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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.

Suggested Citation

  • 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.
    • Handle: RePEc:cca:wplabo:29
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    1. 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(1), pages 1-3.
    2. Gerard Weisbuch & Alan Kirman & Dorothea Herreiner, 1995. "Market Organization," Working Papers 95-11-102, Santa Fe Institute.
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    4. 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.
    5. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
    6. Steven Stern, 1997. "Simulation-Based Estimation," Journal of Economic Literature, American Economic Association, vol. 35(4), pages 2006-2039, December.
    7. 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.
    8. Mark Pingle & Leigh Tesfatsion, 2004. "Evolution Of Worker-Employer Networks And Behaviors Under Alternative Non-Employment Benefits: An Agent-Based Computational Study," World Scientific Book Chapters,in: Industry And Labor Dynamics The Agent-Based Computational Economics Approach, chapter 8, pages 129-163 World Scientific Publishing Co. Pte. Ltd..
    9. Alan P. Kirman, 1994. "Economies with Interacting Agents," Working Papers 94-05-030, Santa Fe Institute.
    10. Pakes, Ariel & Pollard, David, 1989. "Simulation and the Asymptotics of Optimization Estimators," Econometrica, Econometric Society, vol. 57(5), pages 1027-1057, September.
    11. Nigel Gilbert & Pietro Terna, 2000. "How to build and use agent-based models in social science," Mind & Society: Cognitive Studies in Economics and Social Sciences, Springer;Fondazione Rosselli, vol. 1(1), pages 57-72, March.
    12. Manuel S. Santos & Adrian Peralta-Alva, 2005. "Accuracy of Simulations for Stochastic Dynamic Models," Econometrica, Econometric Society, vol. 73(6), pages 1939-1976, November.
    13. Matteo Richiardi, 2007. "Agent-based Computational Economics. A Short Introduction," LABORatorio R. Revelli Working Papers Series 69, LABORatorio R. Revelli, Centre for Employment Studies.
    14. Leigh Tesfatsion, 2002. "Agent-Based Computational Economics," Computational Economics 0203001, EconWPA, revised 15 Aug 2002.
    15. Roberto Leombruni, 2002. "The Methodological Status of Agent-Based Simulations," LABORatorio R. Revelli Working Papers Series 19, LABORatorio R. Revelli, Centre for Employment Studies.
    16. 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.
    17. 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.
    18. Robert Axelrod, 1997. "Advancing the Art of Simulation in the Social Sciences," Working Papers 97-05-048, Santa Fe Institute.
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    Citations

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    Cited by:

    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.
    2. 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.
    3. repec:eee:rensus:v:78:y:2017:i:c:p:61-71 is not listed on IDEAS
    4. Matteo Richiardi, 2003. "On the Use of Agent-Based Simulations," LABORatorio R. Revelli Working Papers Series 32, LABORatorio R. Revelli, Centre for Employment Studies.
    5. Nils ROLOFF & Ulrike LEHR & Wolfram KREWITT & Gerhard FUCHS & Sandra WASSERMANN & Wolfganf WEIMER-JEHLE & Bernd SCHMIDT, "undated". "Success Determinants for Technological Innovations in the Energy Sector - The Case of Photovoltaics," EcoMod2008 23800118, EcoMod.
    6. Juan Manuel Larrosa, 2016. "Agentes computacionales y análisis económico," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 18(34), pages 87-113, January-J.
    7. 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, vol. 10(2), pages 1-8.
    8. Weidlich, Anke & Veit, Daniel, 2008. "A critical survey of agent-based wholesale electricity market models," Energy Economics, Elsevier, vol. 30(4), pages 1728-1759, July.
    9. 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;Society for Computational Economics, vol. 30(3), pages 195-226, October.
    10. Schuster, Stephan, 2012. "Applications in Agent-Based Computational Economics," MPRA Paper 47201, University Library of Munich, Germany.

    More about this item

    Keywords

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

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • B59 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Other
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General

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