Complex Market Dynamics:
Agent-based and Analytical Models
of Stability and Fragility
Herbert Gintis
hgintis@comcast.net.
http://people.umass.edu/gintis,
February 25 – April 1, 2011
FT 808
Standard macroeconomic models, such as the stochastic dynamic general equilibrium model and
its New Keynesian alternatives are incapable of explaining market dynamics and hence cannot
supply a theoretical basis for economic policy aimed at promoting macroeconomic stability. This
course is based on the premise that a market economy is a complex dynamical system that cannot
be successfully modeled using either contemporary macro models or the standard Walrasian
general equilibrium model. Rather, new analytical techniques will have to be developed in
coming years, and agent-based modeling of economic systems is likely to provide the key insights
for the development of new analytical principles in macroeconomics.
We will study several forms of economic dynamics and bring the student to a professional level
of expertise in agent-based modeling of complex dynamical systems. This will be a hands-on
course in which students will be assigned weekly homework problems in agent-based modeling
and prepare a final project in complex market dynamics.
The computer language used in the course will be Delphi, a professional software development
package offered by Embarcadero software (formerly Codegear, formerly Borland). Any edition
from Delphi 2007 to Delphi XE will do. The University will have some copies of this software,
but you are urged to purchase your own copy. The books for this course will be Barrow et al.,
Introducing Delphi Programming: Theory Through Practice, Fourth Edition (Oxford University
Press, 2009) and Marco Cantu, Essential Pascal (the latter can be purchased online for about $10).
I will also take material from Herbert Gintis, Game Theory Evolving, Second Edition (Princeton
University Press, 2009), Herbert Gintis, The Bounds of Reason: Game Theory and the Unification
of the Behavioral Sciences (Princeton University Press, 2009), and Leigh Tesfatsion and Kenneth
L. Judd, Handbook of Computational Economics: Agent-based Computational Economics,
Volume 2 (North Holland, 2006). The chapters from Bounds of Reason and Game Theory
Evolving that we will use, as well as other assigned material, can be downloaded from my web
site: under Class Material.
The course requirement is to write a paper, publishable in a professional economics journal, using
agent-based modeling techniques to address a standard economics research area. The paper must
exhibit a sophisticated understanding of the research area, including a full recognition of previous
work done in this area, as well as an agent-based model that offers new insights into the research
area. There will be no incompletes issued in this course. If you have other ideas for this paper,
please obtain approval from me beforehand. The paper must be completed by the time grades
must be registered for the Spring semester, 2011.
The Economy as Complex Dynamical System
25/02 Friday, 1:30 pm – 3:20 pm
Alan P. Kirman, "Whom or What does the Representative Individual Represent?"
Journal of Economic Perspectives 6 (1992):117-136.
Herbert Gintis, “Complexity Economics,” Journal of Economic Literature 54
(2006): 1018-1031.
Herbert Gintis, "The Dynamics of General Equilibrium", Economic Journal 117
(2007):1289-1309.
Herbert Gintis, “The Dynamics of General Market Exchange” September 1010.
Alan P. Kirman, "Demand Theory and General Equilibrium: From Explanation to
Introspection, a Journey Down the Wrong Road," History of Political Economy
38 (2006):246-280.
Donald G. Saari, "Mathematical Complexity of Simple Economics", Notices of
the American Mathematical Society 42,2 (1995):222-230.
Introducing Delphi Programming
Chs. 1-4, pp. 1-97.
Essential Pascal
Ch. 2, Coding In Pascal, pp. 15-28.
Ch. 3, Types, Variables, and Constants, pp. 29-46.
Agent-based Modeling I
28/02 Monday, 15:30 pm – 17:20 pm
Handbook of Computational Economics
Appendix A: Robert Axelrod and Leigh Tesfatsion, “A Guide for
Newcomers to Agent-based Modeling in the Social
Sciences,” pp. 1649-1659.
Ch. 16, Leigh Tesfatsion, “Agent-based Computational Economics:
A Constructive Approach to Economic Theory,:” pp. 833-880.
Ch. 17, Kenneth Judd, “Computationally Intensive Analysis inf
Economics,” pp. 881-893.
Introducing Delphi Programming: Chs. 5-8, pp. 98-228
Essential Pascal
Ch. 4, User-defined Data Types, pp. 47-58.
Ch. 5, Statements, pp. 59-70
Ch. 6, Procedures and Functions, pp. 71-88.
Programs:
Hello, World!
KeyExample
Decimal-Hexidecimal-Binary Calculator
Random Walk
Evolutionary Dynamical Systems
2/03 Wednesday, 15:30 pm – 17:20 pm
4/03 Friday, 11:00 am – 12:50 pm
Bounds of Reason
Ch. 2. Game Theory: Basic Concepts
Ch. 5. Extensive Form Rationalizability
Section 1: Backward Induction and Subgame Perfection
Section 4: The Surprise Examination
Section 9: How to Play the Repeated Prisoner’s Dilemma
Ch. 6: The Mixing Problem: Purification and Conjectures
Section 1: Why Play Mixed Strategies?
