Editing Computational economics

{{Short description|Interdisciplinary research discipline}}
{{Economics sidebar}}
'''Computational economics''' is an interdisciplinary research discipline that combines methods in [[computational science]] and [[economics]] to solve complex economic problems.<ref name="compecon23">''Computational Economics''. "[https://www.springer.com/economics/economic+theory/journal/10614 "About This Journal"] and [https://www.springer.com/economics/economic+theory/journal/10614?changeHeader "Aims and Scope]."</ref>  This subject encompasses [[computational modeling]] of [[economic systems]]. Some of these areas are unique, while others established areas of economics by allowing robust data analytics and solutions of problems that would be arduous to research without computers and associated [[numerical methods]].<ref name=":17">• Hans M. Amman, David A. Kendrick, and John Rust, ed., 1996. ''Handbook of Computational Economics'', v. 1, Elsevier. [http://www.elsevier.com/wps/find/bookdescription.cws_home/601141/description#description Description] {{Webarchive|url=https://web.archive.org/web/20110715115838/http://www.elsevier.com/wps/find/bookdescription.cws_home/601141/description#description|date=2011-07-15}} & chapter-preview [http://www.sciencedirect.com/science?_ob=PublicationURL&_hubEid=1-s2.0-S1574002196X0100X&_cid=273377&_pubType=HS&_auth=y&_acct=C000228598&_version=1&_urlVersion=0&_userid=10&md5=5c01eea1053bbec507ddeee3c8e8a68e links.] {{Webarchive|url=https://web.archive.org/web/20200406090611/https://www.sciencedirect.com/science?_ob=PublicationURL&_hubEid=1-s2.0-S1574002196X0100X&_cid=273377&_pubType=HS&_auth=y&_acct=C000228598&_version=1&_urlVersion=0&_userid=10&md5=5c01eea1053bbec507ddeee3c8e8a68e|date=2020-04-06}} &nbsp;&nbsp; • [[Kenneth L. Judd]], 1998. ''Numerical Methods in Economics'', MIT Press. Links to [http://mitpress.mit.edu/catalog/item/default.asp?ttype=2&tid=3257 description] {{Webarchive|url=https://web.archive.org/web/20120211061602/http://mitpress.mit.edu/catalog/item/default.asp?ttype=2&tid=3257|date=2012-02-11}} and [https://books.google.com/books?id=9Wxk_z9HskAC&pg=PR7 chapter previews].</ref>

Computational methods have been applied in various fields of economics research, including but not limiting to:  [[Econometrics| ]]

[[Econometrics]]: Non-parametric approaches, semi-parametric approaches, and [[machine learning]].

Dynamic systems modeling: Optimization, [[Dynamic stochastic general equilibrium|dynamic stochastic general equilibrium modeling]], and [[Agent-based computational economics|agent-based modeling]].<ref name="Page200824">Scott E. Page, 2008. "agent-based models," ''[[The New Palgrave Dictionary of Economics]]'', 2nd Edition. [http://www.dictionaryofeconomics.com/article?id=pde2008_A000218&edition=current&q=agent-based%20computational%20modeling&topicid=&result_number=1 Abstract].</ref>

== History ==
Computational economics developed concurrently with the mathematization of the field. During the early 20th century, pioneers such as [[Jan Tinbergen]] and [[Ragnar Frisch]] advanced the computerization of economics and the growth of econometrics. As a result of advancements in Econometrics, [[Regression analysis|regression models]], [[Statistical hypothesis testing|hypothesis testing]], and other computational statistical methods became widely adopted in economic research. On the theoretical front, complex [[Macroeconomics|macroeconomic]] models, including the [[Real business-cycle theory|real business cycle]] (RBC) model and [[dynamic stochastic general equilibrium]] (DSGE) models have propelled the development and application of numerical solution methods that rely heavily on computation. In the 21st century, the development of computational algorithms created new means for computational methods to interact with economic research. Innovative approaches such as machine learning models and agent-based modeling have been actively explored in different areas of economic research, offering economists an expanded toolkit that frequently differs in character from traditional methods.  

