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Simulated Economy Tutorial

jasonfantl.com

61–69 of 69 posts

Re: Simulated Economy Tutorial

#61

Earlier quoted context omitted.

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.

Neural network based computer vision models also existed for decades. They weren't very good and weren't really used, till early 2010s when people figured out how to make them work. Now they are vastly superior to all the other ways. This is quite common across the sciences. Some technique doesn't seem to work because of missing crucial insights or technology. Then somebody fills the gaps, and the technique works. Th…

There are plenty of people working on the application of ML in economics, including NN methods, and including in macro.

That’s a totally different class of model to this agent based approach. People in the (small) agent based modeling community have been pushing their stuff for decades to no effect.

Sure it’s possible that there’s some amazing advance I can’t see coming in the future but as of now I would not recommend anyone pursue ABM.

Re: Simulated Economy Tutorial

#62
post #42

The most interesting toy economy I’ve seen has been d2jsp and its “forum gold”. Forum gold is primarily used as a fiat currency for diablo 2 trading. It’s a janky digital currency on a janky forum from like 20ish years ago, that’s still alive today. You can technically buy the currency from the forum, but in practice few do that. Most people just trade items to bootstrap. Having futzed with bartering in diablo (and n…

The funniest thing is that d2jsp was originally the forum of a bot developer.

Looks like bot runners where the one the most in need of a currency to make trades more efficient.

Re: Simulated Economy Tutorial

#63

Earlier quoted context omitted.

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.

Thank you!

Re: Simulated Economy Tutorial

#64

Earlier quoted context omitted.

> 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 profit…

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

So is a weather forecast that says “the weather will be sunny tomorrow” in Miami. True most of the time yet utterly meaningless.

> Also: from your comment I’m pretty sure you don’t have the background (correct me if that’s wrong)

I have to admit my DSGE class was more than 10 years ago at this point, but I still vividly remember the hypothesis being hilarious (spherical cow in vacuum−level) even though now I would need to spend a bit of time digging into it to be able to write down why exactly.

Re: Simulated Economy Tutorial

#65
post #57
post #53

Earlier quoted context omitted.

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.

You're allowed to move the numbers that represent the people in the matrix multiplication such that the interactions are close by.

Re: Simulated Economy Tutorial

#66
post #24
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…

>we do need and should have good fine-grain computational models of complex systems such [...] the global economy. Many years ago when 'social graphs' were still a hot area to do research in I started building a simulation of the equivalent of a small medieval village. What became quickly apparent is that you didn't just need interactions between any two individuals like classical social graphs talked about, but betw…

Use of a dense matrix is an artificial constraint you've imposed yourself, but that only disproves feasibility of your proposed solution, not the entire problem in general.

A similar problem, n-body simulation*, has n² gravitational interactions. You will similarly hit a wall if you try to do it with a dense n² matrix. However, there's a hierarchical solution that takes advantage of the sparsity and exponential decay, and can solve it in (n log n) with an imperceptibly low loss of precision.

Social interactions are sparse, and group interactions can be optimized with clustering. Fine-grained simulation of the entire society is such a massive chaotic problem with so many variables, that some loss of precision from clustering is completely insignificant compared to the inevitable simplifications you'll have to make in the design of the model itself.

* I mean the naive one with a fixed timestemp, not trying to solve chaos.

Re: Simulated Economy Tutorial

#67
post #66
post #24

Earlier quoted context omitted.

>we do need and should have good fine-grain computational models of complex systems such [...] the global economy. Many years ago when 'social graphs' were still a hot area to do research in I started building a simulation of the equivalent of a small medieval village. What became quickly apparent is that you didn't just need interactions between any two individuals like classical social graphs talked about, but betw…

Use of a dense matrix is an artificial constraint you've imposed yourself, but that only disproves feasibility of your proposed solution, not the entire problem in general. A similar problem, n-body simulation*, has n² gravitational interactions. You will similarly hit a wall if you try to do it with a dense n² matrix. However, there's a hierarchical solution that takes advantage of the sparsity and exponential decay…

>Use of a dense matrix is an artificial constraint you've imposed yourself, but that only disproves feasibility of your proposed solution, not the entire problem in general.

The use of a dense matrix is the traditional way of solving the problem. The issue is that it solves the wrong problem. You need a dense tensor which requires more storage than the world currently has for an economy of 20 people.

