Agent-based computational economics (ACE) is the computational study of dynamic economic systems modeled as virtual worlds of interacting agents.
Here "agent" refers broadly to a bundle of data and behavioral methods representing an entity residing within the world.
Examples of possible agents include: individuals (e.g., consumers and producers); social groupings (e.g., families, firms, communities, and government agencies); institutions (e.g., markets and regulatory systems); biological entities (e.g., crops, livestock, and forests); and physical entities (e.g., infrastructure, weather, and geographical regions). Thus, agents can range from passive world features to active data-gathering decision makers capable of sophisticated social behaviors. Moreover, agents can be composed of other agents, permitting hierarchical constructions.
ACE modeling is analogous to a culture-dish laboratory experiment.
Starting from an initial world state, specified by the modeler, an ACE world should be capable of evolving over time driven solely by the interactions of the agents that reside within the world. Thus, an ACE world should be dynamically complete. No resort to externally imposed sky-hooks enforcing global coordination conditions, such as market clearing and rational expectations constraints, should be needed to drive the dynamics.
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 agents cannot exhibit forward-looking behavior. To the contrary, ACE agents can exhibit a broad range of learning behaviors ranging from stimulus-response adaptation to anticipatory learning and intertemporal planning. For example, Q-learning developed by Watkins (1989) for the approximation and successive updating of dynamic programming value functions is a widely used method for the algorithmic representation of anticipatory agent learning. Q-learning is a special case of temporal-difference learning, which involves the use of changes (or differences) in predictions over successive time steps to update current predictions. Extensive annotated pointers to reference materials on these and other agent learning algorithms 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 trade networks,
socially accepted monies, market protocols, business cycles, and the common
adoption of technological innovations. ACE researchers seek causal
explanations grounded in the repeated interactions of agents operating in
realistically rendered worlds. Specifically, they try to understand whether
particular types of observed regularities can be reliably generated
from particular types of agent-based 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. An
agent-based world is constructed that captures the salient aspects of an
economic system operating under the design. The world is then populated with
privately motivated agents with learning capabilities and allowed to develop
over time. One key issue is the extent to which the 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 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 the old
but still unresolved concern of economists such as Adam Smith and Friedrich
von Hayek: 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 economic systems through systematic
computational experiments, and to examine the compatibility of experimentally-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 validation tools.
Linked below are materials of possible interest to ACE researchers in
particular and more generally to social science researchers
interested in the development and use of agent-based models. 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 below to let people know which ACE Website pages have been most heavily updated since the last news notes posting. Whenever these news notes are ready
for posting, a brief announcement giving a pointer to this
posting is emailed to all participants in a moderated Majordomo announcements-only ACE news list.
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with your actual email address in place of youremailaddress. For more
information, please visit the
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Please contact me at
tesfatsi AT iastate.edu
if you have ACE-related news items that you would like included at the ACE website and announced in the ACE news postings. Only items of persistent interest (e.g., not conference announcements) can be handled, and only batched postings by the moderator are permitted.
Thank you.
Materials Linked to Date
Introductory Materials
On-Line Guide for Newcomers to Agent-Based Modeling
in the Social Sciences (R. Axelrod and L. Tesfatsion)
(html)
Welcome to the ACE Website
Introductory Materials 
(04/29/2012)