Advances in the agent-based modeling of economic and social behavior.

In this review we discuss advances in the agent-based modeling of economic and social systems. We show the state of the art of the heuristic design of agents and how behavioral economics and laboratory experiments have improved the modeling of agent behavior. We further discuss how economic networks and social systems can be modeled and we discuss novel methodology and data sources. Lastly, we present an overview of estimation techniques to calibrate and validate agent-based models and show avenues for future research.

Socioeconomic networks with long-range interactions.

We study a modified version of a model previously proposed by Jackson and Wolinsky to account for communication of information and allocation of goods in socioeconomic networks. In the model, the utility function of each node is given by a weighted sum of contributions from all accessible nodes. The weights, parametrized by the variable delta , decrease with distance. We introduce a growth mechanism where new nodes attach to the existing network preferentially by utility. By increasing delta , the network structure evolves from a power-law to an exponential degree distribution, passing through a regime characterized by shorter average path length, lower degree assortativity, and higher central point dominance. In the second part of the paper we compare different network structures in terms of the average utility received by each node. We show that power-law networks provide higher average utility than Poisson random networks. This provides a possible justification for the ubiquitousness of scale-free networks in the real world.

Weighted network analysis of high-frequency cross-correlation measures.

In this paper we implement a Fourier method to estimate high-frequency correlation matrices from small data sets. The Fourier estimates are shown to be considerably less noisy than the standard Pearson correlation measures and thus capable of detecting subtle changes in correlation matrices with just a month of data. The evolution of correlation at different time scales is analyzed from the full correlation matrix and its minimum spanning tree representation. The analysis is performed by implementing measures from the theory of random weighted networks.

Quantitative model of price diffusion and market friction based on trading as a mechanistic random process.

We model trading and price formation in a market under the assumption that order arrival and cancellations are Poisson random processes. This model makes testable predictions for the most basic properties of markets, such as the diffusion rate of prices (which is the standard measure of financial risk) and the spread and price impact functions (which are the main determinants of transaction cost). Guided by dimensional analysis, simulation, and mean-field theory, we find scaling relations in terms of order flow rates. We show that even under completely random order flow the need to store supply and demand to facilitate trading induces anomalous diffusion and temporal structure in prices.