Social interactions are sparse until they aren't. If you think otherwise try to estimate what every Europeans interaction with Gavrilo Princip was on 27 June 1914 vs 28 June 1914.

As for gravitation: I'm very happy for the planets and asteroids out there. Unfortunately the economy isn't a solar system.

Re: Simulated Economy Tutorial

#68
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…

This opinion is hopelessly based in magical thinking not taking into account many things which have been well established since the early 1900s.

Its mindless garbage like this that fuels the waste, and other great delusions held by the public today.

Value is Subjective. That means it changes for each person, in each circumstance.

Ordinals != Math. They are inequalities at best. You can never prove X = Y with just X Computation, absent a few niche areas require problems to be formulated deterministically. That means a unique set of inputs, and a unique set of outputs. If you get an input that has two hidden underlying states, this fails.

The environment of this problem domain is a stochastic environment, that means chaotic; mathematically.

It cannot be measured in any detail except in retrospect as a lagging indicator, and it neglects psychological aspects, and the resulting dynamics that prey on people when money printing is used (i.e. fiat currency).

> Of course this would require something like a rich country providing grants ....

There is no amount of grant money in the world that can do what you claim, it matters not that it is 1 year, 10, or even given over 1000 years. The underlying laws don't change.

The economic boom bust cycle causes are well known and documented in banking. People just don't want to listen to experts, and evil bankers have a vested interest in discrediting those that would speak out.

Being complacent, mistaking your average dunning kruger for an expert in an echo chamber, that's the level of thinking today for the vast majority of people, and I don't see this post as being any different. Three books is all you'd need to read to know about all of this.

The bust part of the cycle is the objective shortfall between productive labor and unproductive labor as losses get marked down. In other words if you loan out money to people whose intention and ability are not production, but instead fraud or other snake oil, then you have these happen. What goes up, must come down.

Inflating the currency with an exponential amount of money printed calling it liquidity, will stave off the issue for another 8-10 years or so, with diminishing returns each time and there is a hard limit based in the fundamental requirements for an economy to operate, going back to 1776 Wealth of Nations.

Producers must make a profit to continue operating. Labor providers must be paid sufficiently to support their needs, and the needs of a Wife, and 3 children; sufficient for 1 to live to have children themselves.

The latter is dependent on the former. The money spent by each party travels in a circle unless something breaks that balance. If that happens it stalls, money loses its fundamental properties (when its fiat), and with population above a certain scale you may get socio-economic collapse, which is a slow circling the drain chaotically.

Prior to the 1970s the gold and precious metals safeguarded society from going off the rails in giving money to people who instead of producing something just enriched themselves. Every time fiat was tried, by either fractional reserve with poor regulation, or no fractional reserve at all (as we have a/o 2020), it has failed. Coolidge walking back banking, and not bailing the banks out is what led to the Great Depression.

Productive activity fell because farmers couldn't plant their crops because loans weren't available; the rural banks overextended themselves and went bottom up. It contagioned all the way culiminating the the Wall Street crash, and the socialism that followed only made it worse.

Today the GSIBs are in the same situation, with no one to bail them out.

I'd highly suggest you actually do something about correcting the shortfall in education, much of this you should know by middle school if you received a proper education.

Re: Simulated Economy Tutorial

#69
post #66
post #24

Earlier quoted context omitted.

>we do need and should have good fine-grain computational models of complex systems such [...] the global economy. Many years ago when 'social graphs' were still a hot area to do research in I started building a simulation of the equivalent of a small medieval village. What became quickly apparent is that you didn't just need interactions between any two individuals like classical social graphs talked about, but betw…

Use of a dense matrix is an artificial constraint you've imposed yourself, but that only disproves feasibility of your proposed solution, not the entire problem in general. A similar problem, n-body simulation*, has n² gravitational interactions. You will similarly hit a wall if you try to do it with a dense n² matrix. However, there's a hierarchical solution that takes advantage of the sparsity and exponential decay…

Isn't the naive one hopeless since those systems require perfect measurement, and economic interactions are lagging, the calculations are ordinal, and mathematical systems fail because you can't relabel? (i.e. fails a function test so you end up trying to compare unrelated mathematical objects within differing systems).

Even statistics is fully thrown out with the islands of regularity.

The stochastic nature, lack of measure-ability, and multiple hidden underlying states (value is subjective) require any model to solve chaos somehow.

https://science.ku.dk/english/press/news/2024/islands-of-reg...

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