Standard neoclassical economics asks what agents' actions, strategies, or expectations are in equilibrium with (consistent with) the outcome or pattern these behaviors aggregatively create. Agent-based computational economics enables us to ask a wider question: how agents' actions, strategies, or expectations might react to--might endogenously change with--the patterns they create. In other words, it enables us to examine how the economy behaves out of equilibrium, when it is not at a steady state.This out-of-equilibrium approach is not a minor adjunct to standard economic theory; it is economics done in a more general way. When examined out of equilibrium, economic patterns sometimes simplify into a simple, homogeneous equilibrium of standard economics; but just as often they show perpetually novel and complex behavior. The static equilibrium approach suffers two characteristic indeterminacies: it cannot easily resolve among multiple equilibria; nor can it easily model individuals' choices of expectations. Both problems are ones of formation (of an equilibrium and of an "ecology" of expectations, respectively), and when analyzed in formation--that is, out of equilibrium--these anomalies disappear.
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ReDIF This chapter was published in: Leigh Tesfatsion & Kenneth L. Judd (ed.) Handbook of Computational Economics, , chapter 32, pages 1551-1564, 2006.
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This chapter was published in the following book, which is listed on IDEAS: Leigh Tesfatsion & Kenneth L. Judd (ed.), 2006.
"Handbook of Computational Economics,"
Handbook of Computational Economics,
Elsevier,
edition 1, volume 2, number 2, September.
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