Computational economics

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Computational economics is a research discipline at the interface of computer science, economics, and management science. [1] This subject encompasses computational modeling of economic systems, whether agent-based, [2] general-equilibrium, [3] macroeconomic, [4] or rational-expectations, [5] computational econometrics and statistics, [6] computational finance, computational tools for the design of automated internet markets, programming tool specifically designed for computational economics and the teaching of computational economics. Some of these areas are unique, while others extend traditional areas of economics by solving problems that are tedious to study without computers and associated numerical methods. [7]

Computer science Study of the theoretical foundations of information and computation

Computer science is the study of processes that interact with data and that can be represented as data in the form of programs. It enables the use of algorithms to manipulate, store, and communicate digital information. A computer scientist studies the theory of computation and the practice of designing software systems.

Economics Social science that analyzes the production, distribution, and consumption of goods and services

Economics is the social science that studies the production, distribution, and consumption of goods and services.

Management science (MS) is the broad interdisciplinary study of problem solving and decision making in human organizations, with strong links to management, economics, business, engineering, management consulting, and other sciences. It uses various scientific research-based principles, strategies, and analytical methods including mathematical modeling, statistics and numerical algorithms to improve an organization's ability to enact rational and accurate management decisions by arriving at optimal or near optimal solutions to complex decision problems. Management science helps businesses to achieve goals using various scientific methods.

Computational economics uses computer-based economic modelling for the solution of analytically and statistically- formulated economic problems. A research program, to that end, is agent-based computational economics (ACE), the computational study of economic processes, including whole economies, as dynamic systems of interacting agents. [8] As such, it is an economic adaptation of the complex adaptive systems paradigm. [9] Here the "agent" refers to "computational objects modeled as interacting according to rules," not real people. [2] Agents can represent social, biological, and/or physical entities. The theoretical assumption of mathematical optimisation by agents in equilibrium is replaced by the less restrictive postulate of agents with bounded rationality adapting to market forces, [10] including game-theoretical contexts. [11] Starting from initial conditions determined by the modeler, an ACE model develops forward through time driven solely by agent interactions. The scientific objective of the method is "to ... test theoretical findings against real-world data in ways that permit empirically supported theories to cumulate over time, with each research building on the work before." [12]

Economic model

In economics, a model is a theoretical construct representing economic processes by a set of variables and a set of logical and/or quantitative relationships between them. The economic model is a simplified, often mathematical, framework designed to illustrate complex processes. Frequently, economic models posit structural parameters. A model may have various exogenous variables, and those variables may change to create various responses by economic variables. Methodological uses of models include investigation, theorizing, and fitting theories to the world.

Agent-based computational economics (ACE) is the area of computational economics that studies economic processes, including whole economies, as dynamic systems of interacting agents. As such, it falls in the paradigm of complex adaptive systems. In corresponding agent-based models, the "agents" are "computational objects modeled as interacting according to rules" over space and time, not real people. The rules are formulated to model behavior and social interactions based on incentives and information. Such rules could also be the result of optimization, realized through use of AI methods.

An economy is an area of the production, distribution, or trade, and consumption of goods and services by different agents. Understood in its broadest sense, 'The economy is defined as a social domain that emphasize the practices, discourses, and material expressions associated with the production, use, and management of resources'. Economic agents can be individuals, businesses, organizations, or governments. Economic transactions occur when two parties agree to the value or price of the transacted good or service, commonly expressed in a certain currency. However, monetary transactions only account for a small part of the economic domain.

Computational solution tools include for example software for carrying out various matrix operations (e.g. matrix inversion) and for solving systems of linear and non-linear equations. For a repository of public-domain computational solutions, visit here.

The following journals specialise in computational economics: ACM Transactions on Economics and Computation, [13] Computational Economics, [1] Journal of Applied Econometrics, [14] Journal of Economic Dynamics and Control [15] and the Journal of Economic Interaction and Coordination. [16]

The Journal of Economic Dynamics and Control(JEDC) is a peer-reviewed scholarly journal devoted to computational economics, dynamic economic models, and macroeconomics. It is edited at the University of Amsterdam and published by Elsevier. It has been published since 1979.

Related Research Articles

Political economy Study of production, buying, and selling, and their relations with law, custom, and government

Political economy is the study of production and trade and their relations with law, custom and government; and with the distribution of national income and wealth. As a discipline, political economy originated in moral philosophy, in the 18th century, to explore the administration of states' wealth, with "political" signifying the Greek word polity and "economy" signifying the Greek word "okonomie". The earliest works of political economy are usually attributed to the British scholars Adam Smith, Thomas Malthus, and David Ricardo, although they were preceded by the work of the French physiocrats, such as François Quesnay (1694–1774) and Anne-Robert-Jacques Turgot (1727–1781).

In economics, industrial organization or industrial economy is a field that builds on the theory of the firm by examining the structure of firms and markets. Industrial organization adds real-world complications to the perfectly competitive model, complications such as transaction costs, limited information, and barriers to entry of new firms that may be associated with imperfect competition. It analyzes determinants of firm and market organization and behavior as between competition and monopoly, including from government actions.

