Agent - based Computational Economics . A Short Introduction Matteo Richiardi October 1 , 2007

In a nutshell, agent-based models (ABM) are models, i.e. abstract representation of the reality, in which (i) a multitude of objects interact with each other and with the environment, (ii) the objects are autonomous, i.e. there is no central, or " top down " control over their behavior 1 , and (iii) the outcome of their interaction is numerically computed. Since the objects are autonomous, they are called " agents ". As Leigh Tesfatsion — one the leading researchers in the field and the " mother " of the ACE acronym, which describes the application of ABM to Economics — defines it, Agent-based Computational Economics (ACE) is the computational study of economic processes modeled as dynamic systems of interacting agents. 2 Note that none of the two features above, in isolation, defines the methodology: the micro-perspective implied by (i) and (ii) is the same adopted, for instance, by game theory, where strategic interaction is investigated analytically , while the computational approach is typical of Computational General Equilibrium or System Dynamics, which however are based on aggregate representations of the system. 1 as is the case of the Walrasian auctioneer device for ensuring market clearing, for instance. More on this point on section 2 below. 1 In this paper we will describe in more details the features of ABM (section 1), offer an overview of their historical development (section 2), discuss when they can be fruitfully employed (section 2.3), and how they can be combined with more traditional approaches. While maintaining a " low profile " in describing the approach, we will offer a strong defense of its methodological soundness (section 3). In particular, we will argue that (i) ABM are mathematical models, (ii) ABM may lead — as analytical models — to general results, and (iii) ABM can be taken to the data, i.e. estimated empirically. However, in this survey paper we will not discuss the issue of validation of agent-based models, first of all because many problems in validation are the same encountered with more traditional (analytic) models. The interested reader is referred to the recent (2007) special number of Computational Economics explicitly devoted to empirical validation of agent-The basic units of ABM are " agents ". Agents can be anything from cells to biological entities, from individuals to social groups like families or firms. Agents can be composed by other agents: the only requirement being that they are …