The task of designing effective economic and political institutions requires substantial foresight. The designer must anticipate not only the behavior of individual actors, but also how that behavior will aggregate. Rising complexity brought about by increases in speeds of adaptation, diversity, connectedness, and interdependence make institutional design all the more challenging. Given the focus on equilibria, the extant literature on mechanism design might appear incapable of coping with this complexity. Yet, I suggest that a deeper engagement with the origins of (...) the mechanism-design framework reveals insights that may help us design robust, adaptive institutions that can harness complexity. (shrink)

This article argues that the field of asset pricing theory is undergoing a scientific revolution in Kuhnian terms. The orthodox view is one of determinate change in causal processes and inherent stability whereby financial markets, left unfettered, allocate nearly perfectly society's scare capital. However, decades of mounting anomalous evidence against the implications of stable causal processes perpetuated by conventional models based on efficient markets and the rational expectations hypothesis have paved the way for alternative avenues of research. Although various approaches (...) are being developed, the imperfect knowledge economics class of models has emerged as a potential new paradigm in the field of macro-finance. By stopping short of fixing in advance the specification of individual forecasting behavior and the causal process, the IKE class of models has been able to reconcile many of the puzzles found within the literature on asset price behavior and risk. (shrink)

Real-world economies are open-ended dynamic systems consisting of heterogeneous interacting participants. Human participants are decision-makers who strategically take into account the past actions and potential future actions of other participants. All participants are forced to be locally constructive, meaning their actions at any given time must be based on their local states; and participant actions at any given time affect future local states. Taken together, these essential properties imply real-world economies are locally-constructive sequential games. This paper discusses a modeling approach, (...) Agent-based Computational Economics, that permits researchers to study economic systems from this point of view. ACE modeling principles and objectives are first concisely presented and explained. The remainder of the paper then highlights challenging issues and edgier explorations that ACE researchers are currently pursuing. (shrink)

Like other mathematically intensive sciences, economics is becoming increasingly computerized. Despite the extent of the computation, however, there is very little true simulation. Simple computation is a form of theory articulation, whereas true simulation is analogous to an experimental procedure. Successful computation is faithful to an underlying mathematical model, whereas successful simulation directly mimics a process or a system. The computer is seen as a legitimate tool in economics only when traditional analytical solutions cannot be derived, i.e., only as a (...) purely computational aid. We argue that true simulation is seldom practiced because it does not fit the conception of understanding inherent in mainstream economics. According to this conception, understanding is constituted by analytical derivation from a set of fundamental economic axioms. We articulate this conception using the concept of economists' perfect model. Since the deductive links between the assumptions and the consequences are not transparent in ‘bottom‐up’ generative microsimulations, microsimulations cannot correspond to the perfect model and economists do not therefore consider them viable candidates for generating theories that enhance economic understanding. (shrink)

It is often claimed that artificial society simulations contribute to the explanation of social phenomena. At the hand of a particular example, this paper argues that artificial societies often cannot provide full explanations, because their models are not or cannot be validated. Despite that, many feel that such simulations somehow contribute to our understanding. This paper tries to clarify this intuition by investigating whether artificial societies provide potential explanations. It is shown that these potential explanations, if they contribute to our (...) understanding, considerably differ from potential causal explanations. Instead of possible causal histories, simulations offer possible functional analyses of the explanandum . The paper discusses how these two kinds explanatory strategies differ, and how potential functional explanations can be appraised. (shrink)

Some authors claim that minimal models have limited epistemic value (Fumagalli, 2016; Grüne-Yanoff, 2009a). Others defend the epistemic benefits of modelling by invoking the role of robustness analysis for hypothesis confirmation (see, e.g., Levins, 1966; Kuorikoski et al., 2010) but such arguments find much resistance (see, e.g., Odenbaugh & Alexandrova, 2011). In this paper, we offer a Bayesian rationalization and defence of the view that robustness analysis can play a confirmatory role, and thereby shed light on the potential of minimal (...) models for hypothesis confirmation. We illustrate our argument by reference to a case study from macroeconomics. At the same time, we also show that there are cases in which robustness analysis is detrimental to confirmation. We characterize these cases and link them to recent investigations on evidential variety (Landes, 2020b, 2021; Osimani and Landes, forthcoming). We conclude that robustness analysis over minimal models can confirm, but its confirmatory value depends on concrete circumstances. (shrink)

Successful instances of interdisciplinary collaboration can eventually enter a process of disciplinarisation. This article analyses one of those instances: agent-based computational social science, an emerging disciplinary field articulated around the use of computational models to study social phenomena. The discussion centres on how, in knowledge transfer dynamics from traditional disciplinary areas, practitioners parsed several epistemic resources to produce new foundational disciplinary shared commitments, and how disagreements operated as a mechanism of differentiation in their production. Two parsing processes are examined to (...) illustrate this claim. The first one is the parsing of the qualitative–quantitative dualism, arguably the most important methodological disagreement in social science. The second one is the parsing of prediction, a key value in contemporary science. The analysis evidences that disagreements have fostered both external and internal dynamics of differentiation in agent-based computational social science. The former have permitted a more efficient use of epistemic resources, whereas the latter have forced practitioners to modify the foundational narrative and the agenda of the field. (shrink)

Rational choice theory (RCT) models decision makers as utility maximizers and is often defended via an as-if argument. According to this argument, although real individuals do not consciously maximize their utility function, their choices can be explained as if they were generated by utility maximization. An alternative model is random-choice, which assumes that decision makers pick up an element from a given set according to a uniform distribution on the set. In this paper we examine a series of experiments that (...) compare RCT and the random-choice model as alternative explanations of consumer demand, and investigate how these experiments contribute to clarifying the actual scope of RCT and the shortcomings of the standard as-if defense of it. (shrink)

This study provides a basic introduction to agent-based modeling (ABM) as a powerful blend of classical and constructive mathematics, with a primary focus on its applicability for social science research. The typical goals of ABM social science researchers are discussed along with the culture-dish nature of their computer experiments. The applicability of ABM for science more generally is also considered, with special attention to physics. Finally, two distinct types of ABM applications are summarized in order to illustrate concretely the duality (...) of ABM: Real-world systems can not only be simulated with verisimilitude using ABM; they can also be efficiently and robustly designed and constructed on the basis of ABM principles. (shrink)