Agent-Based Computational Models - A Formal Heuristic for Institutionalist Pattern Modelling?

Gräbner, Claudius (2014): Agent-Based Computational Models - A Formal Heuristic for Institutionalist Pattern Modelling?

Abstract

Institutionalist economists have always been criticizing the neoclassical way of studying the economy, especially because of its obsession to a very strict and flawed formalism. This formalism receives critique also from advocates of agent-based computational economic (ACE) models. The criticism seems to be similar to that of institutional economists. Although some authors consider ACE models to belong to a completely new way of thinking about economics, many concepts of ACE have been anticipated by institutionalists: Although using a different vocabulary, ACE proponents speak about cumulative causation, realistic agents, explanatory models, dynamic relations among individuals and the necessity to see the economy as an systemic whole rather than from an atomistic perspective. Consequently, the emergence of the ACE framework may not be left unconsidered by institutionalist economists. This paper investigates the consistency of ACE models with the institutionalist research program as defined by Myrdal, Wilber and Harrison and other original institutionalists and discusses whether ACE models can be a useful heuristic for institutionalist "pattern modelling". I study the ability of ACE models to provide a holistic, systemic and evolutionary picture of the economy, the conception of agents in ACE models, and ask whether they can help to understand the social stratification of a society with its power relations. I also compare ACE models with earlier attempts to formalize institutionalist analysis, e.g. by Bush and Elsner (Theory of Institutional Change), Hayden (Social-­Fabric-Matrix) or Radzicki (System Dynamics).

• Item Type: MPRA Paper
• Language: English
• Keywords: Original Institutional Economics, Methodology, Epistemology, Ontology, Agent-Based Computational Economics, Critical Realism
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B4 - Economic Methodology > B41 - Economic Methodology; B - History of Economic Thought, Methodology, and Heterodox Approaches > B5 - Current Heterodox Approaches > B52 - Institutional ; Evolutionary; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation Modeling

References

Albin, Peter and Foley, Duncan K. Decentralized, dispersed exchange without anauctioneer: A simulation study. Journal of Economic Behavior & Organization, 18 (1):27 – 51, 1992.

Arthur, Brian. Complexity economics: A different framework for economic thought. SFI Working Paper, 04-12, 2013.

Arthur, W. Brian. Out-of-equilibrium economics and agent-based modeling. In Tesfat- sion, Leigh and Judd, Kenneth L., editors, Handbook of Computational Economics. Agent-Based Computational Economics, volume 2 of Handbooks in Economics, chap- ter 32, pages 1551–1564. Elsevier/North-Holland, Amsterdam and Oxford, 2006.

Bak, Per. How Nature Works: The Science of Self-Organized Criticality. Copernicus, New York, 1996.

Barrett, Chris; III, Harry B. Hunt; Marathe, Madhav V.; Ravi, S.S.; Rosenkrantz, Daniel J., and Stearn, Richard E. Reachability problems for sequential dynamical systems with threshold functions. Theoretical Computer Science, 295(1-3):41–64, 2003.

Barrett, Chris; III, Harry B. Hunt; Marathe, Madhav V.; Ravi, S. S.; Rosenkrantz, Daniel J.; Stearns, Richard E., and Thakur, Mayur. Predecessor existence problems for finite discrete dynamical systems. Theoretical Computer Science, 386(1-2):3–37, October 2007.

Barrett, Christopher L.; III, Harry B. Hunt; Marathe, Madhav V.; Ravi, S.S.; Rosenkrantz, Daniel J., and Stearns, Richard E. Complexity of reachability problems for finite discrete dynamical systems. Journal of Computer and System Sciences, 72 (8):1317 – 1345, 2006.

Barrett, C.L.; Mortveit, H.S., and Reidys, C.M. Elements of a theory of simulation iii: equivalence of sds. Applied Mathematics and Computation, 122(3):325 – 340, 2001.

