Agent-Based Computational Economics

Agent-Based Computational Economics

C. Bruun (Aalborg University, Denmark)
DOI: 10.4018/978-1-59140-984-7.ch014
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This chapter argues that the economic system is best perceived as a complex adaptive system, and as such, the traditional analytical methods of economics are not optimal for its study. Agent-based computational economics (ACE) studies the economic system from the bottom up and recognizes interaction between autonomous agents as the central mechanism in generating the self-organizing features of economic systems. Besides a discussion of this new economic methodology, a short how-to introduction is given, and the problem of constraining economics as a science within the ACE approach is raised. It is argued that ACE should be perceived as a new methodological approach to the study of economic systems rather than a new approach to economics, and that the use of ACE should be anchored in existing economic theory.

Key Terms in this Chapter

Macrofoundation: If for example methodological individualism is violated in a composite system, simple aggregation is no longer possible, and studying macroproperties directly may be the only way to learn about certain aspects of the system. This may be characterized as the macrofoundation of the system.

Agent-Based Computational Economics: Acknowledging the economy as a complex adaptive system, agent-based computational economics (ACE) is the computational study of economies as collections of interacting agents. By letting autonomous agents interact in silico , the overall aim is to represent self-organizing features of real-world economic systems in a more realistic way than has hitherto been possible. But ACE may be applied to many different aspects of economics and should be perceived as a new methodological approach to the study of economic systems rather than a new approach to economics. Focus may be placed on the individual agent and its interaction with its surroundings (e.g., learning by the agent), or on the system resulting from the interaction of many agents (e.g., learning by the system).

Methodological Individualism: Methodological individualism’s purpose is to explain and understand macro phenomena as the aggregation of decisions by individuals—the whole is nothing but the sum of its parts. This may also be described as reductionism since methodological individualism allows the whole to be reduced to the sum of its parts, and thus the parts that make up the system may be studied in isolation. Methodological individualism is an essential part of general equilibrium theory and in the demand for microfoundation in economics.

General Equilibrium Theory: As agent-based computational economics (ACE), general equilibrium theory is a bottom-up approach to the study of economic systems. But in opposition to ACE, general equilibrium theory makes use of methodological individualism and reductionism. Taking as its starting point endowments, preferences, and technologies of economic agents, general equilibrium theory uses an auctioneer to calculate a vector of prices that will clear all markets. Methodological individualism allows general equilibrium theory to regard preferences as given, and the existence of an auctioneer prevents trading at false prices, since agents are only allowed to interact through the auctioneer. A number of fundamental problems arise when the ideal general equilibrium model meets the real world. Among these is the problem of making room for money in a setting where there is no need for a medium of exchange and where any good can take the role as unit of account.

Keynesian Macroeconomics: Keynesian macroeconomics takes as its starting point aggregate magnitudes and their interrelations. Of pivotal importance to the ideas of Keynes is his definition of national (money) income as the earnings of the factors of production, which must be equal to the cost of production. From this follows the equivalence of saving and investment; both are defined as the excess of income over consumption. This definition implies that consumers will always hold enough money to buy the product. However, this does not imply that supply creates its own demand in the sense that lack of aggregate demand cannot cause unemployment (Say’s law). Entrepreneurs decide the level of production, and they will not produce beyond their own investment demand plus expected consumption demand. If, at the level of full employment, consumers in the aggregate are expected to save more than entrepreneurs wish to invest, entrepreneurs will reduce production until expected savings equals expected investment. By, in this way, arguing in terms of aggregate magnitudes, Keynes depicts a different economy than the one known from neoclassical or general equilibrium theory—an economy where unemployment due to a lack of aggregate demand is not only possible but also likely.

Rational Expectations Hypothesis: Rational expectations hypothesis is the idea that economic agents use all available information, including information on economic relations, in forming expectations about the future. Rational expectations may also be denoted “model consistent expectations” since consistency between the economic model and the model used by agents in expectation formation is required. Economic agents are just as well informed as the economist (or even econometrician) building the model.

Microoundation: Making use of methodological individualism, the claim for microfoundation states that any macroeconomic phenomena must be shown to result from individual (rational) actions.

