Agent-Based Economics

Agent-based economics is the application of agent-based modelling to economic systems, replacing the representative-agent assumption of mainstream economics with populations of heterogeneous, interacting agents. The field demonstrates that markets with diverse trader strategies can produce bubbles, crashes, and persistent inequality that representative-agent models — which assume a single 'average' agent — cannot capture. Agent-based economics models how decentralized decision-making aggregates into macroscopic outcomes like price fluctuations, unemployment dynamics, and wealth distribution. The approach is closely related to Complex Systems and game-theoretic models of learning, but differs in its emphasis on heterogeneity and path dependence. Key open questions include whether agent-based models can produce genuinely novel policy insights rather than merely illustrating known failures of equilibrium theory. The field's most pressing methodological challenge is the development of Agent-Based Validation criteria that can distinguish genuine prediction from post-hoc fitting.