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The economy needs agent-based modelling

Nature volume 460, pages 685–686 (2009)Cite this article

The leaders of the world are flying the economy by the seat of their pants, say J. Doyne Farmer and Duncan Foley. There is, however, a better way to help guide financial policies.

The best models they have are of two types, both with fatal flaws. Type one is econometric: empirical statistical models that are fitted to past data. These successfully forecast a few quarters ahead as long as things stay more or less the same, but fail in the face of great change. Type two goes by the name of 'dynamic stochastic general equilibrium'. These models assume a perfect world, and by their very nature rule out crises of the type we are experiencing now.

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Authors and Affiliations

  1. J. Doyne Farmer is at the Santa Fe Institute, 1399 Hyde Park Road, Santa Fe, New Mexico 87501, USA, and at LUISS Guido Carli in Rome, Italy, and founded the quantitative trading firm Prediction Company. jdf@santafe.edu ,

    J. Doyne Farmer

  2. Duncan Foley is Leo Model Professor of Economics at the New School for Social Research, 6 East 16th Street, New York 10003, USA, and an external professor at the Santa Fe Institute. foleyd@newschool.edu ,

    Duncan Foley

Authors
  1. J. Doyne Farmer
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  2. Duncan Foley
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Additional information

See Opinion, page 687 , News Feature, page 680 , and Editorial, page 667 .

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Farmer, J., Foley, D. The economy needs agent-based modelling. Nature 460, 685–686 (2009). https://doi.org/10.1038/460685a

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