Computational Economics

Growing Economies from the Bottom Up

Last Updated: 20 February 2016

Site maintained by:
Leigh Tesfatsion
Professor of Econ, Math, and ECpE
Iowa State University
Ames, Iowa 50011-1070
tesfatsi AT

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(Graphic by T. Eymann)

Table of Contents:

The Web

Welcome to the ACE Website

Agent-based Computational Economics (ACE) is the computational modeling of economic processes (including whole economies) as open-ended dynamic systems of interacting agents.

Here "agent" refers broadly to a bundle of data, attributes, and methods representing an entity residing within the modeled system. Examples of agents include individuals (e.g., family farmer, urban resident), social groupings (e.g., families, community groups, cities), institutions (e.g., corporations, markets, legal systems), biological entities (e.g., insects, crops, livestock), and physical entities (e.g., rivers, land areas, weather, transport networks). Consequently, agents can range from decision-makers capable of sophisticated learning and social behaviors to physical features with no cognitive function. Moreover, agents can be composed of other agents, thus permitting hierarchical constructions.

ACE models are computational laboratories permitting users to explore how changes in physical, biological, institutional, and/or social conditions affect outcomes over time. This exploration process is analogous to biological experimentation with cultures in petri dishes. A user sets initial conditions for his modeled system in accordance with some purpose at hand. The "cover" is then closed, and the modeled system thereafter runs forward through time as a virtual world whose dynamics are entirely determined by the interactions of its constituent agents. No resort to externally imposed sky-hooks enforcing global coordination, such as modeler-imposed market clearing and rational expectations constraints, should be needed to drive or support the dynamics of this virtual world.

Important Note: A major misconception, still being expressed by some mainstream economists and bloggers uninformed about the powerful capabilities of modern software, is that ACE decision-making agents cannot exhibit forward-looking behavior. To the contrary, as demonstrated concretely in this study, the locally-constructive decision procedures used by ACE agents can range from simple behavioral rules to sophisticated adaptive dynamic programming methods for the approximate achievement of intertemporal objectives. Extensive annotated pointers to reference materials on the implementation of learning methods for ACE agents can be accessed at the following site: ACE Research Area: Learning and the Embodied Mind.

Current ACE research divides roughly into four strands differentiated by objective.

One primary objective is empirical understanding: Why have particular observed regularities evolved and persisted despite the absence of top-down planning and control? Examples of such regularities include social norms, socially accepted monies, market protocols, business cycles, persistent wealth inequality, and the common adoption of technological innovations. ACE researchers seek possible explanations grounded in the repeated interactions of agents operating in realistically rendered virtual worlds. Specifically, they try to understand whether particular types of observed regularities can be reliably generated within these worlds.

A second primary objective is normative understanding: How can ACE models be used as computational laboratories for the discovery of good economic designs? ACE researchers pursuing this objective are interested in evaluating whether designs proposed for economic policies, institutions, or processes will result in socially desirable system performance over time. The general approach is akin to filling a bucket with water to determine if it leaks. A virtual world is constructed that captures the salient aspects of an economic system operating under the design. The virtual world is then permitted to develop over time, driven solely by its own internal dynamics. One key issue is the extent to which resulting world outcomes are efficient, fair, and orderly, despite attempts by agents to gain individual advantage through strategic behavior. A second key issue is a cautionary concern for adverse unintended consequences.

A third primary objective is qualitative insight and theory generation: How can ACE models be used to gain a better understanding of dynamic economic systems through a better understanding of their full range of potential behaviors over time (equilibria plus basins of attraction)? Such understanding would help to clarify not only why certain types of regularities have evolved and persisted but also why others have not. A quintessential example is an old but still unresolved concern of economists such as Adam Smith (1723-1790), Ludwig von Mises (1881-1973), John Maynard Keynes (1883-1946), Joseph Schumpeter (1883-1950), and Friedrich von Hayek (1899-1992): namely, what are the self-organizing capabilities of decentralized market economies?

A fourth primary objective is methodological advancement: How best to provide ACE researchers with the methods and tools they need to undertake theoretical studies of dynamic economic systems through systematic sensitivity studies, and to examine the compatibility of sensitivity-generated theories with real-world data? ACE researchers are exploring a variety of ways to address this objective ranging from careful consideration of methodological principles to the practical development of programming, visualization, and empirical validation tools.

Linked below are materials of possible interest to ACE researchers as well as to researchers who wish to explore the potential usefulness of agent-based modeling for social science purposes more generally. These materials are updated on a regular basis, and suggestions for additional materials to include are welcome.

As time permits, ACE news notes are posted both to the Social Simulation (SimSoc) mailing list and to the Society for Computational Economics (SCE) mailing list to let people know which ACE website pages have been most heavily updated since the last news notes posting. If you would like to subscribe to either of these mailing lists, please visit here for instructions.

Please contact me at tesfatsi AT if you have ACE-related news items that you would like included at the ACE website. To keep website maintenance manageable, only items of a more persistent nature (e.g., journal articles) can be considered for the ACE website. However, you can post items of a more temporary nature (e.g., conference announcements) at the SimSoc and SCE mailing lists.

Thank you.

Materials Linked to Date

Introductory Materials

Teaching and Self-Study Resources

Software Resources

Research Area Sites

Other Research Resources

News Items

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