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More is Different ... and Complex! The Case for Agent-Based Macroeconomics

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  • Giovanni Dosi
  • Andrea Roventini

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This work nests the Agent-Based macroeconomic perspective into the earlier history of macroeconomics. We discuss how the discipline in the 70's took a perverse path relying on models grounded on fictitious rational representative agent in order to try to pathetically circumvent aggregation and coordination problems. The Great Recession was a natural experiment for macroeconomics, showing the inadequacy of the predominant theoretical framework grounded on DSGE models. After discussing the pathological fallacies of the DSGE-based approach, we claim that macroeconomics should consider the economy as a complex evolving system, i.e. as an ecology populated by heterogenous agents, whose far-from-equilibrium interactions continuously change the structure of the system. This in turn implies that more is different: macroeconomics cannot be shrink to representative-agent micro, but agents' complex interactions lead to emergence of new phenomena and hierarchical structure at the macro level. This is what is taken into account by agent-based models, which provide a novel way to model complex economies from the bottom-up, with sound empirically-based micro-foundations. We present the foundations of Agent-Based macroeconomics and we discuss how the contributions of this special issue push its frontier forward. Finally, we conclude by discussing the ways ahead for the fully acknowledgement of agent-based models as the standard way of theorizing in macroeconomics.

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  • Giovanni Dosi & Andrea Roventini, 2019. "More is Different ... and Complex! The Case for Agent-Based Macroeconomics," LEM Papers Series 2019/01, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  • Handle: RePEc:ssa:lemwps:2019/01
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    More about this item

    Keywords

    Macroeconomics; Economic Policy; Keynesian Theory; New Neoclassical Synthesis; New Keynesian Models; DSGE Models; Agent-Based Evolutionary Models; Complexity Theory; Great Recession; Crisis;
    All these keywords.

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • B50 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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