Blume, Lawrence and Durlauf, Steven. The interactions-based approach to socioeco- nomic behavior. In Durlauf, Steven and Young, Peyton, editors, Social Dynamics, pages 15–44. MIT Press, Cambridge, USA, 2001.

Bunge, Mario. Systemism: the alternative to individualism and holism. Journal of Socio-Economics, 29:147–157, 2000.

Bush, Paul D. The theory of institutional change. Journal of Economic Issues, 21(3): 1075–1116, 1987.

Chen, Shu-Heng. Varieties of agents in agent-based computational economics: A historical and an interdisciplinary perspective. Journal of Economic Dynamics and Control, 36(1):1 – 25, 2012.

Diesing, Paul. Patterns of discovery in the social sciences. Aldine, Chicago, 1971.

Durlauf, Steven N. Complexity and empirical economics. The Economic Journal, 115 (504):F225–F243, 2005. ISSN 1468-0297.

Edmonds, Bruce. Capturing social embeddedness: A constructivist approach. Adaptive Behavior, 7(3-4):323–347, 1999.

Elsner, Wolfram. The process and a simple logic of meso. emergence and the co- 27 evolution of institutions and group size. Journal of Evolutionary Economics, 20(3): 445–477, 2010.

Elsner, Wolfram. The theory of institutional change revisited: The institutional di- chotomy, its dynamic, and its policy implications in a more formal analysis. Journal of Economic Issues, 46(1):1–43, 2012.

Elsner, Wolfram and Heinrich, Torsten. A simple theory of ‘meso’. on the co-evolution of institutions and platform size—with an application to varieties of capitalism and ‘medium-sized’ countries. The Journal of Socio-Economics, 38(5):843 – 858, 2009.

Elsner, Wolfram and Heinrich, Torsten. Coordination on meso-levels: On the co- evolution of institutions, networks and platform size. In Mann, Stefan, editor, Sec- tors Matter! Exploring Mesoeconomics, pages 115–163. Springer, Berlin, Heidelberg, 2011.

Elsner, Wolfram; Heinrich, Torsten, and Schwardt, Henning. The Microeconomics of Complex Economies. Elsevier, Amsterdam et. al., 2014.

Epstein, Joshua M. and Axtell, Robert L. Growing Artificial Societies: Social Science from the Bottom Up. The MIT Press, Cambridge, 1996.

Farmer, J. Doyne. Economics needs to treat the economy as a complex system. Paper for the INET Conference ”Rethinking Economics and Politics”, April 14, 2012, 2012.

Farmer, J. Doyne and Foley, Duncan. The economy needs agent-based modelling. Nature, 460:685–686, August 2009.

Fontana, Magda. Can neoclassical economics handle complexity? the fallacy of the oil spot dynamic. Journal of Economic Behavior & Organization, 76(3):584 – 596, 2010.

Forrester, Jay W. Counterintuitive behavior of social systems. Technology Review, 73 (3):52–68, 1971.

Friedman, Milton. The methodology of positive economics. In Friedman, Milton, editor, Essays In Positive Economics, pages 3–16, 30–43. University of Chicago Press, 1966.

Fullwiler, Scott T.; Elsner, Wolfram, and Natarajan, Tara. The social fabric matrix approach to policy analysis: An introduction. In Natarajan, Tara; Elsner, Wolfram, and Fullwiler, Scott T., editors, Institutional Analysis and Praxis. The Social Fabric Matrix Approach, pages 1–23. Springer, New York, 2009.

Gilboa, Itzhak; Postlewaite, Andrew; Samuelson, Larry, and Schmeidler, David. Eco- nomic models as analogies. The Economic Journal, page Accepted manuscript, 2014.

Gill, Roderic. An integrated social fabric matrix/system dynamics approach to policy analysis. System Dynamics Review, 12(3):167–181, 1996.

Gintis, Herbert. The dynamics of general equilibrium. The Economic Journal, 117 (523):1280–1309, 2007.

Granovetter, Mark. Economic action and social structure: The problem of embedded- ness. American Journal of Sociology, 91(3):481–510, 1985.

