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Standardization of Agent-based Modeling in Economics

Standardization of Agent-based Modeling in Economics

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  • 1. Standardization of Agent-based Modeling in Economics Standardization of Agent-based Modeling in Economics∗ Xihao Li † Department of Economics and Social Sciences (DiSES) ` Universita Politecnica delle Marche October, 2013 ∗ This notes is based on (Li, 2013). Comments are welcome! Please feel free to contact me. † ` Department of Economics and Social Sciences (DiSES), Universita Politecnica delle Marche, Piazzale Martelli 8, 60121 Ancona, Italy. Email: xihao.li@gmail.com. The author would like to thank Cathy Du, Gaia Li, and Sofia Li for invaluable support. Xihao Li Notes
  • 2. Standardization of Agent-based Modeling in Economics Introduction Generality Integrative Framework Introduction: I Agent-based modeling in economics is: a study of economic system from ’bottom-up’: macrolevel economy result from micro-level interaction of a collection of heterogenous economic agents, see (Tesfatsion and Judd, 2006). a growing branch in economic research: increasing volume of related literature, e.g., (Gallegati et al., 2011), (Stiglitz and Gallegati, 2011), (Battiston et al., 2012), (Caccioli et al., 2012), (Delli Gatti et al., 2012), etc. increasing support from funding agencies, e.g., European Commission supports research project “(FOC) FOrecasting financial Crises”, “(CRISIS) Complexity Research Initiative for Systemic Instabilities”, etc. Xihao Li Notes Outlook
  • 3. Standardization of Agent-based Modeling in Economics Introduction Generality Integrative Framework Introduction: II Agent-based economic research is an interdisciplinary research, with intimate interaction between economists and computer scientists (software engineer, computer programmers). Computer Programmers: Computer Programming Language Economists: Agent-Based Modeling Language Economic System Computer Software System Agent-Based Model Xihao Li Notes Outlook
  • 4. Standardization of Agent-based Modeling in Economics Introduction Generality Integrative Framework Introduction: III Agent-Based Model (ABM) — two sides of the same coin: For economics: ABM is the formal model of the economic system in consideration for simulation; For computer science (software development): ABM is the requirement specification and system model of the computer software system for simulation. Xihao Li Notes Outlook
  • 5. Standardization of Agent-based Modeling in Economics Introduction Generality Integrative Framework Outlook Introduction: IV ABM in current economic research is mainly: following common practice in economic modeling, lack of consistency with general rules of system analysis and design in software development; difficult for computer programmers to understand the requirement and specification that economists demand in computer software system for simulation. ⇒ Problem: inefficiency of communication between economists and computer scientists hampers the effectiveness of agent-based economic research. This problem becomes crucial when agent-based economic research team gets bigger and/or is required to deliver the analysis under time constraint! Xihao Li Notes
  • 6. Standardization of Agent-based Modeling in Economics Introduction Generality Integrative Framework Outlook Introduction: V Question: Is there any way around this bottleneck of communication between economists and computer scientists? Analysis: Economic system from ‘bottom-up’ is agent-oriented complex system. From the perspective of economic research, economic system as well as economic agents, although complex and heterogenous, embeds with common characteristics in static view and in dynamic view. Agent-oriented software engineering in computer science provides general tools for agent-oriented system analysis and design, e.g., Multi-Agent Reasoning System (DMARS) in (Rao and Georgeff, 1995), Gaia methodology in (Zambonelli et al., 2003), etc. Xihao Li Notes
  • 7. Standardization of Agent-based Modeling in Economics Introduction Generality Integrative Framework Introduction: VI Idea: Derive generalities of economic system and economic agents. Apply these generalities with tools from agent-oriented software engineering, to develop a “tailor-made” integrative framework that works as communication protocol for economists and computer scientists: economists follow this integrative framework to analyze and to develop agent-based model in a standardized way; computer programmers follow this integrative framework to translate the standardized agent-based model into computer codes. Xihao Li Notes Outlook
  • 8. Standardization of Agent-based Modeling in Economics Introduction Generality Integrative Framework Generality of Economic system and Economic Agent Consider the following two aspects: 1 static view; 2 dynamic view; with focus on: 1 economic system; 2 economic agent. Xihao Li Notes Outlook
  • 9. Standardization of Agent-based Modeling in Economics Introduction Generality Integrative Framework Static View: Economic System Consider economic system from Constructive Perspectives of Economic System (CPES): 1 Scope of the economic system: its boundary and its environment; 2 Interrelation between the economic system and its environment; 3 Elements of the economic system: economic agents considered in the economic system; 4 Structure of the economic system: interrelation among elements of the economic system. Xihao Li Notes Outlook
  • 10. Standardization of Agent-based Modeling in Economics Introduction Generality Integrative Framework Outlook Static View: Graphical Presentation for Structure of Economic System Employ network diagram as graphical presentation for the static structure of economic system, to represent the interrelation among economic agents. Example: network diagram for stock market system with bond market as its environment. Bond Market Stock Market Trader 5 Trader 4 Trader 6 … Trader 3 Market Center Trader 2 Trader n … Trader 1 Trader N Trader N-1 Xihao Li Trader N-2 Notes
  • 11. Standardization of Agent-based Modeling in Economics Introduction Generality Integrative Framework Static View: Economic Agents Classify two types of economic agents: Active economic agents: directly involved with the functionality of human subject, with autonomous and active behavior to fulfill objectives; e.g., households, firms. Passive economic agents: not directly involved with the functionality of human subject; e.g., commodities traded in the market. Xihao Li Notes Outlook
