CSSSA - April Webinar

A Discussion on Agent-Based Modeling in the Economics and Finance

Abstract: In a long paper in the Journal of Economic Literature Axtell and Farmer review agent-based modeling (ABM) in economics and finance and highlight how it can be used to relax conventional assumptions in standard models. ABM has enriched the understanding of markets, industrial organization, labor, macro, development, and environmental economics. In finance, substantial accomplishments include understanding clustered volatility, market impact, systemic risk, and housing markets. A vision is presented for how ABMs might be used in the future to build more realistic models of the economy. Hurdles that must be overcome to achieve this are discussed. Their paper includes more than 800 references including many from adjacent fields.

Biographs

Professor Axtell is the author, with Joshua Epstein, of Growing Artificial Societies: Social Science from the Bottom Up (MIT Press). His research has appeared in Science, Nature, Proceedings of the National Academy of Sciences, as well as in leading field-specific journals such as The Journal of Economic Literature, The American Economic Review, The Economic Journal, and many others. His research has been reprised in newspapers (e.g., Wall St. Journal, Los Angeles Times, Washington Post) and science magazines (e.g., Scientific American, Technology Review, Wired). For the past decade he has been using microdata on individuals to build large-scale models of the Financial Crisis of 2008-9 (with JD Farmer, Oxford, and J Geanakoplos, Yale), the dynamics of business firms (with O Guerrero, Turing Institute), and natural resource exploitation, e.g., fisheries (with UC Santa Barbara, Oxford, and the Ocean Conservancy). The research on companies is described at length in a forthcoming book, ‘Dynamics of Firms from the Bottom Up: Data, Theories, and Models’, due out next year, which uses U.S. micro-data on firm sizes, ages, growth rates, networks, and locations to create a model at 1:1 scale with the American economy.

Prof. Doyne Farmer is an American complex systems scientist and entrepreneur with interests in chaos theory, complexity and econophysics. He has published papers in Science and Nature as well as leading economics journals like the Journal of Economic Behavior & Organization. He is Baillie Gifford Professor of Complex Systems Science at the Smith School of Enterprise and the Environment, Oxford University, where he is also director of the Complexity Economics programme at the Institute for New Economic Thinking at the Oxford Martin School. Additionally, he is an external professor at the Santa Fe Institute. His current research is on complexity economics, focusing on systemic risk in financial markets and technological progress. He has recently published a book entitled ‘Making Sense of Chaos: A Better Economics for a Better World.’