Wagner on Agent Based Modeling of Austrian Economics

• John Vandivier

I'm now taking my second PhD-level class with <a href="http://economics.gmu.edu/people/rwagner">Dr. Robert Wagner. This class is Theory of the Market Process II and it focuses on the so-called non-equilibrium theory found in <a href="https://www.reddit.com/r/austrian_economics/comments/1jyjpw/explain_like_im_five_radical_subjectivist_strand/">radical subjectivism. Radical subjectivism, typified by <a href="https://en.wikipedia.org/w/index.php?title=Ludwig_Lachmann&oldid=762100627">Ludwig Lachmann and <a href="https://en.wikipedia.org/w/index.php?title=G._L._S._Shackle&oldid=762149980">George Shackle, is regarded as a peculiar offshoot of the <a href="https://en.wikipedia.org/wiki/Austrian_School">Austrian School. Here's the <a href="http://www.afterecon.com/wp-content/uploads/2017/02/micro-syl-econ-881-wagner.docx">syllabus for more info about the class.

For a while I have seen <a href="https://en.wikipedia.org/w/index.php?title=Agent-based_model&oldid=762339548">agent based modelling as a rigorous approach to make Austrian economics more computationally rigorous and perhaps more useful as a business tool, without compromising core values. I also think it's a point of possible synthesis with the Neoclassical School and burgeoning behavioral literature.

I asked Wagner whether he thought ABM would be viable as a modelling technique for Austrian market process theory and he said it would be suitable if done properly.

Keep in mind that Wagner is a radical subjectivist. My line of thinking, perhaps incorrect but I don't think so, is that if a radical subjectivist would ascent to ABM then a typical Austrian would agree all the more. In other words I am considered the radical subjectivist to be a limiting case, a hard case, and a more difficult person to convince compared to someone else such as Coyne or Boettke who I might consider a bit more moderate.

Come to think of it, I may have to eat those words as I've yet to ask Coyne or Boettke about their thoughts on radical subjectivism. I know they are both mainline (big tent? <a href="http://link.springer.com/article/10.1007%2FBF00842707">contra Salerno) Austrians and at least ordinary subjectivists.

Wagner and I also discussed the undecidability problem in particular. The undecidability problem has an Austrian and mainline flavor:

  • Mainline: an individual is indifferent between A and B. Does he consume A, B, a combination, or neither?
    • Typical answer is some of each because we have a taste for variety, but consider lumpy goods such that you only get one or the other. Typical answer is a coin toss.
  • Austrian: an individual is uncertain that either action A or B will bring about desired end C. Does the individual act?
    • One answer is that the individual may have relatively different uncertainties and expected values and may therefore select a superior case, but suppose these factors are even between each choice.
    • Another answer is that an individual does not act unless there is a reason to do so, but this can be rebutted by considering non-action as action B and positing that individuals act by necessity.
    • The last answer I can think of is the one Wagner gave: The individual will eventually choose A or B although we have no reason to think he will prefer either one. I asked if it would be appropriate to use a coin toss simulation as a modelling mechanism for this decision and he said yes, if a problem was undecidable then over the course of time (perhaps modeled by several ticks or iterations of processing logic) a random selection might be fine as a modelling technique.
It was that final point which surprised me and I think is noteworthy. On those grounds there may be room to develop an applied Austrian ABM.

More on <a href="https://www.math.tecnico.ulisboa.pt/~camado/eim2016/vela_JF.pdf">undecidability in economics is here.