EconPapers    
Economics at your fingertips  
 

Multi-agent Economics and the Emergence of Critical Markets

Michael S. Harr\'e

Papers from arXiv.org

Abstract: The dual crises of the sub-prime mortgage crisis and the global financial crisis has prompted a call for explanations of non-equilibrium market dynamics. Recently a promising approach has been the use of agent based models (ABMs) to simulate aggregate market dynamics. A key aspect of these models is the endogenous emergence of critical transitions between equilibria, i.e. market collapses, caused by multiple equilibria and changing market parameters. Several research themes have developed microeconomic based models that include multiple equilibria: social decision theory (Brock and Durlauf), quantal response models (McKelvey and Palfrey), and strategic complementarities (Goldstein). A gap that needs to be filled in the literature is a unified analysis of the relationship between these models and how aggregate criticality emerges from the individual agent level. This article reviews the agent-based foundations of markets starting with the individual agent perspective of McFadden and the aggregate perspective of catastrophe theory emphasising connections between the different approaches. It is shown that changes in the uncertainty agents have in the value of their interactions with one another, even if these changes are one-sided, plays a central role in systemic market risks such as market instability and the twin crises effect. These interactions can endogenously cause crises that are an emergent phenomena of markets.

New Economics Papers: this item is included in nep-hme and nep-hpe
Date: 2018-09
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://arxiv.org/pdf/1809.01332 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1809.01332

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().

 
Page updated 2018-10-04
Handle: RePEc:arx:papers:1809.01332