Friday, January 11, 2013

My Work on Agent-based Models

Today there is a New York Times article on my work on agent-based models and related points.  The paper the article refers to is linked to here. And there is related discussion, dealing with stress testing issues and agent-based modeling, in the Office of Financial Research 2012 Annual Report, pages 46 to 58.

2 comments:

  1. Rick, this is a very nice followup to your "barbarian" post of December. Also, it is good to see that your work is getting attention. We need to bring out important technical details in order to understand the current mess and to discuss why things are so. Your post offers plenty of material for further discussion which I will pursue in another forum, however let me provide an overview.

    The agent, or not, choice has parallels in physics: particle or wave. As we know, neither is more prominent over the other. Viewpoint, one might say. Too, we have things like uncertainty (see comment on the earlier post at work at Princeton) that will play here. Taking the "boids" as an example, we can think of each as a particle. Notice, if you would, that the wave is apparent when you have a large flock (winter sky full of black birds, for instance). The particle may be making choices along the way: follow, avoid collision, etc. (as you write). Yet, to where is the wave going? Ah. Geese are interesting to watch in this fashion, too.

    One might argue for impetus from individual motivations being manifested in the whole. Yet, we know that part/whole issues lurk. In a sense, the whole might be fairly well represented by a wave. That, of course, suggests that there will be a multitude of waves embodied in the whole, whose cardinality is much larger than that of the set of "boids" for various reasons.
    Now, taking that whole, is there any control point (sheesh, Ben needs to wake up - he's stiffing the savers, who care about the future)? Or points? Ah, your research will look into that. True. Yet, what does this now have to do with the economy and banking's diapered set?
    One might argue that business (banking as the heart) seems to have descended to the lowest level (in terms of the wave, not the "boids"). Why? Any agent view would start bottom up, from certain frameworks. But, let's ignore the bottom most for now, as within ten minutes of a discussion, we could agree on what banking ought to be. Also, consider that the individual who needs the use of banks has been twisted around the pole several times. Going upward, we would have the local branch, and so forth.
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    Finally, we get to the entity (Jamie's, and his ilk's, level) that has decided, along with the culture, that it's all a game. These can be seen as agents (as you know, various abstraction levels exist for these) playing a near-zero sum (we can discuss this) game (meanwhile, trampling the good folk trying to enjoy some reasonable state of being). One of their games, too, is dodging those like yourself who are monitoring the situation.

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  2. We can look, in depth, into why things are like they are, including why all this regulation that doesn't seem to help the situation. In fact, many feel that these legal overlays compound the problem in that they give more incentive to finagle.

    One key item stands out, though, to me. Computation, within the past couple of decades, has allowed mathematical approaches to propagate, many ways (don't you just love the ad-driven idiots targeting your being for soft spots?) to be exploited by those who do not understand what they are doing. Of course, some might understand but know that they're essentially cloaked by uncertainty (darks and sharks, even shades of Made-off). In a particular nod to trading, we have seen an emergence of "shell" type gaming that is not unlike what we do not permit of law enforcement, namely bait and entrap (high-frequency numbnuts, et al). We could characterize this several ways. That is, only one of several things that would be considered wrong from a moral sense and are very unwise from a sustainable economy sense.

    So, let me ask? How would you task an agent (even if a compound object) and its collective buddies to raise its (their) sight so as to prevent them pulling us all down into the muck as we saw with this last downturn? From where I sit, things are not any better, except for Ben's largesse in allowing the games to continue unabated.

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