An Introduction to Agent Based Modeling and Agent Based Computational Economics; A Simple Model for Markets Where Consumers are Imperfectly Informed

This paper introduces Agent Based Modeling (ABM) approach in social sciences especially in economics. By comparing the restrictions of mainstream economic models to those of agent based models we explain the benefits and capacities of using agent based modeling in economics named Agent based Computational Economics (ACE). Due to this restrictions and over simplifying assumptions in traditional models, sometimes economic policy makers cannot trust the results of these models because those assumptions caused them to be far from reality especially in case of abnormality and non-equilibrium. ACE is one of the so many efforts of economist to reduce this gap between economic models and economic realities. We enumerate some of the economic issues such as non-equilibrium, heterogeneity, learning and bounded rationality, nonlinearity, local interaction, network structure, complexity, aggregation failure and holism, and we explain the capacities of ACE to face with each of these issues. Finally we present a simple agent based model to deal with Markets Where Consumers are imperfectly informed about products quality.