Agent-based computational economics

Agent-based computational economics (ACE) is a special way to study how economies work. It looks at economies as groups of interacting parts, called agents. These agents are not real people. They are computer programs that follow rules to make decisions and interact with each other. This helps us understand how whole economies change over time.

Unlike older economic models that assume people always make the perfect decision, ACE allows agents to have limited knowledge. They can learn from their experiences. This makes the models more realistic. It reflects how real people often make decisions based on what they know.

ACE uses computer simulations to study complex economic problems. These problems are hard to solve with traditional math. By starting with set conditions, researchers can watch how the economy changes. They see this as agents interact and learn from each other. This method is similar to game theory. It focuses more on how agents act independently and adapt over time.

Thanks to better computer technology and improved modeling techniques, ACE has become more powerful. It has been used to study many areas. These include how prices are set, energy use, market competition, and economic welfare. Recently, it has also used advanced artificial intelligence. This helps create more realistic agents and predict how they might behave in complex situations.

Overview

In agent-based computational economics (ACE), "agents" are like computer characters. These characters can be people, groups of people, plants, or even transport systems. The agents follow certain rules and interact with each other over time. Scientists set up these characters and watch how they behave without stepping in to change things.

ACE is a special area of study for the Society for Computational Economics, and many researchers from the Santa Fe Institute have helped develop this field.

Agent-based finance

Agent-based computational economics (ACE) helps us study how prices of things like stocks change. In these models, many people, called agents, try different ways to guess what stock prices will be. They pick the methods that have worked well recently. The success of these methods depends on what’s happening in the market and which methods people are using. These models can show that big rises and falls in stock prices can happen when people switch between different guessing strategies.

Recently, some researchers used this kind of model to suggest that adding new financial tools might make markets less stable. Some papers have even suggested that ACE could help us understand big financial problems, like the 2008 financial crisis. For more details, you can look at the sections on Financial economics § Financial markets and § Departures from rationality.

Agent-based macroeconomics

Agent-Based Macroeconomics (ABM) helps us understand the economy by looking at small parts first. Instead of big numbers, ABM looks at many different people, called "agents." Each agent follows their own rules and makes decisions in their own way. This idea started with the work of Herbert Simon. In ABM, big changes in the economy happen because of how these agents interact with each other. ABM uses real-world information to create these rules and shows how people can be very different. It also includes details about how institutions and markets work.

Main article: Agent-based model