Agent-Based Computational Economics - An Introduction

Terming a specific approach to economics agent-based may appear paradoxical. Isn’t human behavior the foundation of economics and shouldn’t all economic theory be based on agents behavior in some sense? This, at least, is what conventional economic theory has been claiming since the 1970’s. In this introduction we shall argue that agent-based computational economics (ACE) allows agents and especially their interaction, a more pivotal role than does conventional microeconomics or microfounded theory. There is a difference between microeconomics and agent-based economics in the latter you are not satisfied with understanding exactly how a single agent acts in economic markets you are primarily interested in the system view that arises when you observe the interaction between a number of agents. From observing an isolated agent, it is impossible to foresee what happens when a multitude of agents interact it cannot be deduced. This adds importance to the computational part. In agent-based economics the computer is not merely used as a giant calculator finding analytical or numerical solutions, but is used as a central part in a new methodological approach to economics.