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Simulated Economy Tutorial

jasonfantl.com

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Re: Simulated Economy Tutorial

#51

Post by nxobject »

huitzitziltzin wrote: post #16
jgord wrote: post #4

Just as we have weather forecasting, climate models .. we do need and should have good fine-grain computational models of complex systems such as the cell .. and the global economy. We should be able to have whole economy simulations give reasonable predictions in response to natural events and lever-pulling such as : - higher progressive tax rates - central bank interest rate moves - local tariffs and sanctions - sh…

There’s a whole discipline which does nearly that, though they do not use this style of agent based model. Generally agent based models have numerous parameters which can take many values (endowments, preferences) and the models don’t themselves give any guidance about how to set the parameters. Theory can give limited guidance (eg., that function is concave, this parameter is negative). Sometimes we have experimenta…

Would you happen to know what some key search phrases might be to get started in the contemporary modeling literature?

Re: Simulated Economy Tutorial

#52

Post by vannevar »

This is not so much a model economy as it is a model market. But still interesting to see the dynamics that emerge from even an algorithmically simple model when you have multiple agents interacting over time.

For even a simple economy, I think you'd need to simulate money directly, and include the notions of rent and work.

Re: Simulated Economy Tutorial

#53

Post by exe34 »

noosphr wrote: post #46
exe34 wrote: post #44

Earlier quoted context omitted.

that still scales linearly with number of people, not quadratically.

It scales super exponentially since each person is a member of an arbitrary number of groups and their actions have some non zero impact on each other member of the groups they are a member of, and each individual in each group with a member of which they have interacted with.

if that were the case, numerical weather prediction wouldn't work. you can add up the impact for each neighbour.

Re: Simulated Economy Tutorial

#54

Post by littlestymaar »

huitzitziltzin wrote: post #12
dlojudice wrote: post #2

Agent-based modeling offers a more realistic approach to economic systems than traditional equilibrium models. New approachs including generative agents (ABM+LLMs) are promising. J. Doyne Farmer's recent book "Making Sense of Chaos: A Better Economics for a Better World" is a great reading for those interested in this field. https://www.amazon.com/Making-Sense-Chaos-author/dp/02412019...

No. There is no macroeconomist who wouldn’t adopt these approaches if they were “better”. Agent based models have been around since the 1980’s at least. No one uses them in central banks, no one uses them in industry, and you can be very confident that they’ve tried.

Right, Agent-based models are only useful as “exploration” tool, you cannot really use them for forecast because there's an impractically high number of parameter to tune.

Micro-founded macro economics models (say DSGE) are much easier to tune based on available historical data so they are much preferred, and nobody seams to care that they have the same predicting power as astrology.

Re: Simulated Economy Tutorial

#55

Post by littlestymaar »

noitpmeder wrote: post #23
dlojudice wrote: post #15

Earlier quoted context omitted.

Sure, they've tried but it does not mean it hasn't evolved https://www.centralbanking.com/central-banks/economics/macro... https://www.bankofengland.co.uk/working-paper/2025/agent-bas...

Sure, just don't necessarily sell them as "more realistic" if they're not performing as well in real situations

Its not like the classical models are any good in terms for performance in real situations, as they have proven to be unable to predict anything over the past 40 years better than a basic linear extrapolation from the trend would have.

Current macro-economics models are arguably not much better than a broken clock in terms of predicting power.

Re: Simulated Economy Tutorial

#56

Post by littlestymaar »

cowpig wrote: post #13

Primer is a youtube channel with a fantastic intuitive and gentle introduction to this topic: https://www.youtube.com/watch?v=PNtKXWNKGN8 This paper from one of the field's pioneers is a nice introductory overview of the space from an academic perspective: https://faculty.sites.iastate.edu/tesfatsi/archive/tesfatsi/...

