Standardization of Agent-based Modeling in Economics

1. Standardization of Agent-based Modeling in Economics
Standardization of Agent-based
Modeling in Economics∗
Xihao Li †
Department of Economics and Social Sciences (DiSES)
`
Universita Politecnica delle Marche
October, 2013
∗
This notes is based on (Li, 2013). Comments are welcome! Please feel free to contact me.
†
`
Department of Economics and Social Sciences (DiSES), Universita Politecnica delle Marche, Piazzale
Martelli 8, 60121 Ancona, Italy. Email: xihao.li@gmail.com. The author would like to thank Cathy Du, Gaia
Li, and Sofia Li for invaluable support.
Xihao Li
Notes

2. Standardization of Agent-based Modeling in Economics
Introduction
Generality
Integrative Framework
Introduction: I
Agent-based modeling in economics is:
a study of economic system from ’bottom-up’: macrolevel economy result from micro-level interaction of a
collection of heterogenous economic agents, see (Tesfatsion and Judd, 2006).
a growing branch in economic research:
increasing volume of related literature, e.g., (Gallegati et al.,
2011), (Stiglitz and Gallegati, 2011), (Battiston et al., 2012), (Caccioli
et al., 2012), (Delli Gatti et al., 2012), etc.
increasing support from funding agencies, e.g., European
Commission supports research project “(FOC) FOrecasting financial
Crises”, “(CRISIS) Complexity Research Initiative for Systemic Instabilities”, etc.
Xihao Li
Notes
Outlook

3. Standardization of Agent-based Modeling in Economics
Introduction
Generality
Integrative Framework
Introduction: II
Agent-based economic research is an interdisciplinary
research, with intimate interaction between economists
and computer scientists (software engineer, computer
programmers).
Computer
Programmers:
Computer
Programming
Language
Economists:
Agent-Based
Modeling
Language
Economic
System
Computer
Software
System
Agent-Based
Model
Xihao Li
Notes
Outlook

4. Standardization of Agent-based Modeling in Economics
Introduction
Generality
Integrative Framework
Introduction: III
Agent-Based Model (ABM) — two sides of the same coin:
For economics: ABM is the formal model of the economic system in consideration for simulation;
For computer science (software development): ABM
is the requirement specification and system model of
the computer software system for simulation.
Xihao Li
Notes
Outlook

5. Standardization of Agent-based Modeling in Economics
Introduction
Generality
Integrative Framework
Outlook
Introduction: IV
ABM in current economic research is mainly:
following common practice in economic modeling, lack
of consistency with general rules of system analysis and
design in software development;
difficult for computer programmers to understand the
requirement and specification that economists demand
in computer software system for simulation.
⇒ Problem: inefficiency of communication between
economists and computer scientists hampers the effectiveness of agent-based economic research.
This problem becomes crucial when agent-based economic research team gets bigger and/or is required to
deliver the analysis under time constraint!
Xihao Li
Notes

6. Standardization of Agent-based Modeling in Economics
Introduction
Generality
Integrative Framework
Outlook
Introduction: V
Question: Is there any way around this bottleneck of
communication between economists and computer
scientists?
Analysis:
Economic system from ‘bottom-up’ is agent-oriented
complex system.
From the perspective of economic research, economic
system as well as economic agents, although complex
and heterogenous, embeds with common characteristics in static view and in dynamic view.
Agent-oriented software engineering in computer science provides general tools for agent-oriented system
analysis and design, e.g., Multi-Agent Reasoning System (DMARS)
in (Rao and Georgeff, 1995), Gaia methodology in (Zambonelli et al., 2003),
etc.
Xihao Li
Notes

7. Standardization of Agent-based Modeling in Economics
Introduction
Generality
Integrative Framework
Introduction: VI
Idea:
Derive generalities of economic system and economic
agents.
Apply these generalities with tools from agent-oriented
software engineering, to develop a “tailor-made”
integrative framework that works as communication
protocol for economists and computer scientists:
economists follow this integrative framework to analyze
and to develop agent-based model in a standardized
way;
computer programmers follow this integrative framework to translate the standardized agent-based model
into computer codes.
Xihao Li
Notes
Outlook

