Volume 1, No.1, July, 2012
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Carlo Jaeger, Diana Mangalagiu and Antoine Mandel
Reconstructing economics, Agent based models and complexity
Mauro Gallegati and Alan Kirman
In this paper we argue that a view of the economy as a complex interactive and adaptive system allows one to explain phenomena such as “phase transitions” which are not consistent with the equilibrium models of standard models. A growing strand of economists is now fol- lowing a different methodology based upon the analysis of systems with many heterogeneous interacting agents. We explain how Agent Based Models (ABM), and, in particular Agent based Computational Economics (ACE), and Analytically Solvable Heterogeneous Interact- ing Agent (ASHIA) models based on statistical physics or Markov chains can be used to deal with economies in which direct interaction between agents is important. This interaction leads to empirical regularities, which emerge from the system as a whole and cannot be identified by looking at any single agent in isolation: these emerging properties are, according to us, the main distinguishing feature of a complex system. In this way economics can free itself from the limitations of the static equilibrium approach, the use of the implausible Representative Agent approach and analyze the, possibly out of equilibrium, dynamics which seem more consistent with observed empirical data. The complexity approach is a very challenging line of research whose empirical results are very promising. Modeling an agent-based economy, however, remains a complex and complicated adventure.
Global systems dynamics and policy: Lessons from the distant past
Many human societies on Earth have at times experienced what we would call a ‘crisis’. In the case of simple societies, in a wide range of environments throughout history, such crises have manifested themselves as famines. In complex societies, they may have taken the form of economic depressions such we are currently experiencing, social conflicts or wars of some kind between groups, or even the collapse of complete empires such as the Roman and the Chinese Empires (cf. Tainter, 1988). The recurrence of this phenomenon, at a wide range of scales from small bands to complete empires, and in virtually any environment or domain of human endeavor raises the question whether such crises are inherent in the socio-environmental dynamics of all human societies? And if that is the case, would comparative studies of a number of instances reveal to us what drives societies into such ‘crises’? ...
World market governance
The market economy has so far proved to be the best system to create wealth ever imag- ined, but it needs just like a good game of soccer fair and transparent rules and a judge to see that the rules are followed. It does not need committees sitting on the sideline directing the players what to do. The players can and should be trained, but when they are out there on the green field they are on their own. They have to take the decisions on how to play – offensively or defensively, cooperatively or individually, traditionally or innovatively. But without the rules and a competent judge the games would be ugly and the outcome would not be generally accepted. The same is true for the market economy and as long as the “market matches” were mainly national and the rules decided by the nation states the system was reasonably under control. But now that the market econ- omy has moved from a national to a global arena there is a lack both of proper rules and proper surveillance. The problem is serious as the global scale has made the economy not only more dynamic, but also more vulnerable. ...
Shaking an invisible hand
The research program of general equilibrium theory originated with Adam Smith’s vision of the emerging world economy. It evolved through a long series of efforts by economists and mathematicians. However, a major challenge arose with the discovery that the shape of Wal- rasian excess demand functions makes unique stable equilibria the exception rather than the rule. This has led to a highly problematic disconnect between modeling for policy support and the understanding of the world economy that is actually available. A promising route to over- come these difficulties has been opened by recent research on the dynamics of social norms, building on the theory of perturbed dynamical systems. This work could lead to a fruitful new reading of Adam Smith. The marginal analysis of current general equilibrium theory can be successfully applied to processes within a historically established basin of attraction, and it can be complemented by the “inframarginal” study of historical transitions from a given basin of attraction to one of several future possibilities.
Agent-based dynamics in the general equilibrium model
We introduce agent-based dynamics in a class of Arrow-Debreu economies with capital accumulation and technological progress. In this framework we confirm the results obtained by Gintis (2006, 2007) in an exchange economy: the micro-behavior of boundedly rational agents can lead to the emergence of equilibrium at the macro-level provided some form of collective optimization takes place via evolutionary mechanisms. Sensitivity analysis hint at further properties of out-of-equilibrium dynamics which can be analyzed using agent-based models.