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Two tales of complex system analysis: MaxEnt and agent-based modeling
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Associated Content

Part of a collection:

Maximum Entropy Economics: Foundations and Applications

  • Regular Article
  • Open Access
  • Published: 07 July 2020

Two tales of complex system analysis: MaxEnt and agent-based modeling

  • Jangho Yang1,2 &
  • Adrián Carro2,3 

The European Physical Journal Special Topics volume 229, pages 1623–1643 (2020)Cite this article

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Abstract

Over the recent four decades, agent-based modeling and maximum entropy modeling have provided some of the most notable contributions applying concepts from complexity science to a broad range of problems in economics. In this paper, we argue that these two seemingly unrelated approaches can actually complement each other, providing a powerful conceptual/empirical tool for the analysis of complex economic problems. The maximum entropy approach is particularly well suited for an analytically rigorous study of the qualitative properties of systems in quasi-equilibrium. Agent-based modeling, unconstrained by either equilibrium or analytical tractability considerations, can provide a richer picture of the system under study by allowing for a wider choice of behavioral assumptions. In order to demonstrate the complementarity of these approaches, we use here two simple economic models based on maximum entropy principles – a quantal response social interaction model and a market feedback model –, for which we develop agent-based equivalent models. On the one hand, this allows us to highlight the potential of maximum entropy models for guiding the development of well-grounded, first-approximation agent-based models. On the other hand, we are also able to demonstrate the capabilities of agent-based models for tracking irreversible and out-of-equilibrium dynamics as well as for exploring the consequences of agent heterogeneity, thus fundamentally improving on the original maximum entropy model and potentially guiding its further extension.

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Author information

Authors and Affiliations

  1. Oxford Martin Programme on Technological and Economic Change, Oxford, UK

    Jangho Yang

  2. Institute for New Economic Thinking at the Oxford Martin School, Oxford, UK

    Jangho Yang & Adrián Carro

  3. Mathematical Institute, University of Oxford, Oxford, UK

    Adrián Carro

Authors
  1. Jangho Yang
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  2. Adrián Carro
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Correspondence to Jangho Yang.

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Yang, J., Carro, A. Two tales of complex system analysis: MaxEnt and agent-based modeling. Eur. Phys. J. Spec. Top. 229, 1623–1643 (2020). https://doi.org/10.1140/epjst/e2020-900137-x

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  • Received: 13 July 2019

  • Revised: 09 September 2019

  • Published: 07 July 2020

  • Issue Date: July 2020

  • DOI: https://doi.org/10.1140/epjst/e2020-900137-x

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