== Applications ==

=== Agent based modelling ===
{{Main|Agent-based model}}

Computational economics uses computer-based [[economic model]]ing to solve analytically and statistically formulated economic problems. A research program, to that end, is [[agent-based computational economics]] (ACE), the computational study of economic processes, including whole [[Economy|economies]], as [[dynamic system]]s of interacting [[Agent (economics)|agents]].<ref name=":23">• Scott E. Page, 2008. "agent-based models," ''The New Palgrave Dictionary of Economics'', 2nd Edition. [http://www.dictionaryofeconomics.com/article?id=pde2008_A000218&edition=current&q=agent-based%20computational%20modeling Abstract]. &nbsp;&nbsp; • Leigh Tesfatsion, 2006. "Agent-Based Computational Economics: A Constructive Approach to Economic Theory," ch. 16, ''Handbook of Computational Economics'', v. 2, [pp. 831-880]. {{doi|10.1016/S1574-0021(05)02016-2}}. &nbsp;&nbsp; • Kenneth L. Judd, 2006. "Computationally Intensive Analyses in Economics," ''Handbook of Computational Economics'', v. 2, ch. 17, pp. [https://books.google.com/books?id=6ITfRkNmKQcC&pg=PA881 881-] 893. Pre-pub [https://www2.econ.iastate.edu/tesfatsi/Judd.finalrev.pdf PDF]. &nbsp;&nbsp; • L. Tesfatsion and K. Judd, ed., 2006. ''Handbook of Computational Economics'', v. 2, ''Agent-Based Computational Economics'', Elsevier. [http://www.elsevier.com/wps/find/bookdescription.cws_home/660847/description#description Description] {{Webarchive|url=https://web.archive.org/web/20120306100156/http://www.elsevier.com/wps/find/bookdescription.cws_home/660847/description#description|date=2012-03-06}} & and chapter-preview [http://www.sciencedirect.com/science?_ob=PublicationURL&_hubEid=1-s2.0-S1574002105X02003&_cid=273377&_pubType=HS&_auth=y&_acct=C000228598&_version=1&_urlVersion=0&_userid=10&md5=e4757b4f65755ed6340a11fee9615200 links]. &nbsp;&nbsp; • [[Thomas J. Sargent]], 1994. ''Bounded Rationality in Macroeconomics'', Oxford. [http://www.oup.com/us/catalog/general/subject/Economics/MacroeconomicTheory/?view=usa&ci=9780198288695 Description] and chapter-preview 1st-page [https://www.questia.com/library/book/bounded-rationality-in-macroeconomics-thomas-j-sargent-by-thomas-j-sargent.jsp links.]</ref> As such, it is an economic adaptation of the [[complex adaptive system]]s [[paradigm]].<ref name=":33">• [[W. Brian Arthur]], 1994. "Inductive Reasoning and Bounded Rationality," ''American Economic Review'', 84(2), pp. [http://www-personal.umich.edu/~samoore/bit885f2011/arthur-inductive.pdf 406-411] {{Webarchive|url=https://web.archive.org/web/20130521145936/http://www-personal.umich.edu/~samoore/bit885f2011/arthur-inductive.pdf|date=2013-05-21}}. &nbsp;&nbsp; • [[Leigh Tesfatsion]], 2003. "Agent-based Computational Economics: Modeling Economies as Complex Adaptive Systems," ''Information Sciences'', 149(4), pp. [http://copper.math.buffalo.edu/urgewiki/uploads/Literature/Tesfatsion2002.pdf 262-268] {{webarchive|url=https://web.archive.org/web/20120426000037/http://copper.math.buffalo.edu/urgewiki/uploads/Literature/Tesfatsion2002.pdf|date=April 26, 2012}}. &nbsp;&nbsp; • _____, 2002. "Agent-Based Computational Economics: Growing Economies from the Bottom Up," ''Artificial Life'', 8(1), pp.55-82. [http://www.mitpressjournals.org/doi/abs/10.1162/106454602753694765 Abstract] and pre-pub [http://www.econ.brown.edu/fac/Peter_Howitt/SummerSchool/Agent.pdf PDF] {{webarchive|url=https://web.archive.org/web/20130514143904/http://www.econ.brown.edu/fac/Peter_Howitt/SummerSchool/Agent.pdf|date=2013-05-14}}.