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Economic Modeling Using Evolutionary Algorithms: The Effect of a Binary Encoding of Strategies

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  • Waltman, L.
  • van Eck, N.J.P.
  • Dekker, R.
  • Kaymak, U.

Abstract

We are concerned with evolutionary algorithms that are employed for economic modeling purposes. We focus in particular on evolutionary algorithms that use a binary encoding of strategies. These algorithms, commonly referred to as genetic algorithms, are popular in agent-based computational economics research. In many studies, however, there is no clear reason for the use of a binary encoding of strategies. We therefore examine to what extent the use of such an encoding may influence the results produced by an evolutionary algorithm. It turns out that the use of a binary encoding can have quite significant effects. Since these effects do not have a meaningful economic interpretation, they should be regarded as artifacts. Our findings indicate that in general the use of a binary encoding is undesirable. They also highlight the importance of employing evolutionary algorithms with a sensible economic interpretation.

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Bibliographic Info

Paper provided by Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam in its series ERIM Report Series Research in Management with number ERS-2009-028-LIS.

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Date of creation: 20 May 2009
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Handle: RePEc:ems:eureri:16014

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Postal: RSM Erasmus University & Erasmus School of Economics, PoBox 1738, 3000 DR Rotterdam
Phone: 31-10-408 1182
Fax: 31-10-408 9020
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Web page: http://www.erim.eur.nl/
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Keywords: agent-based computational economics; binary encoding; evolutionary algorithm; genetic algorithm; premature convergence;

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Cited by:
  1. Isabelle Salle & Pascal Seppecher, 2013. "Social Learning about Consumption," Working Papers hal-00989233, HAL.
  2. Isabelle Salle & Pascal Seppecher, 2013. "Social Learning about Consumption," GREDEG Working Papers 2013-18, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis, revised Sep 2013.

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