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Editorial Advisory Board
Table of Contents
Eric Bonabeau
Jean-Philippe Rennard
Jean-Philippe Rennard
Chapter 1
J. Rennard
This chapter provides an introduction to the modern approach of artificiality and simulation in social sciences. It presents the relationship... Sample PDF
Artificially in Social Sciences
Chapter 2
C. Anderson
Social insects—ants, bees, wasps, and termites—and the distributed problem-solving, multi-agent paradigm that they represent, have been enormously... Sample PDF
Multi-Cellular Techniques
Chapter 3
P. Collet, J. Rennard
When looking for a solution, deterministic methods have the enormous advantage that they do find global optima. Unfortunately, they are very CPU... Sample PDF
Stochastic Optimization Algorithms
Chapter 4
P. Collet
Evolutionary computation is an old field of computer science that started in the end of the 1960s nearly simultaneously in different parts of the... Sample PDF
Evolutionary Algorithms
Chapter 5
Genetic Programming  (pages 59-73)
P. Collet
The aim of genetic programming is to evolve programs or functions (symbolic regression) thanks to artificial evolution. This technique is now mature... Sample PDF
Genetic Programming
Chapter 6
C. A.C. Coello
This chapter provides a brief introduction of the use of evolutionary algorithms in the solution of multi-objective optimization problems (an area... Sample PDF
Evolutionary Multi-Objective Optimization in Finance
Chapter 7
R. Axelrod
Advancing the state of the art of simulation in the social sciences requires appreciating the unique value of simulation as a third way of doing... Sample PDF
Simulation in Social Sciences
Chapter 8
H. Verhagen
This chapter describes the possible relationship between multi-agent systems research and social science research, more particularly sociology. It... Sample PDF
Multi-Agent Systems Research and Social Science Theory Building
Chapter 9
R. Chakrabarti
The author builds an agent-based model wherein the societal corruption level is derived from individual corruption levels optimally chosen by... Sample PDF
A Dynamic Agent-Based Model of Corruption
Chapter 10
B. Nooteboom
This chapter pleads for more inspiration from human nature in agent-based modeling. As an illustration of an effort in that direction, it summarizes... Sample PDF
Human Nature in the Adaptation of Trust
Chapter 11
I. Naveh, R. Sun
This chapter advocates a cognitively realistic approach to social simulation. based on a model for capturing the growth of academic science.... Sample PDF
Cognitively Based Modeling of Scientific Productivity
Chapter 12
D. Al-Dabass
Economic models exhibit a multiplicity of behaviour characteristics that are nonlinear and time-varying. Emergent behaviour appears when reduced... Sample PDF
Nature-Inspired Knowledge Mining Algorithms for Emergent Behaviour Discovery in Economic Models
Chapter 13
R. Boero
This chapter deals with the usage of grid technologies for nature-inspired algorithms and complex simulations. After shortly introducing the grid... Sample PDF
The Grid for Nature-Inspired Computing and Complex Simulations
Chapter 14
C. Bruun
This chapter argues that the economic system is best perceived as a complex adaptive system, and as such, the traditional analytical methods of... Sample PDF
Agent-Based Computational Economics
Chapter 15
J. Rouchier
This chapter discusses two different approaches that gather empirical data and link them to modeling and simulations with agent-based systems... Sample PDF
Data Gathering to Build and Validate Small-Scale Social Models for Simulation
Chapter 16
A. Pyka
This chapter introduces agent-based modeling as a methodology to study qualitative change in economic systems. The need to focus on qualitative... Sample PDF
Modeling Qualitative Development
Chapter 17
E. Ebenhoh
This chapter introduces an agent-based modeling framework for reproducing micro behavior in economic experiments. It gives an overview of the... Sample PDF
Agent-Based Modelnig with Boundedly Rational Agents
Chapter 18
T. Vallee
The goal of this chapter is twofold. First, assuming that all agents belong to a genetic population, the evolution of inflation learning will be... Sample PDF
Heterogeneous Learning Using Genetic Algorithms
Chapter 19
J. Barr, F. Saraceno
The purpose of this chapter is to make the case that first a standard artificial neural network can be used as a general model of the information... Sample PDF
Modeling the Firm as an Artificial Neural Network
Chapter 20
H. Kwasnicka, W. Kwasnicki
In the first part of the chapter, an outline of the evolutionary model of industrial dynamics is presented. The second part deals with a simulation... Sample PDF
Evolutionary Modeling and Industrial Structure Emergence
