Stochastic methods for economic binary decision models

The Institute of Economics will hold a webinar meeting as part of its Seminar Series on Tuesday, March 5, 2022: James Holehouse from the University of Edinburgh will present the paper "Stochastic methods for economic binary decision models".

Abstract:

The choices that individuals make depend largely on the interactions between themselves and other agents, for example fashion trends, which can be thought of as a collective delusion. However, the standard representative agent approach of traditional economics neglects such interactions meaning that collective effects arising from interacting individuals cannot be expressed let alone predicted. In this talk I will discuss stochastic binary decision models, where agents decide between two choices (e.g., left or right) in such a way that random agent behavior and herding effects are implicit. The methods utilized come largely from non-equilibrium physics and complex systems theory and allow one not only to find the equilibrium behavior for such models but also to study the properties of their relaxation towards equilibrium from a given initial state. The two models that I will focus on are the model of ant rationality introduced by Kirman (1993), as well as the model of Brock and Durlauf (2001). The talk will not assume knowledge beyond basic probability theory and will introduce methods with which binary decision models can be constructed, solved, and calibrated for from data.

The seminar will be held online at the following link.