Casinoworld:An Agent-based Model with Heterogeneous Risk Preferences and Adaptive Behavior

  • Michael Harrington
  • Darold Higa
Chapter
Part of the Advances in Computational Economics book series (AICE, volume 17)

Abstract

One of the central presumptions in general equilibrium models widely used in neoclassical macroeconomics today is that people are pretty much alike, or homogeneous in their preferences. A second presumption, one of mathematical convenience, is that people’s preferences are exogenous and fairly fixed over time and thus do not vary or adapt readily to changing circumstances. Lastly, rational actor behavior implies the availability of requisite information and the ability of individuals to process that information accurately. There is a vast class of theories that are consistent with these presumptions but such theories have difficulty in explaining persistent skewed distributional outcomes such as income and wealth inequalities within groups and across societies. Because of these limiting presumptions, the proffered explanations for such skewed distributions necessarily refer back to differences in initial resource endowments. We would restate the inequality question more provocatively by asking: Is poverty deliberate?

The CasinoWorld model presented in this paper uses agent-based simulation modeling in an attempt to overcome the limitations of standard equilibrium models. We use the SWARM programming environment to model agents with heterogeneous risk preferences in an environment of uncertainty and allow them to adapt their gaming strategies to maximize survival by preserving their wealth stakes. In this way SWARM allows us to endogenize heterogeneity and adaptability with regard to agent behavior. The results show that players with initialhigh risk preferences who are lucky can adapt their gambling strategies to increase their relative wealth. This model provides a rudimentary foundation for demonstrating that natural, rational behavior and luck can form the basis of inequality. We support the assumptions of the model with a discussion of experimental research in economic behavior, decision-making behavior and evolutionary psychology.

Keywords

Gini Coefficient Risk Preference Loss Aversion Complex Adaptive System Absolute Risk Aversion 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.
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Copyright information

© Springer Science+Business Media New York 2002

Authors and Affiliations

  • Michael Harrington
    • 1
  • Darold Higa
    • 2
  1. 1.Department of Political ScienceUCLA
  2. 2.Department of International RelationsUSC

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