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The Emergence of Money: Computational Approaches with Fully and Boundedly Rational Agents

Author

Listed:
  • Zakaria Babutsidze

    (Université Côte d’Azur (GREDEG)
    Sciences Po Paris)

  • Maurizio Iacopetta

    (Université Côte d’Azur (GREDEG)
    Sciences Po Paris)

Abstract

We discuss the emergence of money in a Kiyotaki and Wright (J Polit Econ 97:927–954, 1989) environment through two computational methodologies. One assumes that agents are fully rational and coordinate on Nash equilibria. The other considers boundedly rational agents whose choices are guided by a classifier system à la Marimon et al. (J Econ Dyn Control 14:329–373, 1990). We apply the two methodologies to study the conditions under which individuals can learn to play speculative strategies—to accept a high-storage-cost good as money. Our analysis suggests that, while in both types of systems money can emerge along a dynamic path, boundedly rational agents make conflicting choices at times, even when the classifier system provides clear information about the likely gains of a trade.

Suggested Citation

  • Zakaria Babutsidze & Maurizio Iacopetta, 2021. "The Emergence of Money: Computational Approaches with Fully and Boundedly Rational Agents," Computational Economics, Springer;Society for Computational Economics, vol. 58(1), pages 3-26, June.
    • Handle: RePEc:kap:compec:v:58:y:2021:i:1:d:10.1007_s10614-019-09887-x
    DOI: 10.1007/s10614-019-09887-x
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    1. Jack Ochs & John Duffy, 1999. "Emergence of Money as a Medium of Exchange: An Experimental Study," American Economic Review, American Economic Association, vol. 89(4), pages 847-877, September.
    2. Juan-Manuel Renero, 1998. "Unstable and stable steady-states in the Kiyotaki-Wright model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(2), pages 275-294.
    3. Maurizio Iacopetta, 2019. "The emergence of money: a dynamic analysis," Post-Print hal-03403573, HAL.
    4. Greif,Avner, 2006. "Institutions and the Path to the Modern Economy," Cambridge Books, Cambridge University Press, number 9780521480444, September.
    5. Kiyotaki, Nobuhiro & Wright, Randall, 1989. "On Money as a Medium of Exchange," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 927-954, August.
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    7. Acemoglu,Daron & Robinson,James A., 2009. "Economic Origins of Dictatorship and Democracy," Cambridge Books, Cambridge University Press, number 9780521671422, September.
    8. Sethi, Rajiv, 1999. "Evolutionary stability and media of exchange," Journal of Economic Behavior & Organization, Elsevier, vol. 40(3), pages 233-254, November.
    9. Iacopetta, Maurizio, 2019. "The Emergence Of Money: A Dynamic Analysis," Macroeconomic Dynamics, Cambridge University Press, vol. 23(7), pages 2573-2596, October.
    10. Ricardo Lagos & Guillaume Rocheteau & Randall Wright, 2017. "Liquidity: A New Monetarist Perspective," Journal of Economic Literature, American Economic Association, vol. 55(2), pages 371-440, June.
    11. Menger, Carl, 1892. "On the Origins of Money," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 2, pages 239-255.
    12. Duffie, Darrell & Sun, Yeneng, 2012. "The exact law of large numbers for independent random matching," Journal of Economic Theory, Elsevier, vol. 147(3), pages 1105-1139.
    13. Kehoe, Timothy J & Kiyotaki, Nobuhiro & Wright, Randall, 1993. "More on Money as a Medium of Exchange," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(2), pages 297-314, April.
    14. Duffy, John, 2001. "Learning to speculate: Experiments with artificial and real agents," Journal of Economic Dynamics and Control, Elsevier, vol. 25(3-4), pages 295-319, March.
    15. John Duffy & Jack Ochs, 2002. "Intrinsically Worthless Objects as Media of Exchange: Experimental Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(3), pages 637-674, August.
    16. Brown, Paul M., 1996. "Experimental evidence on money as a medium of exchange," Journal of Economic Dynamics and Control, Elsevier, vol. 20(4), pages 583-600, April.
    17. Marimon, Ramon & McGrattan, Ellen & Sargent, Thomas J., 1990. "Money as a medium of exchange in an economy with artificially intelligent agents," Journal of Economic Dynamics and Control, Elsevier, vol. 14(2), pages 329-373, May.
    18. Wright, Randall, 1995. "Search, evolution, and money," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 181-206.
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    Citations

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    Cited by:

    1. Kyohei Shibano & Gento Mogi, 2022. "An analysis of the acquisition of a monetary function by cryptocurrency using a multi-agent simulation model," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-30, December.
    2. Mattia Di Russo & Zakaria Babutsidze & Célia da Costa Pereira & Maurizio Iacopetta & Andrea G. B. Tettamanzi, 2022. "Agent-Based Modeling for Studying the Spontaneous Emergence of Money," Post-Print hal-03913561, HAL.
    3. Eduardo Ferraciolli & Tanya Araújo, 2023. "Agent-based Modeling and the Sociology of Money: a Framework for the Study of Coordination and Plurality," Working Papers REM 2023/0285, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.

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    More about this item

    Keywords

    Money; Rationality; Speculative strategies; Computational methods;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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