Hall, John and Whybrow, Oliver. Peirce, veblen, and the introduction of cumulative 28 causation into economic science. In Berger, Sebastian, editor, The Foundations of Non-Equilibrium Economics: The Principle of Circular and Cumulative Causation, pages 172–177. Routledge, 2009.

Hayden, F. Gregory. Social fabric matrix: From perspective to analytical tool. Journal of Economic Issues, 16(3):637–662, 1982.

Hayden, F. Gregory. Policymaking for a Good Society: The Social Fabric Matrix Approach to Policy Analysis and Program Evaluation. Springer, New York, 2006a.

Hayden, F. Gregory. The inadequacy of forrester system dynamics computer programs for institutional principles of hierarchy, feedback, and openness. Journal of Economic Issues, 40(2):527–535, 2006b.

Hayden, F. Gregory. In defense of system dynamics: Rejoinder to response by michael j. radzicki and linwood tauheed. Journal of Economic Issues, 43(4):1062 – 1065, 2009.

Hedoin, Cyril. Did veblen generlize darwinism (and why does it matter)=. Journal of Economic Issues, 44(4):963–989, 2010.

Herndon, Thomas; Ash, Michael, and Pollin, Robert. Does high public debt consis- tently stifle economic growth? a critique of reinhart and rogoff. Cambridge Journal of Economics, 38(2):257–279, 2014.

Hirsch, Abraham. Wesley clair mitchell. In Hodgson, Geoffrey M.; Samuels, Warren J., and Tool, Marc R., editors, The Elgar Companion to Institutional and Evolutionary Economics, pages 85–90. Edward Elgar, Hampshire, UK, 1994.

Hodgson, Geoffrey M. Reconstitutive downward causation. In Fullbrook, Edward, editor, Intersubjectivity in Economics. Agents and structures, chapter 10, pages 159– 180. Routledge, London, New York, 2002.

Hodgson, Geoffrey M. What are institutions? Journal of Economic Issues, 40(1):1 – 25, 2006.

Hodgson, Geoffrey M. Downward causation - some second thoughts. Website, March 2011. http://www.geoffrey-hodgson.info/downward-causation.htm; Accessed: May 21st, 2013.

Hodgson, Geoffrey M. and Knudsen, Thorbjorn. The complex evolution of a simple traffic convention: the functions and implications of habit. Journal of Economic Behavior & Organization, 54(1):19 – 47, 2004.

Keen, Steve. Debunking Economics. Revised and Expanded Edition: The Naked Em- peror Dethroned? Zed Books, 2 edition, 2011.

Laubenbacher, Reinhard and Pareigis, Bodo. Equivalence relations on finite dynamical systems. Advances in Applied Mathematics, 26(3):237 – 251, 2001.

Laubenbacher, Reinhard; Jarrah, Abdul S.; Mortveit, Henning, and Ravi, S. S. A mathematical formalism for agent-based modeling. In Meyers, Robert A., editor, Encyclopedia of Complexity and Systems Science, pages 160–176. Springer, Berlin and Heidelberg, 2009.

Lindgren, Kristian. Evolutionary phenomena in simple dynamics. In Langton, Christo- pher. G.; Taylor, Charles; Farmer, J. Doyne, and Rasmussen, Steen, editors, Artifi- cial Life II, Santa Fe Institute Studies in the Sciences of Complexity Proceedings, 29 pages 295–312. Addison Wesley, 1992.

Mäki, Uskali. Models are experiments, experiments are models. Journal of Economic a Methodology, 12(2):303–315, 2005.

Miller, John H. and Page, Scott E. Complex Adaptive Systems. An Introduction to Computational Models of Social Life. Princeton University Press, Princeton, 2007.

Mitchell, Melanie. An Introduction to Genetic Algorithms. The MIT Press, Cambridge, Massachusetts, London, England, 5 edition, 1999.

Moss, Scott. Policy analysis from first principles. Proceedings of the US National Academy of Sciences, 99(3):7267–7274, 2002.