Chapter 21
U. Merlone
This chapter considers a model of industrial districts where different populations interact symbiotically. The approach consists of the parallel... Sample PDF
Population Symbiotic Evolution in a Model of Industrial Districts
Chapter 22
V. Albino
This chapter deals with complexity science issues from two sides: from one side, it uses complexity science concepts to give new contributions to... Sample PDF
Competitive Advantage of Geographical Clusters
Chapter 23
A. Berro, I. leroux
This chapter introduces artificial life as a means of exploring strategic relations dynamics between firms and local authorities within a local... Sample PDF
A Simulation of Strategic Bargainings within a Biotechnology Cluster
Chapter 24
N. J. Saam, W. Kerber
This simulation model is an example of theory-driven modeling that aims at developing new hypotheses on mechanisms that work in markets. The central... Sample PDF
Knowledge Accumulation in hayekian Market Process Theory
Chapter 25
H. Dawid
In this chapter an agent-based industry simulation model is employed to analyze the relationship between technological specialization, cluster... Sample PDF
On Technological Specialization in Industrial Clusters
Chapter 26
A. Brabazon, A. Silva, T. F.S. Sousa, R. Matthews, M. O’Neill
This chapter describes a novel simulation model (InventSim) of the process of product invention. Invention is conceptualized as a process of... Sample PDF
Simulating Product Invention Using InventSim
Chapter 27
I. C. Parmee
The chapter introduces the concept of user-centric evolutionary design and decision-support systems, and positions them in terms of interactive... Sample PDF
Human-Centric Evolutionary Systems in Design and Decision-Making
Chapter 28
T. Yu
Modularity is widely used in system analysis and design such as complex engineering products and their organization, and modularity is also the key... Sample PDF
Genetic Algorithms for Organizational Design and Inspired by Organizational Theory
Chapter 29
G. D.M. Serugendo
This chapter presents the notion of autonomous engineered systems working without central control through self-organization and emergent behavior.... Sample PDF
Autonomous Systems with Emergent Behavior
Chapter 30
S. Rochet
Manufacturers must always develop products faster and better to satisfy their client’s requirements. To help them, we have developed and... Sample PDF
An Evolutionary Algorithm for Decisional Assistance to Project Management
Chapter 31
N. Chakraborti
An informal analysis is provided for the basic concepts associated with multi-objective optimization and the notion of Pareto-optimality... Sample PDF
How Genetic Algorithms Handle Pareto-Optimality in Design and Manufacturing
Chapter 32
C. Dimopoulos
This chapter provides a short guide on the use of evolutionary computation methods in the field of production research. The application of... Sample PDF
Evolutionary Optimization in Production Research
Chapter 33
S. Fidanova
The ant colony optimization algorithms and their applications on the multiple knapsack problem (MKP) are introduced. The MKP is a hard combinatorial... Sample PDF
Ant Colony Optimization and Multiple Knapsack Problem
Chapter 34
A. Brun
The authors propose an algorithm for the reorganization of a production department in cells, starting from a situation of job shop, chasing the main... Sample PDF
A New Way to Reorganize a Productive Department in Cells
Chapter 35
K. Taveter, G. Wagner
This chapter proposes an agent-oriented method for modeling and simulation of distributed production environments. The proposed method views a... Sample PDF
Agent-Oriented Modeling and Simulation of Distributed Manufacturing
Chapter 36
K. Taveter
This chapter describes the application of the RAP/AOR methodology proposed by Taveter and Wagner (2005, 2006) to the modeling and simulation of a... Sample PDF
Application of RAP/AOR to the Modeling and Simulation of a Ceramics Factory
Chapter 37
N. Urquhart
This chapter examines the use of emergent computing to optimize solutions to logistics problems. The chapter initially explores the use of agents... Sample PDF
Building Distribution Networks Using Cooperating Agents
Chapter 38
T. Gosling
The use of evolutionary computation is significant for the development and optimisation of strategies for dynamic and uncertain situations. This... Sample PDF
Games, Supply Chains, and Automatic Strategy Discovery Using Evolutionary Computation
Chapter 39
I. Minis
This chapter focuses on significant applications of self-organizing maps (SOMs), that is, unsupervised learning neural networks in two supply chain... Sample PDF
Applications of Neural Networks in Supply Chain Management
Chapter 40
A. L. Medaglia
