chapter-preview [https://books.google.com/books?id=P5O7A5D55nQC&pg=PR5 links].
   • Joshua M. Epstein (2006). "Growing Adaptive Organizations: An Agent-Based Computational Approach," in Generative Social Science: Studies in Agent-Based Computational Modeling, pp. [https://books.google.com/books?id=543OS3qdxBYC&pg=PA309 309-] 344. [http://press.princeton.edu/titles/8277.html Description] {{Webarchive|url=https://web.archive.org/web/20120126180655/http://press.princeton.edu/titles/8277.html |date=26 January 2012 }} and [http://www.santafe.edu/research/working-papers/abstract/99895b6465e8b87656612f8e3570b34c/ abstract]. welfare economics,Robert Axtell (2005). "The Complexity of Exchange," Economic Journal, 115(504, Features), pp. [http://econfaculty.gmu.edu/pboettke/workshop/archives/f05/Axtell.pdf F193-F210]. and mechanism design,• The New Palgrave Dictionary of Economics (2008), 2nd Edition:
     Roger B. Myerson "mechanism design." [http://www.dictionaryofeconomics.com/article?id=pde2008_M000132&edition=current&q=mechanism%20design&topicid=&result_number=3 Abstract.]
     _____. "revelation principle." [http://www.dictionaryofeconomics.com/article?id=pde2008_R000137&edition=current&q=moral&topicid=&result_number=1 Abstract.]
     Tuomas Sandholm. "computing in mechanism design." [http://www.dictionaryofeconomics.com/article?id=pde2008_C000563&edition=&field=keyword&q=algorithmic%20mechanism%20design&topicid=&result_number=1 Abstract.]
   • Noam Nisan and Amir Ronen (2001). "Algorithmic Mechanism Design," Games and Economic Behavior, 35(1-2), pp. [https://www.cs.cmu.edu/~sandholm/cs15-892F09/Algorithmic%20mechanism%20design.pdf 166–196].
   • Noam Nisan et al., ed. (2007). Algorithmic Game Theory, Cambridge University Press. [http://www.cup.cam.ac.uk/asia/catalogue/catalogue.asp?isbn=9780521872829 Description] {{Webarchive|url=https://web.archive.org/web/20120505140924/http://www.cup.cam.ac.uk/asia/catalogue/catalogue.asp?isbn=9780521872829 |date=5 May 2012 }}. information and uncertainty,Tuomas W. Sandholm and Victor R. Lesser (2001). "Leveled Commitment Contracts and Strategic Breach," Games and Economic Behavior, 35(1-2), pp. [https://www.cs.cmu.edu/afs/.cs.cmu.edu/Web/People/sandholm/leveled.geb.pdf 212-270]. macroeconomics,• David Colander, Peter Howitt, Alan Kirman, Axel Leijonhufvud, and Perry Mehrling, 2008. "Beyond DSGE Models: Toward an Empirically Based Macroeconomics," American Economic Review, 98(2), pp. [https://www.jstor.org/pss/29730026 236]-240. Pre-pub [http://www.brown.edu/Departments/Economics/Faculty/Peter_Howitt/publication/complex%20macro6.pdf PDF].
   • Thomas J. Sargent (1994). Bounded Rationality in Macroeconomics, Oxford. [http://www.oup.com/us/catalog/general/subject/Economics/MacroeconomicTheory/?view=usa&ci=9780198288695 Description] and chapter-preview 1st-page [https://www.questia.com/library/book/bounded-rationality-in-macroeconomics-thomas-j-sargent-by-thomas-j-sargent.jsp links].
   • M. Oeffner (2009). '[http://www.opus-bayern.de/uni-wuerzburg/volltexte/2009/3927/pdf/OeffnerDissohneAnhang.pdf Agent-based Keynesian Macroeconomics]'. PhD thesis, Faculty of Economics, University of Würzburg. and Marxist economics.A. F. Cottrell, P. Cockshott, G. J. Michaelson, I. P. Wright, V. Yakovenko

(2009), Classical Econophysics. Routledge, {{ISBN|978-0-415-47848-9}}.Leigh Tesfatsion (2006), "Agent-Based Computational Economics: A Constructive Approach to Economic Theory," ch. 16, Handbook of Computational Economics, v. 2, part 2, ACE study of economic system. [http://www.sciencedirect.com/science/article/pii/S1574002105020162 Abstract] and pre-pub [http://econ2.econ.iastate.edu/tesfatsi/hbintlt.pdf PDF].