Basics of Agent-based Economics

1. Thinking in Agent-based Economics
Thinking in Agent-based 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. Thinking in Agent-based Economics
Introduction
Agent-based Economic Thinking
Next?
Introduction: I
Agent-based Economics (AE) 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).
⇒ to understand the macro-level economic phenomena,
one has to look from ’bottom-up’, to find out:
Who : who (economic agent) acts behind the scene
of macro-level economy?
How : How economic agents interact?
What: What is the outcome of economic agents’ interaction? This outcome links to what economic phenomenon?
Xihao Li
Notes

3. Thinking in Agent-based Economics
Introduction
Agent-based Economic Thinking
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
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4. Thinking in Agent-based Economics
Introduction
Agent-based Economic Thinking
Thinking in Agent-based Economics
Agent-based Economics (AE) considers two aspects:
1
static view;
2
dynamic view.
Agent-based Economics (AE) focuses on:
1
economic system;
2
economic agent.
Xihao Li
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5. Thinking in Agent-based Economics
Introduction
Agent-based Economic Thinking
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Static View: Economic System
AE considers 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

6. Thinking in Agent-based Economics
Introduction
Agent-based Economic Thinking
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Static View: Economic Agents
AE classifies 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

7. Thinking in Agent-based Economics
Introduction
Agent-based Economic Thinking
Static View: Active economic agent
AE admits 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
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8. Thinking in Agent-based Economics
Introduction
Agent-based Economic Thinking
Static View: Passive economic agent
AE admits 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
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9. Thinking in Agent-based Economics
Introduction
Agent-based Economic Thinking
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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.
Xihao Li
Notes

10. Thinking in Agent-based Economics
Introduction
Agent-based Economic Thinking
Dynamic View: Active Economic Agent
Active economic agent dynamics has routine, called general
decision-making process:
Xihao Li
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11. Thinking in Agent-based Economics
Introduction
Agent-based Economic Thinking
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Thinking in Agent-based Economics: Modeling
Procedure
To develop Agent-based Model for economic research,
AE takes the following modeling procedure:
Static initialization: Initialize economic agents involved:
specify each submodule in MAEA for active economic
agents, and specify each economic property in MPEA
for passive economic agents;
Dynamic specification: Specify dynamics of active economic agents with the routine of general decision-making
process.
Xihao Li
Notes

12. Thinking in Agent-based Economics
Introduction
Agent-based Economic Thinking
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What’s after agent-based model?
Computer programming to build the computer simulation for agent-based model;
Analyzing simulation results. Simulation results normally
has detailed micro-level data (time series) for each
economic agent as well as macro-level data (time series) for economic system. Analyzing simulation results
is to apply econometric and statistical technique to
discover and to analyze the linkage between microlevel data and macro-level data.
Xihao Li
Notes

13. References
References I
Li, X. (2013). Standardization of agent-based modeling in
economics. Working Paper. http://mpra.ub.unimuenchen.de/47396/1/MPRA paper 47396.pdf.
Tesfatsion, L. S. and Judd, K. L. (2006). Handbook of
Computational Economics, Vol. 2: Agent-Based
Computational Economics. Handbooks in Economics
Series. North-Holland.
Xihao Li
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