In an Institute for New Economic Thinking video interview, SFI Professor Doyne Farmer discusses work to create an agent-based model of the U.S. economy that will help scientists, economists, and policy makers better understand past, and future, financial crises.
Watch Farmer's video interview (13 minutes)
Farmer, with SFI External Professors Rob Axtell and John Geanakoplos, are working to create the model with support from an INET grant. Whereas a traditional economic model makes future predictions based on past market behavior and thus fails in unprecedented situations, their agent-based model takes into account the actions of individual decision makers, assigning behavioral rules to each agent in the model. This computer-based method creates models that are more dynamic and lifelike, Farmer says.
“The financial crisis really made me think about doing something that mattered," Farmer said. “(It) made me think that the real nut to crack is to be able to predict things about the macroeconomy.”