8. Standardization of Agent-based Modeling in Economics
Introduction
Generality
Integrative Framework
Generality of Economic system and Economic
Agent
Consider the following two aspects:
1
static view;
2
dynamic view;
with focus on:
1
economic system;
2
economic agent.
Xihao Li
Notes
Outlook

9. Standardization of Agent-based Modeling in Economics
Introduction
Generality
Integrative Framework
Static View: Economic System
Consider economic system from Constructive
Perspectives of Economic System (CPES):
1
Scope of the economic system: its boundary and its
environment;
2
Interrelation between the economic system and its
environment;
3
Elements of the economic system: economic agents
considered in the economic system;
4
Structure of the economic system: interrelation among
elements of the economic system.
Xihao Li
Notes
Outlook

10. Standardization of Agent-based Modeling in Economics
Introduction
Generality
Integrative Framework
Outlook
Static View: Graphical Presentation for Structure
of Economic System
Employ network diagram as graphical presentation for the
static structure of economic system, to represent the
interrelation among economic agents.
Example: network diagram for stock market system with bond
market as its environment.
Bond
Market
Stock Market
Trader 5
Trader 4
Trader 6
…
Trader 3
Market
Center
Trader 2
Trader
n
…
Trader 1
Trader
N
Trader
N-1
Xihao Li
Trader
N-2
Notes

11. Standardization of Agent-based Modeling in Economics
Introduction
Generality
Integrative Framework
Static View: Economic Agents
Classify two types of economic agents:
Active economic agents: directly involved with the
functionality of human subject, with autonomous and
active behavior to fulfill objectives; e.g., households,
firms.
Passive economic agents: not directly involved with
the functionality of human subject; e.g., commodities
traded in the market.
Xihao Li
Notes
Outlook

12. Standardization of Agent-based Modeling in Economics
Introduction
Generality
Integrative Framework
Static View: Active economic agent
Admit the general structure of active economic agent, called
Modules (elements) of Active Economic Agent (MAEA):
Information flows
Module of Active Economic Agent
Submodule
of
Information
storage
Submodule of information
acquirement
Submodule of objectives
Submodule
of learning
Environment
Submodule of forecasting
Submodule of action
transmission
Information flows
Xihao Li
Notes
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13. Standardization of Agent-based Modeling in Economics
Introduction
Generality
Integrative Framework
Static View: Passive economic agent
Admit the general structure of passive economic agent,
called Modules (elements) of Passive Economic Agent
(MPEA), i.e., information container with a set of economic
properties.
For example,
Xihao Li
Notes
Outlook

14. Standardization of Agent-based Modeling in Economics
Introduction
Generality
Integrative Framework
Dynamic View: Economic System
Dynamics of economic system results from active economic agents actively take action to fulfill their objectives.
⇒ Specification of active economic agent dynamics is
sufficient for dynamics of economic system.
On the other hand, to explicitly present in systemiclevel the dynamics of economic system, it is useful to
employ diagram of agent interaction to visualize the
sequence of agents’ activities, see (Example).
Xihao Li
Notes
Outlook

15. Standardization of Agent-based Modeling in Economics
Introduction
Generality
Integrative Framework
Dynamic View: Active Economic Agent
Active economic agent dynamics has routine, called general
decision-making process:
Xihao Li
Notes
Outlook

16. Standardization of Agent-based Modeling in Economics
Introduction
Generality
Integrative Framework
Integrative framework: I
ABM for economic system requires:
static view. It boils down to specification of each submodule in MAEA, specification of each economic property in MPEA, and specification of the static structure of
economic system.
dynamic view. Specification of active economic agent
dynamics is sufficient for dynamics of economic system.
Xihao Li
Notes
Outlook

