Agent-Based Modeling’s Open Methodology Approach:Simulation, Reflexivity, and Abduction

Please cite the paper as:
John B. Davis, (2017), Agent-Based Modeling’s Open Methodology Approach:Simulation, Reflexivity, and Abduction, World Economics Association (WEA) Conferences, No. 2 2017, Economic Philosophy: Complexities in Economics, 2nd October to 30th November 2017

Abstract

This paper argues that agent-based modeling’s innovations in method developed in terms of simulation techniques also involve an innovation in economic methodology. It shows how Epstein’s generative science conception departs from conventional methodological reasoning, and employs what I term an open rather than closed approach to economic methodology associated with the roles that reflexivity, counterfactual reasoning, and abduction play in ABM. Central to this idea is that improvements in how we know something, a matter of method, determine whether we know something, a matter of methodology. The paper links this alternative view of economics and economic methodology to a social science model of economics and contrasts this with standard economics’ natural science model of economics. The paper discusses what this methodological understanding implies about the concept of emergence.

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1 comment

  • Frederico Botafogo says:

    Prof. Davis, I read your paper with great interest. Allow me the following comments:

    1. You introduce the dichotomy opposing the natural versus the social approaches to modelling science. I wish to note that even in the natural realm there are instances where the development of scientific knowledge can alter the principles or laws that explain how the world works. I am thinking of meteorology, the study of earthquakes, or the study of volcanoes. The reason why this is so is not because nature’s behaviour would change further to our scientific progress, obviously, but rather because we do not have at this stage a clear understanding how to frame appropriate principles or laws governing the weather or the volcanoes.

    I am not sure of what follows, but it seems to me the foregoing view is consistent with one of your final arguments, namely that epistemology should be segregated from ontology. At the end of the day, the term science is applicable to propositions that we deem relevant when explaining the world. If we consider we can ‘explain’ the weather by means of simulations, then that qualifies as science even though we may not be able to predict when a hurricane will start or what path it will follow.

    2. I am the author of the working paper which follows yours. Therein I claim that accounting provides a procedure to frame economic data such that this is done in ways consistent with the complexity view of economics. Indeed, the recording of transactions by means of double-entry bookkeeping (DEB) is a procedure that is outside both the inductive and deductive approaches to reality. Accountants use DEB as a process and a practice when framing data, particularly cost assignments. For example, there are several ways to allocate cost, say by volume or based on activities; whatever the case, costs satisfy the DEB requirement. This fits well with your saying that ‘[i]t is important to note, then, what is distinctive about reasoning in reflexivity terms in this type of scientific explanation process. [Cost allocation] methods construct artificial worlds that [represent] real worlds, and consequently they compare what could be the case in terms of how that artificial world is microspecified with what could be the case in resulting macrostructural terms were the real world to closely resemble the artificial one. That is, reasoning in reflexivity terms involves counterfactual reasoning, …’ Appreciate that costs allocations have an impact on product profitability and the viability of profit centres; thus, they affect how managers decide what and how much to produce. In other words, the accounting procedure being chosen by accountants changes the world.

    3. I now consider the idea of equilibrium as a means for analytical tractability. I trust the notation I am introducing can make an impactful contribution to complexity in economics. Agents are represented in my framework by means of linear operators, not by means of utility or production functions. Thus, the whole approach of general equilibrium is no longer applicable. Instead of equilibrium, along with all the mathematical apparatus that goes with it, the constraint in the economic system now being applicable is that each and every agent’s balance sheet must balance.

    I cannot elaborate on this here (this is simply a commentary) but appreciate that all agents in the economic system can be required to satisfy the condition that their assets’ values equal their liabilities’. Further, in every transaction involving two parties, to one’s asset corresponds the other’s liability. This creates a systemic constraint. In a setting of perfect information, I claim equilibrium can be deducted from this requirement. In a setting of uncertainty, this provides the minimal condition for running simulations.

    Incidentally, I am unaware of complexity simulations that impose the DEB constraint.

    To conclude this third comment, notice that what-if questions can be addressed by using ERPs systems to run alternative scenarios, say using different allocation procedures to check the impact on the profitability of different products and profit centres and subsequently to consider alternative strategies. Accounting managers, however, still have a lot to develop for the sake of advancing those simulations.

    4. My final comment concerns your final paragraph in section 4:
    ‘Of course, it could still be the case … that there exist deep underlying principles and laws governing behavior in economic life …’ Although economists do not seem to be aware, DEB has been around for 500 years and thus provide one stable constraint to framing economic data. To the least, economists should be giving a bit more attention to the underlying economic meaning to be associated with DEB.

    5. I noticed a few typos in your manuscript: (i) on page 5, one sentence prior to the last one, the word ‘indeed’ is repeated twice; (ii) on page 8, on the 12th line of the 2nd paragraph, I suggest that you avoid repeating the word ‘emphasize’; (iii) on page 8, 3rd sentence counting backwards from the end, I don’t think the words ‘that is’ between commas should be there; (iv) on page 10, 3rd line, you are missing the article ‘the’ before ‘world works’; (v) on page 15, 2nd paragraph, 4th line, you should replace the first ‘and’ for a ‘the’; (vi) on footnote 9, you should invert the order from ‘the how’ to ‘how the’.

    Yours truly, Frederico Botafogo

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