New economic windows on income and wealth: the \u3ba-generalized family of distributions

Over the last decades, the distribution of income and wealth has been deteriorating in many countries, leading to increased inequalities within and between societies. This tendency has revived the interest in the subject greatly, yet it still receives very little attention within the realm of mainstream economic thinking. One reason for this is that the basic paradigm of "standard economics", the representative-agent General Equilibrium framework, is badly equipped to cope with distributional issues. Here we argue that when the economy is treated as a complex system composed of many heterogeneous interacting agents who give rise to emergent phenomena, to address the main stylized facts of income/wealth distribution requires leaving the toolbox of mainstream economics in favour of alternative approaches. The "\u3ba-generalized" family of income/wealth distributions, building on the categories of complexity, is an example of how advances in the field can be achieved within new interdisciplinary research contexts

New economic windows on income and wealth: the κ-generalized family of distributions

Over the last decades, the distribution of income and wealth has been deteriorating in many countries, leading to increased inequalities within and between societies. This tendency has revived the interest in the subject greatly, yet it still receives very little attention within the realm of mainstream economic thinking. One reason for this is that the basic paradigm of "standard economics", the representative-agent General Equilibrium framework, is badly equipped to cope with distributional issues. Here we argue that when the economy is treated as a complex system composed of many heterogeneous interacting agents who give rise to emergent phenomena, to address the main stylized facts of income/wealth distribution requires leaving the toolbox of mainstream economics in favour of alternative approaches. The "κ-generalized" family of income/wealth distributions, building on the categories of complexity, is an example of how advances in the field can be achieved within new interdisciplinary research contexts

The Future of Agent-Based Modeling

In this paper, I elaborate on the role of agent-based (AB) modeling for macroeconomic research. My main tenet is that the full potential of the AB approach has not been realized yet. This potential lies in the modular nature of the models, which is bought by abandoning the straitjacket of rational expectations and embracing an evolutionary perspective. I envisage the foundation of a Modular Macroeconomic Science, where new models with heterogeneous interacting agents, endowed with partial information and limited computational ability, can be created by recombining and extending existing models in a unified computational framework

Heterogeneous Adaptive Expectations and Coordination in a Learning-to-Forecast Experiment

The present work analyzes the individual behavior in an experimental asset market in which the only task of each player is to predict the future price of an asset. To form their expectations, players see the past realization of the asset price in the market and the current information about the mean dividend and the interest rate. We investigate the mechanism of expectation formation in two different contexts: one with a constant fundamental value, and one in which the fundamental price increases over repetitions. Results show that there is heterogeneity both within and between Treatments. Considering an increasing fundamental value has no impact on the individual expectations but it increases the volatility of the market price. We investigate in depth the reasons behind the observed heterogeneity between groups in the same treatment and results show that the heterogeneity of players' expectations is the main cause of the heterogeneity in the realized price. Looking at the coordination, we find out that homogeneous expectations is not a sufficient condition to have high degree of coordination. We analyze the individual forecasting errors as a determinant of the coordination within group and results show that a positive and significant correlation between individual errors strongly influence the level of coordination

Adaptive expectations versus rational expectations: Evidence from the lab

The aim of the present work is to shed light on the extensive debate about expectations in financial markets. We analyze the behaviors of subjects in an experimental environment in which it is possible to observe expectations directly, since the sole task of each player is to predict the future price of an asset. We investigate the mechanism of expectation formation in two different contexts: first, where the fundamental value is constant; second, where the fundamental price increases over repetitions. First of all, we look at whether there is a convergence to the rational equilibrium even if agents have adaptive expectations, according to the main results of Palestrini and Gallegati (2015). Moreover, we concentrate on the accuracy of aggregate forecasts compared with individual forecasts. We find that there is collective rationality instead of individual rationality. In the context of an increasing fundamental value, contrary to theoretical predictions, players are able to capture the trend, but underestimate that value. This implies that there is no full convergence to the rational expectations equilibrium if all agents make their forecasts according to an adaptive scheme

Heterogeneous Adaptive Expectations and Coordination in a Learning-to-Forecast Experiment

The present work analyzes the individual behavior in an experimental asset market in which the only task of each player is to predict the future price of an asset. To form their expectations, players see the past realization of the asset price in the market and the current information about the mean dividend and the interest rate. We investigate the mechanism of expectation formation in two different contexts: one with a constant fundamental value, and one in which the fundamental price increases over repetitions. Results show that there is heterogeneity both within and between Treatments. Considering an increasing fundamental value has no impact on the individual expectations but it increases the volatility of the market price. We investigate in depth the reasons behind the observed heterogeneity between groups in the same treatment and results show that the heterogeneity of players' expectations is the main cause of the heterogeneity in the realized price. Looking at the coordination, we find out that homogeneous expectations is not a sufficient condition to have high degree of coordination. We analyze the individual forecasting errors as a determinant of the coordination within group and results show that a positive and significant correlation between individual errors strongly influence the level of coordination

Formal Approaches to Socio Economic Policy Analysis - Past and Perspectives

This paper is motivated by the observation that (1) socio economic analysis uses significantly less formalisms than mainstream economics, and (2) that there exist numerous situations in which socio economics could benefit from a more formal analysis. This is particularly the case if institutions play an important role in the system to be investigated. Starting with a broad conception of a formalism, this paper introduces and discusses five different formal approaches regarding their adequateness for socio economic analysis: The Social Fabric Matrix Approach, the Institutional Analysis and Development Framework, System Dynamics, (Evolutionary) Game Theory, and Agent Based Computational Modeling. As a formal analysis always comes up with implicit ontological and epistemological tendencies, that have to be reflected if the formalism should contribute to a better understanding of the system under investigation, this paper pays particular attention to these tendencies of the considered formalisms. In the end, antagonisms and possible convergences among the formalisms are discussed

Formal Approaches to Socio Economic Policy Analysis - Past and Perspectives

This paper is motivated by the observation that (1) socio economic analysis uses significantly less formalisms than mainstream economics, and (2) that there exist numerous situations in which socio economics could benefit from a more formal analysis. This is particularly the case if institutions play an important role in the system to be investigated. Starting with a broad conception of a formalism, this paper introduces and discusses five different formal approaches regarding their adequateness for socio economic analysis: The Social Fabric Matrix Approach, the Institutional Analysis and Development Framework, System Dynamics, (Evolutionary) Game Theory, and Agent Based Computational Modeling. As a formal analysis always comes up with implicit ontological and epistemological tendencies, that have to be reflected if the formalism should contribute to a better understanding of the system under investigation, this paper pays particular attention to these tendencies of the considered formalisms. In the end, antagonisms and possible convergences among the formalisms are discussed