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Macroeconomies as constructively rational games

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  • Sinitskaya, Ekaterina
  • Tesfatsion, Leigh

Abstract

Real-world decision-makers are forced to be locally constructive; that is, their decisions are necessarily constrained by their interaction networks, information, beliefs, and physical states. This study transforms an otherwise standard dynamic macroeconomic model into an open-ended dynamic game by requiring consumers and firms with intertemporal utility and profit objectives to be locally constructive. Tested locally constructive decision processes for the consumers and firms range from simple reactive reinforcement learning to adaptive dynamic programming (ADP). Computational experiments are used to explore macroeconomic performance under alternative decision-process combinations relative to a social planner benchmark solution. A key finding is that simpler decision processes can outperform more sophisticated decision processes such as ADP. However, memory length permitting some degree of adaptive foresight is critical for good performance.

Suggested Citation

  • Sinitskaya, Ekaterina & Tesfatsion, Leigh, 2015. "Macroeconomies as constructively rational games," Journal of Economic Dynamics and Control, Elsevier, vol. 61(C), pages 152-182.
  • Handle: RePEc:eee:dyncon:v:61:y:2015:i:c:p:152-182
    DOI: 10.1016/j.jedc.2015.09.011
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    Cited by:

    1. repec:oup:indcch:v:27:y:2018:i:6:p:999-1014. is not listed on IDEAS
    2. Tesfatsion, Leigh, 2017. "Modeling Economic Systems as Locally-Constructive Sequential Games," ISU General Staff Papers 201702180800001022, Iowa State University, Department of Economics.
    3. Russo, Alberto, 2017. "Dopo il keynesismo: teorie economiche per una (non-) politica economica
      [After Keynesianism: Economic Theories for a (non) Economic Policy]
      ," MPRA Paper 83346, University Library of Munich, Germany.
    4. Giorgio Fagiolo & Andrea Roventini, 2017. "Macroeconomic Policy in DSGE and Agent-Based Models Redux: New Developments and Challenges Ahead," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 20(1), pages 1-1.
    5. Leigh Tesfatsion, 2017. "Elements of Dynamic Economic Modeling: Presentation and Analysis," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 43(2), pages 192-216, March.
    6. Özge Dilaver & Robert Calvert Jump & Paul Levine, 2018. "Agent‐Based Macroeconomics And Dynamic Stochastic General Equilibrium Models: Where Do We Go From Here?," Journal of Economic Surveys, Wiley Blackwell, vol. 32(4), pages 1134-1159, September.
    7. Giovanni Dosi & Mauro Napoletano & Andrea Roventini & Joseph E. Stiglitz & Tania Treibich, 2017. "Rational Heuristics? Expectations and Behaviors in Evolving Economies with Heterogeneous Interacting Agents," LEM Papers Series 2017/31, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    8. repec:eee:phsmap:v:503:y:2018:i:c:p:1151-1181 is not listed on IDEAS
    9. Pyo, Dong-Jin, 2015. "Animal spirits and stock market dynamics," ISU General Staff Papers 201501010800005596, Iowa State University, Department of Economics.
    10. Eugenio Caverzasi & Alberto Russo, 2018. "Toward a new microfounded macroeconomics in the wake of the crisis," Industrial and Corporate Change, Oxford University Press, vol. 27(6), pages 999-1014.
    11. Matteo G. Richiardi, 2017. "The Future of Agent-Based Modeling," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 43(2), pages 271-287, March.
    12. repec:taf:jecmet:v:24:y:2017:i:4:p:384-409 is not listed on IDEAS
    13. repec:spr:joevec:v:29:y:2019:i:1:d:10.1007_s00191-018-0594-0 is not listed on IDEAS
    14. Tesfatsion, Leigh, 2017. "Modeling Economic Systems as Locally-Constructive Sequential Games," ISU General Staff Papers 201704300700001022, Iowa State University, Department of Economics.
    15. repec:spr:joevec:v:29:y:2019:i:1:d:10.1007_s00191-018-0557-5 is not listed on IDEAS
    16. Tesfatsion, Leigh, 2017. "Modeling Economic Systems as Locally-Constructive Sequential Games," ISU General Staff Papers 201703280700001022, Iowa State University, Department of Economics.
    17. Leigh Tesfatsion, 2017. "Modeling economic systems as locally-constructive sequential games," Journal of Economic Methodology, Taylor & Francis Journals, vol. 24(4), pages 384-409, October.

    More about this item

    Keywords

    Macroeconomics; Agent-based modeling; Game theory; Intertemporal optimization; Learning; Constructive rationality;

    JEL classification:

    • B4 - Schools of Economic Thought and Methodology - - Economic Methodology
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • E03 - Macroeconomics and Monetary Economics - - General - - - Behavioral Macroeconomics
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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