Because current economic theory doesn’t always work to explain human behavior, some scientists want to use computers to create a massive simulation to help predict future catastrophe’s.
In June this year, scientists, economists, computer modellers and policy-makers joined together at a workshop in Warrenton, Virginia, sponsored by the US National Science Foundation, to see what lessons we might draw from agent-based models of the recent crisis (see “Picking over the debris”). They also explored whether they might help us prevent any future slumps.One central question emerged: is it feasible to build an agent-based model on a scale capable of simulating a nation’s or indeed the world’s economy? Such a model would be a huge step towards better understanding the consequences of policy decisions before we make them.
It would also be a huge undertaking. Just as modelling Earth’s climate requires the expertise of everyone from marine biologists to atmospheric chemists, so any whole-economy model would need to draw on the knowledge of experts in finance, labour markets, supply chains, marketing, retail and perhaps even psychology and law.
Vast computing power would also be needed to run the actual model and follow the interactions of millions, or perhaps billions, of agents representing companies and institutions with diverse agendas and decision-making rules. And just as climate models need a stream of data from meteorological stations to provide a constant reality check, an agent-based economic model would need colossal amounts of information about market transactions, prices, consumer behaviour, employment and business growth, government fiscal policies and interest rates. Basically, it would need everything concerned with business, banking, finance and day-to-day economic behaviour.
Right now we don’t have that data, but we could do soon. In the US, for example, the Office of Financial Research, whose creation was mandated by Congress in July 2010, will have unprecedented powers to demand information on transactions by financial institutions. This would include previously confidential details such as information on individual loans and who underwrites the risk for credit defaults.