Preface to the Handbook

Purpose The explosive growth in computer power over the past several decades offers new tools and opportunities for economists. Volume 1 of the Handbook of Computational Economics (Amman et al. 1996) surveyed the growing literature on computational methods for solving standard economic models such as Arrow-Debreu-McKenzie general equilibrium models and rational expectations models. This second volume focuses on Agent-based Computational Economics (ACE), a computationally intensive method for developing and exploring new kinds of economic models. ACE is the computational study of economic processes modeled as dynamic systems of interacting agents who do not necessarily possess perfect rationality and information. Whereas standard economic models tend to stress equilibria, ACE models stress economic processes, local interactions among traders and other economic agents, and out-of-equilibrium dynamics that may or may not lead to equilibria in the long run. Whereas standard economic models require a careful consideration of equilibrium properties, ACE models require detailed specifications of structural conditions, institutional arrangements, and behavioral dispositions. Although the tools and language may differ, the agendas of standard economics and ACE are thus complementary. For example, many ACE modelers study the processes by which prices are set in decentralized market economies, a problem not considered in standard equilibrium modeling. Morever, the two modeling approaches share the long-run goal of understanding more fully the dynamic properties of realistically rendered economic systems, an understanding that requires knowledge of potential equilibria together with their basins of attraction. As noted in the preface of Volume 1, there is no clearly defined field that we call Computational Economics. However, the body of ACE research focusing on core topics is now substantial, and it is a good time to take stock of where we are and to communicate this summary to a wider audience of economists. Moreover, having an ACE handbook at this time also serves an important pedagogical purpose. The ACE approach to economic problems is novel. ACE research requires training in computational modeling skills that few graduate economic programs currently provide, and that relatively few professional economists currently possess. Individuals desiring to take this path will therefore need to have a certain amount of boldness, a willingness to take risks, a willingness to operate outside the boxes outlined by those who have gone before. This ACE Handbook is dedicated to the support and encouragement of these individuals.