I love Primer, but this particular video has a fatal flaw which makes it converge to the same result as microeconomics: it considers seller's cost to be a marginal cost, which is zero when the rocket hasn't been sold and is paid when the rocket is sold. But that's absolutely not how real world market works, and a multi-agent simulation which has the ability to use different hypothesis (upfront costs) should definitely do so, because then we'd see a completely different result.

Re: Simulated Economy Tutorial

#57

Post by noosphr »

exe34 wrote: post #53
noosphr wrote: post #46

Earlier quoted context omitted.

It scales super exponentially since each person is a member of an arbitrary number of groups and their actions have some non zero impact on each other member of the groups they are a member of, and each individual in each group with a member of which they have interacted with.

if that were the case, numerical weather prediction wouldn't work. you can add up the impact for each neighbour.

Humans are not mindless molecules whose only interactions are with the people right next to them.

Re: Simulated Economy Tutorial

#58

Post by _carbyau_ »

jgord wrote: post #4

Just as we have weather forecasting, climate models .. we do need and should have good fine-grain computational models of complex systems such as the cell .. and the global economy. We should be able to have whole economy simulations give reasonable predictions in response to natural events and lever-pulling such as : - higher progressive tax rates - central bank interest rate moves - local tariffs and sanctions - sh…

Issue of the Commons.

Weather models are good because if we know about it the weather doesn't care and doesn't change what it is going to do.

Anyone who has an accurate financial model is keeping it to themselves.

Anyone who has an accurate financial model and make it public... invalidates their model as everyone takes that information and plans to take advantage of it accordingly.

Re: Simulated Economy Tutorial

#59

Post by huitzitziltzin »

nxobject wrote: post #51
huitzitziltzin wrote: post #16

Earlier quoted context omitted.

There’s a whole discipline which does nearly that, though they do not use this style of agent based model. Generally agent based models have numerous parameters which can take many values (endowments, preferences) and the models don’t themselves give any guidance about how to set the parameters. Theory can give limited guidance (eg., that function is concave, this parameter is negative). Sometimes we have experimenta…

Would you happen to know what some key search phrases might be to get started in the contemporary modeling literature?

Sure it’s just macro.

Ljungqvist and Sargent is a standard grad level text.

Acemoglu has one with a growth focus.

Miao is another one.

Stachurski and Sargent is one focused on computational issues.

Stokey Lucas and Prescott is the math but I would skip that.

Dejong and Dave covers macroeconometrics.

Re: Simulated Economy Tutorial

#60

Post by huitzitziltzin »

littlestymaar wrote: post #38
huitzitziltzin wrote: post #16

Earlier quoted context omitted.

There’s a whole discipline which does nearly that, though they do not use this style of agent based model. Generally agent based models have numerous parameters which can take many values (endowments, preferences) and the models don’t themselves give any guidance about how to set the parameters. Theory can give limited guidance (eg., that function is concave, this parameter is negative). Sometimes we have experimenta…

> and an equilibrium assumption to recover the parameters That parts makes no sense though, there isn't an equilibrium and can never be, economies are a chaotic system. One of the key problems of economic modeling is that they used mathematical tool that aren't suited for that. You can't consider an economy as a steam engine. Walras was a trained engineer in the 19th century so I can excuse him for making this approx…

I don’t agree that it doesn’t make sense. It’s a good approximation a lot of the time.

Also: from your comment I’m pretty sure you don’t have the background (correct me if that’s wrong) and so don’t know what it really means in practice to make an equilibrium assumption in a macro model: Markets clear, on average people have reasonable beliefs about the evolution of aggregate variables, firms maximize expected profits. That’s all pretty harmless.

I definitely don’t agree that we are “using mathematical tools which aren’t suited for that.” We aren’t treating the economy “like a steam engine.” The entire revolution in macro from the 1970’s on involves optimizing agents. There is no useful analogy to a steam engine.

I suspect you have been reading criticism by people who are misinformed about what macro actually is and how it is practiced.

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