</ref> Here the "agent" refers to "computational objects modeled as interacting according to rules," not real people.<ref name="Page200824"/> Agents can represent social, biological, and/or physical entities. The theoretical assumption of [[mathematical optimization]] by agents in [[Equilibrium (economics)|equilibrium]] is replaced by the less restrictive postulate of agents with [[bounded rationality]] ''adapting'' to market forces,<ref name=":43">• W. Brian Arthur, 1994. "Inductive Reasoning and Bounded Rationality," ''American Economic Review'', 84(2), pp. [http://www-personal.umich.edu/~samoore/bit885f2011/arthur-inductive.pdf 406-411] {{Webarchive|url=https://web.archive.org/web/20130521145936/http://www-personal.umich.edu/~samoore/bit885f2011/arthur-inductive.pdf|date=2013-05-21}}. &nbsp;&nbsp; • [[John H. Holland]] and John H. Miller (1991). "Artificial Adaptive Agents in Economic Theory," ''American Economic Review'', 81(2),  pp. [http://www.santafe.edu/media/workingpapers/91-05-025.pdf 365-370] {{Webarchive|url=https://web.archive.org/web/20110105015853/http://www.santafe.edu/media/workingpapers/91-05-025.pdf|date=2011-01-05}}. &nbsp;&nbsp; • [[Thomas C. Schelling]], 1978 [2006].  ''Micromotives and Macrobehavior'', Norton. [http://books.wwnorton.com/books/978-0-393-32946-9/ Description] {{Webarchive|url=https://web.archive.org/web/20171102093240/http://books.wwnorton.com/books/978-0-393-32946-9/|date=2017-11-02}},  [https://books.google.com/books?id=DenWKRgqzWMC&pg=PA1= preview]. &nbsp;&nbsp; •  [[Thomas J. Sargent]], 1994. ''Bounded Rationality in Macroeconomics'', Oxford. [http://www.oup.com/us/catalog/general/subject/Economics/MacroeconomicTheory/?view=usa&ci=9780198288695 Description] and chapter-preview 1st-page [https://www.questia.com/library/book/bounded-rationality-in-macroeconomics-thomas-j-sargent-by-thomas-j-sargent.jsp links.]</ref> including [[Game theory|game-theoretical]] contexts.<ref name="COMP&GT23">• [[Joseph Y. Halpern]], 2008. "computer science and game theory," ''The New Palgrave Dictionary of Economics'', 2nd Edition.  [http://www.dictionaryofeconomics.com/article?id=pde2008_C000566&edition=current&q=&topicid=&result_number=1 Abstract]. &nbsp;&nbsp; • Yoav Shoham, 2008. "Computer Science and Game Theory," ''Communications of the ACM'',  51(8), pp. [http://www.robotics.stanford.edu/~shoham/www%20papers/CSGT-CACM-Shoham.pdf 75-79] {{Webarchive|url=https://web.archive.org/web/20120426005917/http://www.robotics.stanford.edu/~shoham/www%20papers/CSGT-CACM-Shoham.pdf|date=2012-04-26}}. &nbsp;&nbsp; • [[Alvin E. Roth]], 2002. "The Economist as Engineer: Game Theory, Experimentation, and Computation as Tools for Design Economics," ''Econometrica'', 70(4), pp. [http://kuznets.fas.harvard.edu/~aroth/papers/engineer.pdf 1341–1378] {{webarchive|url=https://web.archive.org/web/20040414102216/http://kuznets.fas.harvard.edu/~aroth/papers/engineer.pdf|date=2004-04-14}}.</ref> Starting from initial conditions determined by the modeler, an ACE model develops forward through time driven solely by agent interactions. The scientific objective of the method is to test theoretical findings against real-world data in ways that permit empirically supported theories to cumulate over time.<ref name=":53">Leigh Tesfatsion, 2006. "Agent-Based Computational Economics: A Constructive Approach to Economic Theory," ch. 16, ''Handbook of Computational Economics'', v. 2, sect. 5, p. 865 [pp. 831-880]. {{doi|10.1016/S1574-0021(05)02016-2}}.</ref>

