Agent-Based Modeling of Modern Financial Markets

Building an agent-based modeling community

Agent-based modeling offers an opportunity to experiment with and learn about how markets work without interfering with real markets. To this very day, experimenting with our financial markets means altering the actual market structure, typically via some mixture of policy and incentives designed to influence or curtail the activities of market participants. These experiments impose real costs on a variety of participants, sometimes for years. Why not try agent-based modeling before experimenting with actual markets? A variety of excuses are proffered by the people who stand to gain the most: regulators and market participants. These folks regularly claim that agent-based models are untested, difficult to implement, and too unrealistic. They are wrong about the models being untested, wrong about implementation, and wrong about the necessity for complete realism in any model. The truth is agent-based modeling is not well understood. We fear what we do not understand. And we distrust what we fear.

This website is devoted to increasing awareness of the utility of applying agent-based modeling to financial markets. To increase awareness, skilled agent-based modelers must engage market practitioners, academics, and regulators in an open discussion of the pros and cons of agent-based models. Not only do we need to build better models, target important policy issues and publicize our results more extensively, we need to learn how to communicate effectively with each member of the tripartite audience. I say “we” because I want to invite other agent-based modelers to contribute to this site in the spirit of a community of concerned practitioners.