How does the interaction between myriad individuals result in the forms of cooperation, competition and coordination that aminate contemporary societies?
Agent-based models (ABMs) is a class of computational models that help investigate the process dynamics of socio-economic systems. ABMs provide a way to model the interactions between entities (from individuals to firms) according to a variety of rules (from utility maximisation to rule-bounded behaviour) and explore their resulting effect within given eonvironmental conditions.
This project aims to investigate the process dynamics of fundamental socio-economic arrangements, from markets to hierarchies. The investigation of the process dynamics markets, for example, starts from a baseline model where a number of individual buyers and a number of individual sellers occasionally interact and explore whether to make a transaction. Transactions take place when the seller's offered prices is equal or lower than the buyer's willingness to pay. In the baseline model, sellers and buyers are randomly allocated the respective price (willingness to sell) and willingness to pay (willingness to buy). Buyers are allocated the exact amount of money that correspond to their willingness to pay.
The interaction between buyers and sellers looks like the animation below, where lines indicate the occasional (random) interaction betwen a buyer and a seller, when the offered price and willingness to pay are compared before a transaction takes place.
Every interaction between a buyer and a seller results in a comparison between the offered price and the willingness to pay. The diagram below shows, over time, the value of the offered price (red line) and the willingness to pay (green line) of the seller and the buyer that have interacted with each other.
This baseline model forms the starting point to explore various forms of market arrangements. The baseline model above, actually, is not a model of the market, in the sense that we typically attach to a 'market' - that is, an institutional arrangement where buyers and sellers coordinate to transact over a price for a given good or sevice. The baseline model does not provide any form of coordination, i.e., transactions take place depending on the conditions of the buyers and sellers alone. Further models incorporate various forms in which buyers and sellers may interact and coordinate, like for example:
- buyers contact a few sellers and compare their prices before making a transaction
- buyers know all the prices that sellers offer before making a transaction, as if full price information is publicly available
- buyers have memory of past prices and may take them into account before making a transaction
- buyers have expectations about future prices and may take them into account before making a transaction
- buyers may share information about prices among other buyers within their local network, and take it into account before making a transaction
- buyers may share their transactions with other buyers within their local network, and take it into account before making a transaction
- sellers may adjust their price if they are contacted by a buyer but then no transaction takes place
- sellers may observe the price of a few other sellers and adjust their price accordingly
- sellers may know all the prices that other sellers offer and adjust their price accordingly, as if full price information is publicly available.