=== Machine learning in computational economics ===
[[Machine learning|Machine learning models]] present a method to resolve vast, complex, unstructured data sets. Various machine learning methods such as the [[kernel method]] and [[random forest]] have been developed and utilized in [[Data mining|data-mining]] and statistical analysis. These models provide superior classification, predictive capabilities, flexibility compared to traditional statistical models, such as that of the [[STAR model|STAR]] method. Other methods, such as causal machine learning and [[Causal model|causal tree]], provide distinct advantages, including inference testing.

There are notable advantages and disadvantages of utilizing machine learning tools in economic research. In economics, a model is selected and analyzed at once. The economic research would select a model based on principle, then test/analyze the model with data, followed by [[Cross-validation (statistics)|cross-validation]] with other models. On the other hand, machine learning models have built in "tuning" effects. As the model conducts empirical analysis, it cross-validates, estimates, and compares various models concurrently. This process may yield more robust estimates than those of the traditional ones.

Traditional economics partially normalize the data based on existing principles, while machine learning presents a more positive/empirical approach to model fitting. Although Machine Learning excels at classification, predication and evaluating goodness of fit, many models lack the capacity for statistical inference, which are of greater interest to economic researchers. Machine learning models' limitations means that economists utilizing machine learning would need to develop strategies for robust, [[Causal inference|statistical causal inference]], a core focus of modern empirical research. For example, economics researchers might hope to identify [[Confounding|confounders]], [[confidence interval]]s, and other parameters that are not well-specified in Machine Learning algorithms.<ref name=":93">{{Citation |title=The Impact of Machine Learning on Economics |date=2019 |url=http://dx.doi.org/10.7208/chicago/9780226613475.003.0021 |work=The Economics of Artificial Intelligence |pages=507–552 |publisher=University of Chicago Press |doi=10.7208/chicago/9780226613475.003.0021 |isbn=9780226613338 |s2cid=67460253 |access-date=2022-05-05|last1=Athey |first1=Susan |url-access=subscription }}</ref>

Machine learning may effectively enable the development of more complicated [[Heterogeneity in economics|heterogeneous]] economic models. Traditionally, heterogeneous models required extensive computational work. Since heterogeneity could be differences in tastes, beliefs, abilities, skills or constraints, optimizing a heterogeneous model is a lot more tedious than the homogeneous approach (representative agent).<ref name=":103">{{Cite book |last=Jesus |first=Browning, Martin Carro |url=http://worldcat.org/oclc/1225293761 |title=Heterogeneity and microeconometrics modelling |date=2006 |publisher=CAM, Centre for Applied Microeconometrics |oclc=1225293761}}</ref> The development of reinforced learning and deep learning may significantly reduce the complexity of heterogeneous analysis, creating models that better reflect agents' behaviors in the economy.<ref name=":113">{{Cite journal |last1=Charpentier |first1=Arthur |last2=Élie |first2=Romuald |last3=Remlinger |first3=Carl |date=2021-04-23 |title=Reinforcement Learning in Economics and Finance |url=https://doi.org/10.1007/s10614-021-10119-4 |journal=Computational Economics |language=en |doi=10.1007/s10614-021-10119-4 |arxiv=2003.10014 |s2cid=214612371 |issn=1572-9974}}</ref>

The adoption and implementation of [[neural network]]s, [[deep learning]] in the field of computational economics may reduce the redundant work of [[Data cleansing|data cleaning]] and data analytics, significantly lowering the time and cost of large scale data analytics and enabling researchers to collect, analyze data on a great scale.<ref name=":73">{{Cite journal |last1=Farrell |first1=Max H. |last2=Liang |first2=Tengyuan |last3=Misra |first3=Sanjog |date=2021 |title=Deep Neural Networks for Estimation and Inference |journal=Econometrica |volume=89 |issue=1 |pages=181–213 |doi=10.3982/ecta16901 |s2cid=203696381 |issn=0012-9682|doi-access=free |arxiv=1809.09953 }}</ref> This would encourage economic researchers to explore new modeling methods. In addition, reduced emphasis on data analysis would enable researchers to focus more on subject matters such as causal inference, confounding variables, and realism of the model. Under the proper guidance, machine learning models may accelerate the process of developing accurate, applicable economics through large scale empirical data analysis and computation.<ref name=":83">{{Cite journal |date=2021-07-27 |title=Deep learning for individual heterogeneity: an automatic inference framework |doi=10.47004/wp.cem.2021.2921 |s2cid=236428783 |doi-access=free }}</ref>  

=== Dynamic stochastic general equilibrium (DSGE) model ===
{{Main|Dynamic stochastic general equilibrium|l1=DSGE model}}

Dynamic modeling methods are frequently adopted in macroeconomic research to simulate economic fluctuations and test for the effects of policy changes. The DSGE one class of dynamic models relying heavily on computational techniques and solutions. DSGE models utilize micro-founded economic principles to capture characteristics of the real world economy in an environment with [[Intertemporal choice|intertemporal]] uncertainty. Given their inherent complexity, DSGE models are in general analytically intractable, and are usually implemented numerically using computer software. One major advantage of DSGE models is that they facilitate the estimation of agents' dynamic choices with flexibility.  However, many scholars have criticized DSGE models for their reliance on reduced-form assumptions that are largely unrealistic.

