Lunchtime Must-Read: Rajiv Sethi: The Agent-Based Method

Rajiv Sethi: The Agent-Based Method: “It’s nice to see some attention being paid to agent-based… models…

…but Chris House has managed to misrepresent the methodology so completely that his post is likely to do more harm than good…. ‘Probably the most important distinguishing feature is that, in an ABM, the interactions are governed by rules of behavior that the modeler simply encodes directly into the system individuals.’… [House is,] to say the least… grossly misleading…. Agents can be as sophisticated and forward-looking in their pursuit of self-interest in an ABM as you care to make them…. What you cannot have in an ABM is the assumption that, from the outset, individual plans are mutually consistent. That is, you cannot simply assume that the economy is tracing out an equilibrium path. The agent-based approach is at heart a model of disequilibrium dynamics, in which the mutual consistency of plans, if it arises at all, has to do so endogenously through a clearly specified adjustment process…. In failing to understand this, House makes claims that are close to being the opposite of the truth…