Monetary economics is the branch of economics that studies the different competing theories of money. It provides a framework for analyzing money and considers its functions, such as medium of exchange, store of value and unit of account. It considers how money, for example fiat currency, can gain acceptance purely because of its convenience as a public good. It examines the effects of monetary systems, including regulation of money and associated financial institutions and international aspects.

Socioeconomics is the social science that studies how economic activity affects and is shaped by social processes. In general it analyzes how societies progress, stagnate, or regress because of their local or regional economy, or the global economy. Societies are divided into 3 groups: social, cultural and economic.

Managerial economics deals with the application of the economic concepts, theories, tools, and methodologies to solve practical problems in a business. In other words we can say that managerial economics is the combination of economics theory and managerial theory.It helps the manager in decision making and acts as a link between practice and theory". It is sometimes referred to as business economics and is a branch of economics that applies microeconomic analysis to decision methods of businesses or other management units.

Experimental economics is the application of experimental methods to study economic questions. Data collected in experiments are used to estimate effect size, test the validity of economic theories, and illuminate market mechanisms. Economic experiments usually use cash to motivate subjects, in order to mimic real-world incentives. Experiments are used to help understand how and why markets and other exchange systems function as they do. Experimental economics have also expanded to understand institutions and the law.

Information economics or the economics of information is a branch of microeconomic theory that studies how information and information systems affect an economy and economic decisions. Information has special characteristics: It is easy to create but hard to trust. It is easy to spread but hard to control. It influences many decisions. These special characteristics complicate many standard economic theories.

Philosophy and economics, also philosophy of economics, studies topics such as rational choice, the appraisal of economic outcomes, institutions and processes, and the ontology of economic phenomena and the possibilities of acquiring knowledge of them.

Social choice theory or social choice is a theoretical framework for analysis of combining individual opinions, preferences, interests, or welfares to reach a collective decision or social welfare in some sense. A non-theoretical example of a collective decision is enacting a law or set of laws under a constitution. Social choice theory dates from Condorcet's formulation of the voting paradox. Kenneth Arrow's Social Choice and Individual Values (1951) and Arrow's impossibility theorem in it are generally acknowledged as the basis of the modern social choice theory. In addition to Arrow's theorem and the voting paradox, the Gibbard–Satterthwaite theorem, the Condorcet jury theorem, the median voter theorem, and May's theorem are among the more well known results from social choice theory.

Economic methodology is the study of methods, especially the scientific method, in relation to economics, including principles underlying economic reasoning. In contemporary English, 'methodology' may reference theoretical or systematic aspects of a method. Philosophy and economics also takes up methodology at the intersection of the two subjects.

Economics imperialism in contemporary economics is the economic analysis of seemingly non-economic aspects of life, such as crime, law, the family, prejudice, tastes, irrational behavior, politics, sociology, culture, religion, war, science, and research. Related usage of the term goes back as far as the 1930s.

In economics, distribution is the way total output, income, or wealth is distributed among individuals or among the factors of production. In general theory and the national income and product accounts, each unit of output corresponds to a unit of income. One use of national accounts is for classifying factor incomes and measuring their respective shares, as in national Income. But, where focus is on income of persons or households, adjustments to the national accounts or other data sources are frequently used. Here, interest is often on the fraction of income going to the top x percent of households, the next x percent, and so forth, and on the factors that might affect them.

Justice in economics is a subcategory of welfare economics with models frequently representing the ethical-social requirements of a given theory, whether "in the large", as of a just social order, or "in the small", as in the equity of "how institutions distribute specific benefits and burdens". That theory may or may not elicit acceptance. In the Journal of Economic Literature classification codes 'justice' is scrolled to at JEL: D63, wedged on the same line between 'Equity' and 'Inequality' along with 'Other Normative Criteria and Measurement'. Categories above and below the line are Externalities and Altruism.

Leigh Tesfatsion is a computational economist who taught at Iowa State University. She received her doctorate at the University of Minnesota, and taught at the University of Southern California before moving to Iowa State. She is known for promoting agent-based models as an alternative to rational expectations general equilibrium models for studying markets, finance, and macroeconomic phenomena. Her works are widely cited in the literature on the subject.

Kenneth Lewis Judd is a computational economist at Stanford University, where he is the Paul H. Bauer Senior Fellow at the Hoover Institution. He received his PhD in economics from the University of Wisconsin in 1980. He is perhaps best known as the author of Numerical Methods in Economics, and he is also among the editors of the Handbook of Computational Economics and of the Journal of Economic Dynamics and Control.

Mathematical economics is the application of mathematical methods to represent theories and analyze problems in economics. By convention, these applied methods are beyond simple geometry, such as differential and integral calculus, difference and differential equations, matrix algebra, mathematical programming, and other computational methods. Proponents of this approach claim that it allows the formulation of theoretical relationships with rigor, generality, and simplicity.

Rural economics is the study of rural economies, including:

The methodology of econometrics is the study of the range of differing approaches to undertaking econometric analysis.