Musgrave, A. Unreal assumptions in economic theory: The f-twist untwisted. Kyklos, 34(3):377–387, 1981.

Myrdal, Gunnar. An American Dilemma. The Negro Problem and Modern Democracy. Harper & Brothers Publishers, New York, London, 1944.

Myrdal, Gunnar. Economic Theory and Underdeveloped Regions. Vora & Co. Pub- lishers Private Ltd., Bombay, reprint edition, 1958. Authorised Indian Edition.

Myrdal, Gunnar. Institutional economics. Journal of Economic Issues, 12(4):771–783, December 1978.

Nussbaum, Martha and Sen, Amartya K., editors. The Quality of Life. Clarendon Paperbacks. Clarendon Press, Oxford, 1993. ISBN 9780198287971.

Page, Scott E. Aggregation in agent-based models of economies. The Knowledge Engineering Review, 27:151–162, 2012.

Pelligra, Vittorio. Intentions, trust and frames: A note on sociality and the theory of games. Review of Social Economy, 69(2):163–188, 2011.

Radzicki, Michael J. Institutional dynamics: An extension of the institutionalist ap- proach to socioeconomic analysis. Journal of Economic Issues, 22(3):633–665, 1988.

Radzicki, Michael J. and Tauheed, Linwood. In defense of system dynamics: A re- sponse to professor hayden. Journal of Economic Issues, 43(4):1043–1061, 2009. Reidys, C. M. On certain morphisms of sequential dynamical systems. Discrete Math- ematics, 296(2-3):245–257, 2005.

Reinhart, Carmen M. and Rogoff, Kenneth S. Growth in a time of debt. American Economic Review, 100(2):573–78, 2010.

Rengs, Bernhard and W ̈ckerle, Manuel. A computational agent-based simulation of a an artificial monetary union for dynamic comparative institutional analysis. Pro- ceeding of the 2014 IEEE Conference on Computational Intelligence for Financial Engineering & Economics (CIFEr), pages 437–434, 2014.

Rubinstein, Ariel. Dilemmas of an economic theorist. Econometrica, 74(4):865–883, 2006. S cheinkman, Jose A. and Woodford, Michael. Self-organized criticality and economic fluctuations. American Economic Review, 84(2):417–421, May 1994.

Sen, A. Development as Freedom. Oxford University Press, New York, 1999.

Stiglitz, Joseph E.; Sen, Amartya K., and Fitoussi, Jean-Paul. Mismeasuring Our Lives: Why GDP Doesn’t Add U. The New Press, New York, London, 2010.

Sugden, Robert. Credible worlds, capacities and mechanisms. Erkenntnis, 70(1):3–27, 30 2009.

Tesfatsion, Leigh. Agent-based computational economics: A constructive approach to economic theory. In Tesfatsion, Leigh and Judd, Kenneth L., editors, Handbook of Computational Economics, volume 2 of Handbook of Computational Economics, chapter 16, pages 831–880. Elsevier, 2006.

Veblen, Thorstein. Why is economics not an evolutionary science? The Quarterly Journal of Economics, 12(4):373–397, July 1898.

Velupillai, Kumaraswamy Vela and Zambelli, Stefano. Computing in economics. In Davis, John B. and Hands, D. Wade, editors, The Elgar companion to recent eco- nomic methodology, chapter 12, pages 259–295. Elgar, Cheltenham [u.a.], 2011.

Vilena, Mauricio C. and Vilena, Marcelo J. Evolutionary game theory and thorstein veblen’s evolutionary economics: Is egt veblenian? Journal of Economic Issues, 38 (3):585–610, 2004. Wäckerle, Manuel. The foundations of evolutionary institutional economics : generic a institutionalism. Routledge, London, 2014.

Weaver, Warren. Science and complexity. American Scientist, 36(4):536–544, 1948.

Wilber, Charles K. and Harrison, Robert S. The methodological basis of institutional economics: Pattern model, storytelling, and holism. Journal of Economic Issues, 12 (1):61–89, March 1978.