  • 12. Standardization of Agent-based Modeling in Economics Introduction Generality Integrative Framework Static View: Active economic agent Admit the general structure of active economic agent, called Modules (elements) of Active Economic Agent (MAEA): Information flows Module of Active Economic Agent Submodule of Information storage Submodule of information acquirement Submodule of objectives Submodule of learning Environment Submodule of forecasting Submodule of action transmission Information flows Xihao Li Notes Outlook
  • 13. Standardization of Agent-based Modeling in Economics Introduction Generality Integrative Framework Static View: Passive economic agent Admit the general structure of passive economic agent, called Modules (elements) of Passive Economic Agent (MPEA), i.e., information container with a set of economic properties. For example, Xihao Li Notes Outlook
  • 14. Standardization of Agent-based Modeling in Economics Introduction Generality Integrative Framework Dynamic View: Economic System Dynamics of economic system results from active economic agents actively take action to fulfill their objectives. ⇒ Specification of active economic agent dynamics is sufficient for dynamics of economic system. On the other hand, to explicitly present in systemiclevel the dynamics of economic system, it is useful to employ diagram of agent interaction to visualize the sequence of agents’ activities, see (Example). Xihao Li Notes Outlook
  • 15. Standardization of Agent-based Modeling in Economics Introduction Generality Integrative Framework Dynamic View: Active Economic Agent Active economic agent dynamics has routine, called general decision-making process: Xihao Li Notes Outlook
  • 16. Standardization of Agent-based Modeling in Economics Introduction Generality Integrative Framework Integrative framework: I ABM for economic system requires: static view. It boils down to specification of each submodule in MAEA, specification of each economic property in MPEA, and specification of the static structure of economic system. dynamic view. Specification of active economic agent dynamics is sufficient for dynamics of economic system. Xihao Li Notes Outlook
  • 17. Standardization of Agent-based Modeling in Economics Introduction Generality Integrative Framework Integrative framework: III In this regard, integrative framework takes the following modeling procedure to develop ABM: Static initialization: 1 2 Initialize economic agents involved: specify each submodule in MAEA for active economic agents, and specify each economic property in MPEA for passive economic agents; Use network diagram to specify the initial structure of economic system. Dynamic specification: 1 2 Specify dynamics of active economic agents with the benchmark of general decision-making process; Use diagram of agent interaction to visualize the sequence of agents’ activities, so as to explicitly present in systemic-level the dynamics of economic system. Xihao Li Notes Outlook
  • 18. Standardization of Agent-based Modeling in Economics Introduction Generality Integrative Framework Outlook Outlook Integrative framework serves as general guidance for analyzing economic system from ‘bottom-up’ and for seamlessly translating economic system into standardized agentbased model; Integrative framework serves as communication protocol between economists and computer scientists, as well as between agent-based economic research and other strands; The standardization of agent-based model enhances its reusability, i.e., part of or the whole of existing agent-based model can be quickly adjusted and assembled together to develop a new agent-based model. Xihao Li Notes
  • 19. References Diagram of Agent Interaction: Example Example: diagram of agent interaction for stock market system with bond market as its environment. Start period t=1...T Stock Market: Open Market Center: disseminate trading information, collect orders Trading information Orders Trader 1...N: make investment decision, submit order to trade Stock Market: Determine Price Market Center: Determine stock price, Trading information transaction volume, and Payment payment for each order Trader 1...N: Realize stock Price, transaction volume, and payment for its order Bond Market: Trade risk-free asset Bond Market: Determine Trading information risk-free asset price, transaction volume, and Payment payment Trader 1...N: Make investement decision for risk-free asset, realize transaction End period t=1...T Xihao Li Notes
  • 20. References References I Battiston, S., Gatti, D. D., Gallegati, M., Greenwald, B., and Stiglitz, J. E. (2012). Default cascades: When does risk diversification increase stability? Journal of Financial Stability, 8(3):138–149. Caccioli, F., Catanach, T., and Farmer, J. (2012). Heterogeneity, correlations and financial contagion. Advances in Complex Systems, 15(2). Delli Gatti, D., Gallegati, M., Greenwald, B. C., Russo, A., and Stiglitz, J. E. (2012). Mobility constraints, productivity trends, and extended crises. Journal of Economic Behavior & Organization, 83(3):375–393. Gallegati, M., Palestrini, A., and Rosser, J. B. (2011). The period of financial distress in speculative markets: Interacting heterogeneous agents and financial constraints. Macroeconomic Dynamics, 15(01):60–79. Li, X. (2013). Standardization of agent-based modeling in economics. Working Paper. http://mpra.ub.uni-muenchen.de/47396/1/MPRA paper 47396.pdf. Rao, A. S. and Georgeff, M. P (1995). Formal models and decision procedures . for multi-agent systems. Technical Note 61, Australian AI Institute. Stiglitz, J. E. and Gallegati, M. (2011). Heterogeneous interacting agent models for understanding monetary economies. Eastern Economic Journal, 37(1):6–12. Xihao Li Notes
  • 21. References References II Tesfatsion, L. S. and Judd, K. L. (2006). Handbook of Computational Economics, Vol. 2: Agent-Based Computational Economics. Handbooks in Economics Series. North-Holland. Zambonelli, F., Jennings, N. R., and Wooldridge, M. (2003). Developing multiagent systems: The gaia methodology. ACM Transactions on Software Engineering Methodology, 12(3):317–370. Xihao Li Notes