Edward Emory Leamer is a professor of economics and statistics at UCLA. He is Chauncey J. Medberry Professor of Management and director of the UCLA Anderson Forecast.

References

  1. 1 2 Computational Economics. ""About This Journal" and "Aims and Scope."
  2. 1 2 Scott E. Page, 2008. "agent-based models," The New Palgrave Dictionary of Economics , 2nd Edition. Abstract.
  3. The New Palgrave Dictionary of Economics , 2008. 2nd Edition:
      • "computation of general equilibria" by Herbert E. Scarf. Abstract.
      • "computation of general equilibria (new developments)" by Felix Kubler. Abstract.
  4. • Hans M. Amman, David A. Kendrick, and John Rust, ed., 1996. Handbook of Computational Economics, v. 1, ch. 1-6, preview links.
  5. Ray C. Fair "Computational Methods for Macroeconometric Models," Hans M. Amman, David A. Kendrick, and John Rust, ed., 1996. Handbook of Computational Economics, v. 1, ch. , pp. 143-169. Outline.
  6. • Vassilis A. Hajivassiliou, 2008. "computational methods in econometrics," The New Palgrave Dictionary of Economics , 2nd Edition. Abstract.
       • Keisuke Hirano, 2008. "decision theory in econometrics," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
      James O. Berger, 2008. "statistical decision theory," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
  7. • Hans M. Amman, David A. Kendrick, and John Rust, ed., 1996. Handbook of Computational Economics, v. 1, Elsevier. Description & chapter-preview links.
      Kenneth L. Judd, 1998. Numerical Methods in Economics, MIT Press. Links to description and chapter previews.
  8. • Scott E. Page, 2008. "agent-based models," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
       • Leigh Tesfatsion, 2006. "Agent-Based Computational Economics: A Constructive Approach to Economic Theory," ch. 16, Handbook of Computational Economics, v. 2, [pp. 831-880]. Abstract and pre-pub PDF.
       • Kenneth L. Judd, 2006. "Computationally Intensive Analyses in Economics," Handbook of Computational Economics, v. 2, ch. 17, pp. 881- 893. Pre-pub PDF.
       • L. Tesfatsion and K. Judd, ed., 2006. Handbook of Computational Economics, v. 2, Agent-Based Computational Economics, Elsevier. Description & and chapter-preview links.
      Thomas J. Sargent, 1994. Bounded Rationality in Macroeconomics, Oxford. Description and chapter-preview 1st-page links.
  9. W. Brian Arthur, 1994. "Inductive Reasoning and Bounded Rationality," American Economic Review, 84(2), pp. 406-411.
      Leigh Tesfatsion, 2003. "Agent-based Computational Economics: Modeling Economies as Complex Adaptive Systems," Information Sciences, 149(4), pp. 262-268 Archived April 26, 2012, at the Wayback Machine .
       • _____, 2002. "Agent-Based Computational Economics: Growing Economies from the Bottom Up," Artificial Life, 8(1), pp.55-82. Abstract and pre-pub PDF Archived 2013-05-14 at the Wayback Machine .
  10. • W. Brian Arthur, 1994. "Inductive Reasoning and Bounded Rationality," American Economic Review, 84(2), pp. 406-411.
      John H. Holland and John H. Miller (1991). "Artificial Adaptive Agents in Economic Theory," American Economic Review, 81(2), pp. 365-370.
      Thomas C. Schelling, 1978 [2006]. Micromotives and Macrobehavior, Norton. Description, preview.
      Thomas J. Sargent, 1994. Bounded Rationality in Macroeconomics, Oxford. Description and chapter-preview 1st-page links.
  11. Joseph Y. Halpern, 2008. "computer science and game theory," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract.
       • Yoav Shoham, 2008. "Computer Science and Game Theory," Communications of the ACM, 51(8), pp. 75-79.
      Alvin E. Roth, 2002. "The Economist as Engineer: Game Theory, Experimentation, and Computation as Tools for Design Economics," Econometrica, 70(4), pp. 1341–1378 Archived 2004-04-14 at the Wayback Machine .
  12. Leigh Tesfatsion, 2006. "Agent-Based Computational Economics: A Constructive Approach to Economic Theory," ch. 16, Handbook of Computational Economics, v. 2, sect. 5, p. 865 [pp. 831-880]. Abstract and pre-pub PDF.
  13. "ACM Teac".
  14. "Journal of Applied Econometrics - Wiley Online Library". Onlinelibrary.wiley.com. 2011. doi:10.1002/(ISSN)1099-1255. hdl:2027.42/34956 . Retrieved October 31, 2011.
  15. Journal of Economic Dynamics and Control , including Aims & scope link.
     For a much-cited overview and issue, see:
      • Leigh Tesfatsion, 2001. "Introduction to the Special Issue on Agent-based Computational Economics," Journal of Economic Dynamics & Control, pp. 281-293.
      • [Special issue], 2001. Journal of Economic Dynamics and Control, Agent-based Computational Economics (ACE). 25(3-4), pp. 281-654. Abstract/outline links.
  16. "Journal of Economic Interaction and Coordination". springer.com. 2011. Retrieved October 31, 2011.