=== Computational tools and programming languages ===
Utilizing computational tools in economic research has been the norm and foundation for a long time. Computational tools for economics include a variety of computer software that facilitate the execution of various matrix operations (e.g. matrix inversion) and the solution of  systems of linear and nonlinear equations. Various programming languages are utilized in economic research for the purpose of data analytics and modeling. Typical programming languages used in computational economics research include [[C++]], [[MATLAB]], [[Julia (programming language)|Julia]], [[Python (programming language)|Python]], [[R (programming language)|R]] and [[Stata]].

Among these programming languages, C++ as a compiled language performs the fastest, while Python as an interpreted language is the slowest. MATLAB, Julia, and R achieve a balance between performance and interpretability. As an early statistical analytics software, Stata was the most conventional programming language option. Economists embraced Stata as one of the most popular statistical analytics programs due to its breadth, accuracy, flexibility, and repeatability.

== Journals ==
The following journals specialise in computational economics: ''ACM Transactions on Economics and Computation'',<ref name=":123">{{Cite web |title=ACM Teac |url=http://teac.acm.org}}</ref> ''Computational Economics'',<ref name="compecon23"/> ''Journal of Applied Econometrics'',<ref name=":132">{{cite journal |year=2011 |title=Journal of Applied Econometrics |url=http://onlinelibrary.wiley.com/journal/10.1002/(ISSN)1099-1255 |doi=10.1002/(ISSN)1099-1255 |access-date=October 31, 2011 |website=Wiley Online Library|url-access=subscription }}</ref> ''[[Journal of Economic Dynamics and Control]]''<ref name=":142">''[http://www.journals.elsevier.com/journal-of-economic-dynamics-and-control/ Journal of Economic Dynamics and Control]'', including Aims & scope link. &nbsp;For a much-cited overview and issue, see: &nbsp; • Leigh Tesfatsion, 2001. "Introduction to the Special Issue on Agent-based Computational Economics," ''Journal of Economic Dynamics & Control'', pp.  [https://econpapers.repec.org/paper/isugenres/1915.htm 281-293]. &nbsp; •  [Special issue], 2001. ''Journal of Economic Dynamics and Control'', Agent-based Computational Economics (ACE). 25(3-4), pp. 281-654. Abstract/outline [http://www.sciencedirect.com/science/journal/01651889/25/3-4 links]{{Dead link|date=January 2022|bot=InternetArchiveBot|fix-attempted=yes}}.</ref> and the ''Journal of Economic Interaction and Coordination''.<ref name=":152">{{cite web |year=2011 |title=Journal of Economic Interaction and Coordination |url=https://www.springer.com/economics/economic+theory/journal/11403 |access-date=October 31, 2011 |work=springer.com}}</ref>

==References==
<references/>

==External links==
*[http://comp-econ.org/ Society for Computational Economics]
* [http://www.jedc.com/ Journal of Economic Dynamics and Control] {{Webarchive|url=https://web.archive.org/web/20210505070750/http://www.jedc.com/ |date=2021-05-05 }} - publishes articles on computational economics
* [https://www2.econ.iastate.edu/tesfatsi/ace.htm Agent-Based Computational Economics] - maintained by Leigh Tesfatsion
* [https://www.scribd.com/doc/57052045/The-Use-of-Agent-Based-Models-in-Regional-Science-by-Mark-Kimura The Use of Agent-Based Models in Regional Science] - a study on agent-based models to simulate urban agglomeration
* [https://web.archive.org/web/20080609234919/http://johnstachurski.net/lectures/index.html Computational Economics with Python] - a series of lectures
* [http://www.essex.ac.uk/ccfea Computational Finance and Economic Agents] {{Webarchive|url=https://web.archive.org/web/20181215223200/http://www.essex.ac.uk/ccfea |date=2018-12-15 }}
* [https://www.springer.com/economics/economic+theory/journal/11403  Journal of Economic Interaction and Coordination] - official journal of the Association of Economic Science with Heterogeneous Interacting Agents
*[https://web.archive.org/web/20150403024803/http://www.uni-bamberg.de/vwl-wipo/ Chair of Economic Policy, University of Bamberg (Germany)]
*[https://web.archive.org/web/20110724131801/http://bucky.stanford.edu/numericalmethods/PUBCODE/DEFAULT.HTM Repository of public-domain computational solutions]

{{Economics}}

[[Category:Computational economics| ]]
[[Category:Mathematical economics]]
[[Category:Computational fields of study]]
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