Agent-based modelling in social sciences Andreas Krause School of Management

What is ABM? Agent-Based Modeling (ABM) is the computational study of dynamic systems of interacting agents. Here "agent" refers broadly to a bundle of data and behavioral methods representing an entity constituting part of a computationally constructed world. Agent-Based Modeling (ABM) is the computational study of dynamic systems of interacting agents. Here "agent" refers broadly to a bundle of data and behavioral methods representing an entity constituting part of a computationally constructed world. Examples of agents Examples of agents Individuals: consumers, producers, investors Individuals: consumers, producers, investors Social groupings: families, firms, communities, government agencies Social groupings: families, firms, communities, government agencies Institutions: markets, regulatory systems Institutions: markets, regulatory systems Biological entities: crops, livestock, fish, insects, forests Biological entities: crops, livestock, fish, insects, forests Physical entities: infrastructure, weather, geographical regions. Physical entities: infrastructure, weather, geographical regions.

Examples of applications Investment and trading decisions in financial markets Investment and trading decisions in financial markets Product market competition Product market competition Marketing Marketing Macroeconomics Macroeconomics Traffic flow and road pricing Traffic flow and road pricing Ethnic conflicts Ethnic conflicts Spread of diseases Spread of diseases Opinion dynamics Opinion dynamics Adoption of new technologies, languages Adoption of new technologies, languages

My work Simulating stock markets Simulating stock markets Using simple behavioural rules for traders Using simple behavioural rules for traders With realistic market structure rules With realistic market structure rules Investigation of the aggregate behaviour, i.e. stock prices Investigation of the aggregate behaviour, i.e. stock prices Formation and evolution of social networks Formation and evolution of social networks Networks evolve locally following exogenous rules Networks evolve locally following exogenous rules Networks evolving in response to dynamics on the network Networks evolving in response to dynamics on the network (Stock) Market Design (started with PhD student) (Stock) Market Design (started with PhD student) Optimization of markets structures with GAs (maybe GP) Optimization of markets structures with GAs (maybe GP)

Methods used Simulations, usually generation of long time series for a large range of parameter settings Simulations, usually generation of long time series for a large range of parameter settings Optimization of behavioural rules or institutions, often using Genetic Algorithms (GA) or Probability-Based Incremental Learning (PBIL) Optimization of behavioural rules or institutions, often using Genetic Algorithms (GA) or Probability-Based Incremental Learning (PBIL)

Scale of computations Mostly a large number (>1,000) of time series (each easily > 1,000,000 time steps) Mostly a large number (>1,000) of time series (each easily > 1,000,000 time steps) GAs/PBILs often require more simulations (optimization in high-dimensional spaces means slow convergence) GAs/PBILs often require more simulations (optimization in high-dimensional spaces means slow convergence) Computing speed is important (simulations often take 2 weeks or longer, GAs could take months) Computing speed is important (simulations often take 2 weeks or longer, GAs could take months) Relatively low computational complexity, but large number of computations Relatively low computational complexity, but large number of computations

Limitations of research Computing power  limited access to up-to-date computers (speed, memory, computer lab for parallel computing) Computing power  limited access to up-to-date computers (speed, memory, computer lab for parallel computing) Access to software  relevant software (MATLAB) not available for desktop, specialist software exists but time consuming to learn Access to software  relevant software (MATLAB) not available for desktop, specialist software exists but time consuming to learn Programming skills  need to have proficient programmers, e.g. PhD students Programming skills  need to have proficient programmers, e.g. PhD students

Funding issues ABM is a new methodology in economics/ finance (about 10 years old), not mainstream or yet generally accepted ABM is a new methodology in economics/ finance (about 10 years old), not mainstream or yet generally accepted Funding is difficult to obtain as it falls between areas Funding is difficult to obtain as it falls between areas Most publications are in Physics journals and IEEE Transactions, not truly recognized for promotions/RAE etc. Most publications are in Physics journals and IEEE Transactions, not truly recognized for promotions/RAE etc.

Research at other universities Research Centre in Essex: CCFEA (Economics + Computer Science) Research Centre in Essex: CCFEA (Economics + Computer Science) Broader Research Centres which include ABM: Santa Fe, Carnegie-Mellon, AI-ECON (Taiwan) Broader Research Centres which include ABM: Santa Fe, Carnegie-Mellon, AI-ECON (Taiwan) Other places have smaller groups, often focussing on special areas, usually centred around a small number of individuals: Cranfield, Cambridge, Oxford, Kiel (Germany), Genoa (Italy), NDA (Japan), … Other places have smaller groups, often focussing on special areas, usually centred around a small number of individuals: Cranfield, Cambridge, Oxford, Kiel (Germany), Genoa (Italy), NDA (Japan), …

Research in Bath Interests are in various departments mainly in Management and Computer Science, relatively isolated Interests are in various departments mainly in Management and Computer Science, relatively isolated No common forum for exchange of ideas No common forum for exchange of ideas Limited outside and inside visibility of our research Limited outside and inside visibility of our research

Key issues Adequate hardware/software Adequate hardware/software Attraction of funding Attraction of funding Visibility within the university and outside Visibility within the university and outside

Prospects for ABM research Emerging field with a wide range of applications Emerging field with a wide range of applications Fast growing community, the main conference covering economics and finance applications started in 1995 and has grown from about 60 participants (1999) to 200 (2006). Fast growing community, the main conference covering economics and finance applications started in 1995 and has grown from about 60 participants (1999) to 200 (2006). At present limited competition, chance of taking a pioneering role At present limited competition, chance of taking a pioneering role Interdisciplinary approach Interdisciplinary approach

Potential key areas of application Market design Market design Carbon trading Carbon trading Road pricing Road pricing Electricity and gas markets, in future: water markets? Electricity and gas markets, in future: water markets? Procurement markets Procurement markets Rail franchises Rail franchises Airwave spectrum auctions Airwave spectrum auctions Modelling of ecosystems and their reaction to environmental/climate change Modelling of ecosystems and their reaction to environmental/climate change Modelling of ethnic and religious conflicts Modelling of ethnic and religious conflicts