17. Standardization of Agent-based Modeling in Economics
Introduction
Generality
Integrative Framework
Integrative framework: III
In this regard, integrative framework takes the following
modeling procedure to develop ABM:
Static initialization:
1
2
Initialize economic agents involved: specify each
submodule in MAEA for active economic agents, and
specify each economic property in MPEA for passive
economic agents;
Use network diagram to specify the initial structure of
economic system.
Dynamic specification:
1
2
Specify dynamics of active economic agents with the
benchmark of general decision-making process;
Use diagram of agent interaction to visualize the sequence of agents’ activities, so as to explicitly present
in systemic-level the dynamics of economic system.
Xihao Li
Notes
Outlook

18. Standardization of Agent-based Modeling in Economics
Introduction
Generality
Integrative Framework
Outlook
Outlook
Integrative framework serves as general guidance for analyzing economic system from ‘bottom-up’ and for seamlessly translating economic system into standardized agentbased model;
Integrative framework serves as communication protocol
between economists and computer scientists, as well as
between agent-based economic research and other strands;
The standardization of agent-based model enhances its
reusability, i.e., part of or the whole of existing agent-based
model can be quickly adjusted and assembled together to
develop a new agent-based model.
Xihao Li
Notes

19. References
Diagram of Agent Interaction: Example
Example: diagram of agent interaction for stock market system
with bond market as its environment.
Start period t=1...T
Stock Market: Open
Market Center:
disseminate trading
information, collect
orders
Trading information
Orders
Trader 1...N: make
investment decision,
submit order to trade
Stock Market: Determine Price
Market Center:
Determine stock price, Trading information
transaction volume, and
Payment
payment for each order
Trader 1...N: Realize
stock Price, transaction
volume, and payment
for its order
Bond Market: Trade risk-free asset
Bond Market: Determine
Trading information
risk-free asset price,
transaction volume, and
Payment
payment
Trader 1...N: Make
investement decision
for risk-free asset,
realize transaction
End period t=1...T
Xihao Li
Notes

20. References
References I
Battiston, S., Gatti, D. D., Gallegati, M., Greenwald, B., and Stiglitz, J. E. (2012).
Default cascades: When does risk diversification increase stability? Journal
of Financial Stability, 8(3):138–149.
Caccioli, F., Catanach, T., and Farmer, J. (2012). Heterogeneity, correlations and
financial contagion. Advances in Complex Systems, 15(2).
Delli Gatti, D., Gallegati, M., Greenwald, B. C., Russo, A., and Stiglitz, J. E. (2012).
Mobility constraints, productivity trends, and extended crises. Journal of
Economic Behavior & Organization, 83(3):375–393.
Gallegati, M., Palestrini, A., and Rosser, J. B. (2011). The period of financial
distress in speculative markets: Interacting heterogeneous agents and
financial constraints. Macroeconomic Dynamics, 15(01):60–79.
Li, X. (2013). Standardization of agent-based modeling in economics. Working
Paper. http://mpra.ub.uni-muenchen.de/47396/1/MPRA paper 47396.pdf.
Rao, A. S. and Georgeff, M. P (1995). Formal models and decision procedures
.
for multi-agent systems. Technical Note 61, Australian AI Institute.
Stiglitz, J. E. and Gallegati, M. (2011). Heterogeneous interacting agent models
for understanding monetary economies. Eastern Economic Journal,
37(1):6–12.
Xihao Li
Notes

21. References
References II
Tesfatsion, L. S. and Judd, K. L. (2006). Handbook of Computational Economics,
Vol. 2: Agent-Based Computational Economics. Handbooks in Economics
Series. North-Holland.
Zambonelli, F., Jennings, N. R., and Wooldridge, M. (2003). Developing
multiagent systems: The gaia methodology. ACM Transactions on Software
Engineering Methodology, 12(3):317–370.
Xihao Li
Notes