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## WHAT IS IT?
In most of Economic Theory the use of the representative agent "Homo Economicus" is used to model approximate human behaviour. A decade ago the limitation of this model was well forgotten. Today 2014 after the 2008 financial crisis it has become fashionable to waffle on about the unrealistic assumptions of the representative agent "Homo Economicus". Waffling on about how ricardian equivalence is sheer nonsense and how humans don't play dice when making assumptions. It is at least more constructive to quantify the scale and direction of the shortcomings of economic theory. For instance it is easy to understand that almost all boats need the ability to float in water and therefore logical develop a theoretical model on boats that float in water. Some economists describe this method of testing as passing a model through real world filters.
In the following model the "boat" model is the representative agent and the water is the biological theory of survival of the fittest i.e natual selection. In this model we test to see if "Homo Economicus" has any chance of survival. The economic model assumes rational individuals which may or may not favor survival of the species.
Two kinds of "extinction" events are implemented in this model, the first is a vulcanic eruption event and the second extinction event is famine. Rationaly bounded agents are assumed to not have the ability to predict any of these event which implies that agents have to adopt good survival strategies under uncertainty.
To test this theory the model allows the mixing the rational maximising behaviour with a random settlement behaviour. When agents use the random settlement behaviour agents will settle on a randomly selected spot on the map. These agents that use a random settlement behaviour we can could call these agents the counter example of "Homo Economicus" i.e "Homo Quixotics" naming these "random" agents after the famous Don Quixote who lived his life partly in a fantasy world.
The model therefore allows agents to follow either the principals of "Homo Economicus" or those of "Homo Quixotics" or a blend of either. That is, the model implements an implementation of Khanemans two system approach where a human can either use rationality to solve a problem or use intuition to solve the same problem. In this model we have substituted intuition with a simple random function but since survival chances should increase when agents are scattered accross patches this is an adequate simplification in this model.
## HOW IT WORKS
Agents in this model are assumed to be self sufficent farmers who spend their day farming a single patch. Green patches can produce enough food to keep agents healthy while yellow patches cannot. The amount of food that can be grown on each patch can be changed by exogenous events controlled by the model.
A single patch can only support a single agent. When multiple agents occupy the same patch neither agent will harvest any food from the patch. Agents will try to relocate to other patches to resolve disputed patches.
There is no capital in this model which means that there are no investments in the model.
Agents use a maximizing tree search like method with a point system to determine best target patch. The point system can be altered in the model to allow agents to act as maxmizers and search for an optimal settle patch or settle at a predetermined patch, or any blend of the two.
Agents have offspring after enough time if the amount of food is sufficent. Each agent can reproduce by itself by parthenogenesis. This is not a very realistic model of the human species, however in this model it is adequate and prefered as it makes the study of agent behaviour easier.
## HOW TO USE IT
## THINGS TO NOTICE
Note that if the model runs long enough the agents will run out of patches that can produce enough food. When overpopulation occurs the civilisation stagnates but does not behave as outlined by Malthus. Children and the young in this model will suffer food shortage and be forced to live out a meager existence on inadequate food producing patches while the older agents will not experience a decline in living standards. Overpopulation effects are strongly affected by the class-society setting in the model.
Using a class society has a large positive effect on most economic indicators. In popular news media class societies and inequality is considered bad but in this model it eliminates much of the cost associated with disputes of overcrowded patches.
Observe that the "Homo Quixotics" agents have a better chance to survive exctinction events than "Homo Economicus".
## THINGS TO TRY
Try experimenting with creating different events and setting in the model see how the population of "Homo Economicus" compare to a more intuitive population of "Homo Quixotics".
## EXTENDING THE MODEL
* Hotellingers law is based on assumptions that people are rational utility seekers. Try incorporating hotellingers law in the model.
* Consider introducing capital money and banks in the model to model the "liquidity trap".
* The agents in the model have no forward looking ability. Consider improving agent logic to have deep tree searches to determine best agent behaviour.
* Experiment with taxation and other egalitarian tools to improve the economy.
## ECONOMIC THEORY OF HOMO QUIXOTICS
How bad is a bad model? to answer that we outline below how to refit "Homo Quixotics" into economic theory. The point with this exercise is to illustrate how much of economic theory actually fails when the assumption of rational agents is eliminated.
The alternative model "Homo Quixotics" implemented in this model implies that each agent must consume a minimum amount of goods to stay alive and each agent spend additional income on an exogenous determined set of goods. In other words a reasonable random consumption function. Below we discuss the idea in reference of actual goods in a model economy.
The model assumptions imply that each agent has a consumption vector c which has to start at point g and increases with an increase to agent nominal income y to buy additional goods using price function q. That is to say personal or agent consumption function is
Below are a couple of examples of classic economic theory evalutated through the lens of "Homo Quixotics"
Marginal Propensity to Consume
## CREDITS AND REFERENCES
* Rand, W. and Wilensky, U. (2007). NetLogo El Farol model. http://ccl.northwestern.edu/netlogo/models/ElFarol. Center for Connected Learning and Computer-Based Modeling, Northwestern University, Evanston, IL.
* Hotelling, Harold. (1929). "Stability in Competition." The Economic Journal 39.153: 41 -57. (Stable URL: http://www.jstor.org/stable/2224214 ).
* Kahneman, D. (2003). Maps of bounded rationality: Psychology for behavioral economics. American Economic Review, 93 , 1449-1475 (http://www.princeton.edu/~kahneman/docs/Publications/Maps_bounded_rationality_DK_2003.pdf)
* Lanir Z., & Kahneman, D. (2006). An experiment in decision analysis in Israel in 1975. Studies in Intelligence, 50(4) , 11-19. (https://www.cia.gov/library/center-for-the-study-of-intelligence/csi-publications/csi-studies/studies/vol50no4/an-experiment-in-decision-analysis-in-israel-in-1975.html).
* Herbert A. Simon, "Rationality as Process and as Product of Thought", Richard T. Ely Lecture, American Economic Review 68(2), May 1978, 1-12. (http://www.econ.iastate.edu/tesfatsi/RationalityAsProcessAndProductOfThought.ElyLecture1978.HSimon.pdf)
* ABC Research Report, Bounded Rationality, Max Planck Institute for Human Development. (https://www.mpib-berlin.mpg.de/sites/default/files/media/pdf/21/abc_research_report_bounded_rationality_2.pdf)
* An Essay on the Principle of Population (1798), Thomas Robert Malthus
* Computer Chess: Algorithms and Heuristics for a Deep Look into the Future (1997), Rainer Feldmann (http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.56.563&rep=rep1&type=pdf)
* Paul R. Krugman (1998). Its' Baaack: Japan's Slump and the Return of the Liquidity Trap.
* F. A. Hayek 1945). "The Use of Knowledge in Society," American Economic Review, 35(4), pp. 519-530 (http://home.uchicago.edu/~vlima/courses/econ200/spring01/hayek.pdf)
## COPYRIGHT AND LICENSE
Copyright 2014 Rolf Stenholm
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