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The Promises and Perils of Agent-Based Computational Economics

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  • Matteo Richiardi

Abstract

In this paper I review the main strengths and weaknesses of agent-based computational models. In particular I rationalise the main theoretical critiques, which point to the following problematic areas: (i) interpretation of the simulation dynamics, (ii) estimation of the simulation model, and (iii) generalisation of the results. I show that there exist solutions for all these issues. Moreover, this paper clarifies some confounding differences in terminology between the computer science and the economic literature.

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Bibliographic Info

Paper provided by LABORatorio R. Revelli, Centre for Employment Studies in its series LABORatorio R. Revelli Working Papers Series with number 29.

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Length: 23 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:cca:wplabo:29

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Keywords: Agent-based; Simulation; Microsimulation; Computational Economics; Structural Estimation; Economic methodology.;

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References

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  1. Alan P. Kirman, 1995. "Economies with Interacting Agents," Discussion Paper Serie A, University of Bonn, Germany 500, University of Bonn, Germany.
  2. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 34(2), pages 669-700, June.
  3. Chris Goldspink, 2002. "Methodological Implications of Complex Systems Approaches to Sociality: Simulation As a Foundation for Knowledge," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 5(1), pages 3.
  4. David Hendry & Maozu Lu & Grayham E. Mizon, 2001. "Model Identification and Non-unique Structure," Economics Papers 2002-W10, Economics Group, Nuffield College, University of Oxford.
  5. Pakes, Ariel & Pollard, David, 1989. "Simulation and the Asymptotics of Optimization Estimators," Econometrica, Econometric Society, Econometric Society, vol. 57(5), pages 1027-57, September.
  6. Leigh Tesfatsion & Mark Pingle, 2003. "Evolution of Worker-Employer Networks and Behaviors Under Alternative Non-Employment Benefits: An Agent-Based Computational Study," Computing in Economics and Finance 2003, Society for Computational Economics 7, Society for Computational Economics.
  7. Robert Axelrod, 1997. "Advancing the Art of Simulation in the Social Sciences," Working Papers, Santa Fe Institute 97-05-048, Santa Fe Institute.
  8. Daniel McFadden, 1987. "A Method of Simulated Moments for Estimation of Discrete Response Models Without Numerical Integration," Working papers, Massachusetts Institute of Technology (MIT), Department of Economics 464, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Leigh Tesfatsion, 2002. "Agent-Based Computational Economics," Computational Economics, EconWPA 0203001, EconWPA, revised 15 Aug 2002.
  10. Kleijnen, J.P.C., 1997. "Experimental Design for Sensitivity Analysis, Optimization and Validation of Simulation Models," Discussion Paper, Tilburg University, Center for Economic Research 1997-52, Tilburg University, Center for Economic Research.
  11. Manuel S. Santos & Adrian Peralta-Alva, 2003. "Accuracy of Simulations for Stochastic Dynamic Models," Levine's Bibliography 666156000000000264, UCLA Department of Economics.
  12. Daniel Ackerberg, 2009. "A new use of importance sampling to reduce computational burden in simulation estimation," Quantitative Marketing and Economics, Springer, Springer, vol. 7(4), pages 343-376, December.
  13. Roberto Leombruni, 2002. "The Methodological Status of Agent-Based Simulations," LABORatorio R. Revelli Working Papers Series, LABORatorio R. Revelli, Centre for Employment Studies 19, LABORatorio R. Revelli, Centre for Employment Studies.
  14. Weisbuch, G. & Kirman, A.P. & Herreiner, D., 1996. "Market Organisation," G.R.E.Q.A.M., Universite Aix-Marseille III 96a20, Universite Aix-Marseille III.
  15. Matteo Richiardi, 2004. "The Promises and Perils of Agent-Based Computational Economics," Computational Economics, EconWPA 0401001, EconWPA.
  16. Nigel Gilbert & Pietro Terna, 2000. "How to build and use agent-based models in social science," Mind and Society: Cognitive Studies in Economics and Social Sciences, Fondazione Rosselli, Fondazione Rosselli, vol. 1(1), pages 57-72, March.
  17. Steven Stern, 1997. "Simulation-Based Estimation," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 35(4), pages 2006-2039, December.
  18. Freeman, Richard B., 1998. "War of the models: Which labour market institutions for the 21st century?1," Labour Economics, Elsevier, Elsevier, vol. 5(1), pages 1-24, March.
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Citations

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Cited by:
  1. Giorgio Fagiolo & Alessio Moneta & Paul Windrum, 2007. "A Critical Guide to Empirical Validation of Agent-Based Models in Economics: Methodologies, Procedures, and Open Problems," Computational Economics, Society for Computational Economics, Society for Computational Economics, vol. 30(3), pages 195-226, October.
  2. Paul Windrum & Giorgio Fagiolo & Alessio Moneta, 2007. "Empirical Validation of Agent-Based Models: Alternatives and Prospects," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 10(2), pages 8.
  3. Weidlich, Anke & Veit, Daniel, 2008. "A critical survey of agent-based wholesale electricity market models," Energy Economics, Elsevier, Elsevier, vol. 30(4), pages 1728-1759, July.
  4. Giorgio Fagiolo & Paul Windrum & Alessio Moneta, 2006. "Empirical Validation of Agent Based Models: A Critical Survey," LEM Papers Series, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy 2006/14, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  5. Matteo Richiardi, 2003. "The Promises and Perils of Agent-Based Computational Economics," LABORatorio R. Revelli Working Papers Series, LABORatorio R. Revelli, Centre for Employment Studies 29, LABORatorio R. Revelli, Centre for Employment Studies.
  6. Matteo Richiardi, 2003. "On the Use of Agent-Based Simulations," LABORatorio R. Revelli Working Papers Series, LABORatorio R. Revelli, Centre for Employment Studies 32, LABORatorio R. Revelli, Centre for Employment Studies.
  7. Schuster, Stephan, 2012. "Applications in Agent-Based Computational Economics," MPRA Paper 47201, University Library of Munich, Germany.

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