Section 2: Harsanyi’s Purification Theorem
Game Theory Evolving:
Ch. 11: Dynamical Systems
Ch. 12: Evolutionary Dynamics
Section 1: The Origins of Evolutionary Dynamics
Section 2: Strategies as Replicators
Section 5: Properties of the Replicator System
Section 7: Dominated Strategies and the Replicator Dynamic
Section 8: Equilibrium and Stability with a Replicator Dynamic
Introducing Delphi Programming: Chs. 9-10, pp. 231-280.
Essential Pascal
Ch. 7, Handling Strings, pp. 89-98.
Ch. 8, Memory, pp. 99-104.
Programs:
Evolution in the Repeated Prisoner’s Dilemma
Evolution in the Beauty Contest Game
Agent-based Models of Evolutionary Dynamics
7/03 Monday, 13:30 pm – 15:20 pm
9/03 Wednesday, 15:30 pm – 17:50 pm
11/03 Friday, 11:00 am – 12:50 pm
Game Theory Evolving:
Ch. 4: Dominated Strategies
Section 4: Agent-based Modeling
Section 22: Modeling the Finitely-Repeated Prisoner’s Dilemma
Ch. 5: Pure Strategy Nash Equilibria
Section 8: No-Draw High-Low Poker
Ch. 6: Mixed Strategy Nash Equilibria
Section19: Twin Sisters Revisited
Section 20: Twin Sisters: An Agent-Based Model
Section 22: An Agent-based Model of Poker with Bluffing
Introducing Delphi Programming: Chs. 11-12, pp. 281-334.
Essential Pascal
Ch. 9, Windows Programming, 105-112
Ch. 11, Programs and Units, pp. 119-126.
Programs:
Schelling Tipping Model
May-Nowak Prisoner’s Dilemma on a Spatial Grid
Markov Economies and Stochastic Dynamical Systems
16/03 Wednesday, 17:30 pm – 19:20 pm
18/03 Friday, 9:00 am – 10:50 am
Game Theory Evolving:
Ch. 13: Markov Economies and Stochastic Dynamical Systems
Herbert Gintis, The Schelling Neighborhood Tipping Model
Herbert Gintis, The May-Nowak Spatial Prisoner’s Dilemma ABM
Handbook of Computational Economics, Vol. 2
Ch. 22, Peyton Young, “Social Dynamics: Theory and Applications,”
pp. 1082-1108.
Introducing Delphi Programming: Chs. 13-14, pp. 335-382.
Essential Pascal: Ch. 12, Files, pp. 127-134.
Walrasian General Equilibrium
21/03 Monday, 1:30 pm – 3:20 pm
23/03 Wednesday, 15:30 pm – 17:20 pm
25/03 Friday, 11:00 am – 12:50 pm
Francis Bator, “The Simple Analytics of General Equilibrium” American Economic
Review 47 (1957): 42—59;
Herbert Scarf, “Some examples of global instability of competitive equilibrium,”
International Economic Review 1 (1960): 157–72.
Franklin Fisher, Disequilibrium Foundations of Equilibrium Economics,
Cambridge University Press, 1983.
P. Jean-Jacques Herings, "A Globally and Universally Stable Price Adjustment
Mechanism", Journal of Mathematical Economics 27 (1997):163-193.
Maarten Pieter Schinkel, "Disequilibrium Dynamics and Aggregate Excess
Demand: On a Homunculus Fallacy in Economic Theory", History of Political
Economy 38 (2006):189-212.
S. Abu Turab Rizvi, "The Sonnenschein-Mantel-Debreu Results after Thirty
Years", History of Political Economy 38 (2006):189-212.
James Bruce, "Learning Algorithms in a Decentralized General Equilibrium
Model," Department of Economics, McMasters University (2010).
Hirofumi Uzawa, "Walras' Tâtonnement in the Theory of Exchange",
Review of Economic Studies 27,3 (1960):182-194.
Hirofumi Uzawa, "On the Stability of Edgeworth's Barter Process",
International Economic Review 3,2 (1962):218-231.
Hirofumi Uzawa, "The Stability of Dynamic Processes", Econometrica 29,4
(1961):617-631.
T. M. Doup, G. van der Laan and A. J. J. Talman, "The (2^{n+1}-2)-Ray
Algorithm: A New Simplicial Algorithm to Compute Economic Equilibria",
Mathematical Programming 39 (1987):241-252.
Aleksandra Arkit, "Globally Stable Price Dynamics", Journal of Mathematical
Economics 39 (2003):27-38.
Jean-Philippe Bouchaud, "The Endogenous Dynamics of Markets: Price,
Impact, and Feedback Loops", Arxiv 1009.2928v1 (2010):1-15.
.
Foley
Foley-Smith
Models of Financial Fragility
28/03 Monday, 15:30 pm – 17:20 pm
30/03 Wednesday, 15:30 pm – 17:20 pm
1/04 Friday, 11:00 am – 12:50 am
Mandelbrot
Galigatti-Stiglitz
Kirman
CAPM
Black-Scholes
Bouchard, Physics World