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The Promises and Perils of Agent-Based Computational Economics

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Author Info
Matteo Richiardi (LABORatorio Revelli Centre for Employment Studies)

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Abstract

In this paper I analyse the main strengths and weaknesses of agent-based computational models. I first describe how agent-based simulations can complement more traditional modelling techniques. Then, I rationalise the main theoretical critiques against the use of simulation, 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. Along the way, I clarify some confounding differences in terminology between the computer science and the economic literature.

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Paper provided by EconWPA in its series Computational Economics with number 0401001.

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Length: 28 pages
Date of creation: 07 Jan 2004
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Handle: RePEc:wpa:wuwpco:0401001

Note: Type of Document - pdf; prepared on WinXP; pages: 28; figures: 2
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Web page: http://129.3.20.41

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

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Find related papers by JEL classification:
C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. McFadden, Daniel, 1989. "A Method of Simulated Moments for Estimation of Discrete Response Models without Numerical Integration," Econometrica, Econometric Society, vol. 57(5), pages 995-1026, September. [Downloadable!] (restricted)
    Other versions:
  2. Manuel S. Santos & Adrian Peralta-Alva, 2003. "Accuracy of Simulations for Stochastic Dynamic Models," Levine's Bibliography 666156000000000264, UCLA Department of Economics. [Downloadable!]
    Other versions:
  3. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June. [Downloadable!] (restricted)
  4. Robert Sugden, 2000. "Credible worlds: the status of theoretical models in economics," Journal of Economic Methodology, Taylor and Francis Journals, vol. 7(1), pages 1-31, March. [Downloadable!] (restricted)
  5. Steven Stern, 1997. "Simulation-Based Estimation," Journal of Economic Literature, American Economic Association, vol. 35(4), pages 2006-2039, December. [Downloadable!] (restricted)
  6. Matteo Richiardi, 2003. "The Promises and Perils of Agent-Based Computational Economics," LABORatorio R. Revelli Working Papers Series 29, LABORatorio R. Revelli, Centre for Employment Studies. [Downloadable!]
    Other versions:
  7. 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, vol. 5. [Downloadable!]
  8. Freeman, Richard B., 1998. "War of the models: Which labour market institutions for the 21st century?1," Labour Economics, Elsevier, vol. 5(1), pages 1-24, March. [Downloadable!] (restricted)
  9. 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. [Downloadable!]
  10. Weisbuch, G. & Kirman, A.P. & Herreiner, D., 1996. "Market Organisation," G.R.E.Q.A.M. 96a20, Universite Aix-Marseille III.
    Other versions:
  11. 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 7, Society for Computational Economics. [Downloadable!]
  12. Kleijnen, J.P.C., 1997. "Experimental design for sensitivity analysis, optimization, and validation of simulation models," Discussion Paper 52, Tilburg University, Center for Economic Research. [Downloadable!]
  13. Daniel A. Ackerberg, 2001. "A New Use of Importance Sampling to Reduce Computational Burden in Simulation Estimation," NBER Technical Working Papers 0273, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Leigh Tesfatsion, 2002. "Agent-Based Computational Economics," Computational Economics 0203001, EconWPA, revised 15 Aug 2002. [Downloadable!]
  15. Pakes, Ariel & Pollard, David, 1989. "Simulation and the Asymptotics of Optimization Estimators," Econometrica, Econometric Society, vol. 57(5), pages 1027-57, September. [Downloadable!] (restricted)
  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, vol. 1(1), pages 57-72, March. [Downloadable!] (restricted)
  17. Robert Axelrod, 1997. "Advancing the Art of Simulation in the Social Sciences," Working Papers 97-05-048, Santa Fe Institute.
  18. Roberto Leombruni, 2002. "The Methodological Status of Agent-Based Simulations," LABORatorio R. Revelli Working Papers Series 19, LABORatorio R. Revelli, Centre for Employment Studies. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Giorgio Fagiolo & Paul Windrum & Alessio Moneta, 2006. "Empirical Validation of Agent Based Models: A Critical Survey," LEM Papers Series 2006/14, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy. [Downloadable!]
  2. Matteo Richiardi, 2004. "The Promises and Perils of Agent-Based Computational Economics," Computational Economics 0401001, EconWPA. [Downloadable!]
    Other versions:
  3. Matteo Richiardi, 2003. "On the Use of Agent-Based Simulations," LABORatorio R. Revelli Working Papers Series 32, LABORatorio R. Revelli, Centre for Employment Studies. [Downloadable!]
  4. 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, Springer, vol. 30(3), pages 195-226, October. [Downloadable!] (restricted)
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