JGA, the acronym for Java Genetic Algorithm, is a computational object-oriented framework for rapid development of evolutionary algorithms for... Sample PDF
An Object-Oriented Framework for Rapid Genetic Algorithm Development
Chapter 41
A. L. Medaglia
Two of the most complex activities in production and operations management (POM) are inventory planning and operations scheduling. This chapter... Sample PDF
Applications of JGA to Operations Management and Vehicle Routing
Chapter 42
A. L. Medaglia
The low price of coffee in the international markets has forced the Federación Nacional de Cafeteros de Colombia (FNCC) to look for cost-cutting... Sample PDF
Solving Facility Location Problems with a Tol for Rapid Development of Multi-Objective Evolutionary Algorithms (MOEAs)
Chapter 43
P. Siebers
Discrete event simulation is generally recognized as a valuable aid to the strategic and tactical decision making that is required in the evaluation... Sample PDF
Worker Performance Modeling in Manufacturing Systems Simulation
Chapter 44
H. Zhu
This chapter presents a meta-model of information systems as a foundation for the methodology of caste-centric agent-oriented software development... Sample PDF
Toward an Agent-Oriented Paradigm of Information Systems
Chapter 45
L. Shan, R. Shen, J. Wang
Based on the meta-model of information systems presented in Zhu (2006), this chapter presents a caste-centric agent-oriented methodology for... Sample PDF
Caste-Centric Development of Agent-Oriented Information Systems
Chapter 46
J. Dron
This chapter describes the application of self-organising principles to the field of e-learning. It argues that traditional managed approaches to... Sample PDF
Evolving Learning Ecologies
Chapter 47
P. Dasgupta
In this chapter we describe a mechanism to search for resources in unstructured peer-to- peer (P2P) networks using ant algorithms implemented... Sample PDF
Efficient Searching in Peer-to-Peer Networks Using Agent-Enabled Ant Algorithms
Chapter 48
M. Klein, P. Faratin, H. Sayama
Work to date on negotiation protocols has focused almost exclusively on defining contracts consisting of one or a few independent issues and a... Sample PDF
An Annealing Protocol for Negotiating Complex Contracts
Chapter 49
J. Debenham
This chapter describes a generic multi-issue negotiating agent that is designed for a dynamic information-rich environment. The agent strives to... Sample PDF
Agents for Multi-Issue Negotiation
Chapter 50
A. Mochon, Y. Saez
The increasing use of auctions as a selling mechanism has led to a growing interest in the subject. Thus both auction theory and experimental... Sample PDF
An Introduction of Evolutionary Computation in Auctions
Chapter 51
H. L. Cardoso
The multi-agent system (MAS) paradigm has become a prominent approach in distributed artificial intelligence. Many real-world applications of MAS... Sample PDF
Virtual Organization Support through Electronic Institutions and Normative Multi-Agent Systems
Chapter 52
R. Marks, D. Midgley, L. Cooper
Using empirical market data from brand rivalry in a retail ground-coffee market, we model each idiosyncratic brand’s pricing behavior using the... Sample PDF
Co-Evolving Better Strategies in Oligopolistic Price Wars
Chapter 53
T. Erez, S. Moldovan, Soloman
Many new products fail, despite preliminary market surveys having determined considerable potential market share. This effect is too systematic to... Sample PDF
Social Anti-Percolation and Negative Word of Mouth
Chapter 54
D. Collings
Understanding complex socio-economic systems is a key problem for commercial organizations. In this chapter we discuss the use of agent-based... Sample PDF
Complexity-Based Modelling Approaches for Commercial Applications
Chapter 55
M. Kaboudan
This chapter compares forecasts of the median neighborhood prices of residential single-family homes in Cambridge, Massachusetts, using parametric... Sample PDF
Genetic Programming for Spatiotemporal Forecasting of Housing Prices
Chapter 56
M. Ciprian, M. Kaucic
This chapter introduces the capability of the numerical multi-dimensional approach to solve complex problems in finance. It is well known how, with... Sample PDF
Multiattribute Methodologies in Financial Decision Aid
Chapter 57
M. J. Perez
This work addresses a real-world adjustment of economic models where the application of robust and global optimization techniques is required. The... Sample PDF
Multi-Objective Optimization Evolutionary Algorithms in Insurance-Linked Derivatives
Chapter 58
S. Lavigne, S. Sanchez
This chapter presents an artificial stock market created to analyze market dynamics from the behavior of investors. It argues that... Sample PDF
Modeling an Artificial Stock Market
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