Posts Tagged ‘MBM’

ABMs and MBMs

Monday, January 30th, 2012

The focus on Bonabeau’s article here is of agent-based models (ABMs) and market-based models (MBMs). A main difference between an ABM and an MBM is that the former focuses on individual behaviour while the latter deals with collective behaviour. Furthermore, ABMs are driven by the bottom-up approach (focus is placed on the individuals), in contrast to the top-down approach (focus is on the collective) of the classic MBMs.

“ABM captures that emergent phenomenon in a natural way” (7282). Is this much different than a general equilibrium MBM? The MBMs that are largely based on the neo-classical economics are founded on similar ideals of natural systems, such as laissez-faire economics and Adam Smith’s infamous ‘invisible hand’. Referring to another model, Bonabeau states that “each agent acts individually but has perfect knowledge of how many users there are in the population” (7287). Whenever ‘perfect’ is utilized, it reminds me of the classical economic market systems where perfect competition, perfect information, and full employment are all assumptions made in assessing a market scenario with a standard economic model.

Bonabeau is at times too eager and possibly even blinded by his excitement of his tool: “ABM is perfect not just for operational risk in financial institution but for modeling risk in general” (7285). It is problematic to be this certain about a tool that is not fully understood, which he actually takes note of: if ABM is introduced in the market and is unsuccessful, potentially harming individuals with the predictions, or rather understanding (as the article emphasizes) of a situation, then the overestimated tool may do more damage than good. However, the article does mention this, but does not go into detail explaining why “agents behave in a way that is still poorly understood” (7284). Perhaps the statement “AMBs are more of a mindset than a technology” (7280)alludes to this problem. Can we change the modern market system with ABMs if we are aware of their positive and negative implications? Is it possible to create economic software agents that do not simply explain human economic behaviour?

-henry miller