Doyne Farmer

We actually explicitly said after that, all bets are off and we're worried about it. So now you want to bring inflation and you've got to have agents making decisions because they're looking ahead going, oh, are we going to have inflation? What's happening? What are interest rates doing? They have to be thinking about all that stuff.

We actually explicitly said after that, all bets are off and we're worried about it. So now you want to bring inflation and you've got to have agents making decisions because they're looking ahead going, oh, are we going to have inflation? What's happening? What are interest rates doing? They have to be thinking about all that stuff.

Now, but as I said, in an agent-based model, we kind of come at it from the other end. We usually start simple. Like I have models where the agents actually just flip coins to make decisions. So they're literally zero intelligence agents. And Those models can be quite useful. They have made useful predictions.

Now, but as I said, in an agent-based model, we kind of come at it from the other end. We usually start simple. Like I have models where the agents actually just flip coins to make decisions. So they're literally zero intelligence agents. And Those models can be quite useful. They have made useful predictions.

For example, if you want to predict how the bid-ask spread in a financial market, that is the difference between the buying and selling price, how does that depend on the way orders are flowing into the market? You can calculate it with a zero intelligence model. The orders flowing in could be sand grains coming in at random. But you quickly realize, oh, no, we need to refine it.

For example, if you want to predict how the bid-ask spread in a financial market, that is the difference between the buying and selling price, how does that depend on the way orders are flowing into the market? You can calculate it with a zero intelligence model. The orders flowing in could be sand grains coming in at random. But you quickly realize, oh, no, we need to refine it.

You now need to make something a little more realistic like, So value investors buy undervalued assets. So several different agent-based models where the rule is, this guy's the value investor or investors. And what do they do? They have some way of valuing the asset. When the valuation's under the price, they buy it and hold it. When it's over, they sell it. And so...

You now need to make something a little more realistic like, So value investors buy undervalued assets. So several different agent-based models where the rule is, this guy's the value investor or investors. And what do they do? They have some way of valuing the asset. When the valuation's under the price, they buy it and hold it. When it's over, they sell it. And so...

rules, simple rules like that. I have other models where, you know, back to business cycles and poll balancing, we assume a network of agents who are really, really dumb. All they do is look at their neighbors to see what their neighbors are doing. And the neighbor that's consuming the most in that period, so myopic consuming the most, they go, I'll adopt that savings rate.

rules, simple rules like that. I have other models where, you know, back to business cycles and poll balancing, we assume a network of agents who are really, really dumb. All they do is look at their neighbors to see what their neighbors are doing. And the neighbor that's consuming the most in that period, so myopic consuming the most, they go, I'll adopt that savings rate.

So they all have different savings rates. They're all adopting different savings rates. And by the way, back to the instability in the economy. If you save too much, the economy doesn't work. You've got to strike the right balance because again, to sell stuff, you've got to have consumers to buy the stuff. And those consumers then have jobs doing something that allows them to sell stuff.

So they all have different savings rates. They're all adopting different savings rates. And by the way, back to the instability in the economy. If you save too much, the economy doesn't work. You've got to strike the right balance because again, to sell stuff, you've got to have consumers to buy the stuff. And those consumers then have jobs doing something that allows them to sell stuff.

So you're going around that loop all the time. The balance is somewhere in the middle. So amazingly, as long as these agents don't update their strategies too often, the economy actually spontaneously starts oscillating because

So you're going around that loop all the time. The balance is somewhere in the middle. So amazingly, as long as these agents don't update their strategies too often, the economy actually spontaneously starts oscillating because

Agents are changing their savings rates dynamically, but also almost, to me, almost more amazingly, they get pretty darn close to the optimal savings rate, even though they're absolute dummies. And selection's doing all the work. You see, because you're selecting toward the agent that consumes the most, they're chasing that agent.

Agents are changing their savings rates dynamically, but also almost, to me, almost more amazingly, they get pretty darn close to the optimal savings rate, even though they're absolute dummies. And selection's doing all the work. You see, because you're selecting toward the agent that consumes the most, they're chasing that agent.

Now, that agent might be on a spending spree and about to go bust, so it's not perfect, but they get within... No, a few percent of the optimal strategy. So anyway, a bit of a tangent, but just to illustrate the kinds of things we do to have the agents make their decisions.

Now, that agent might be on a spending spree and about to go bust, so it's not perfect, but they get within... No, a few percent of the optimal strategy. So anyway, a bit of a tangent, but just to illustrate the kinds of things we do to have the agents make their decisions.

And then the key point is that not only do we think that can be more realistic in many settings, it can capture dynamics more naturally because you can see the deviations from the imperfections of the economy, but it's tractable. So we can run simulations with millions of agents instead of being stuck with just a few.

And then the key point is that not only do we think that can be more realistic in many settings, it can capture dynamics more naturally because you can see the deviations from the imperfections of the economy, but it's tractable. So we can run simulations with millions of agents instead of being stuck with just a few.