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Smart systems and simple agents: industry pricing by parallel rules

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  • Raymond Board
  • Peter A. Tinsley

Abstract

A standard macroeconomic specification is that the aggregate economy is directed by a single, smart representative agent using optimal decision rules. This paper explores an alternative conjecture--that the dynamic behavior of markets is often better interpreted as the interactions of many heterogeneous, rule-of-thumb agents who are loosely coupled in smart systems--much like the contrast of a single serial processor with global information versus parallel processors with limited communications. The illustration used in this paper is the contrast between a conventional macro model of sluggish adjustments in an aggregate producer price index and a model of delayed industry price adjustments in a distributed production system under costly inter-firm communications.

Suggested Citation

  • Raymond Board & Peter A. Tinsley, 1996. "Smart systems and simple agents: industry pricing by parallel rules," Finance and Economics Discussion Series 1996-50, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:1996-50
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    References listed on IDEAS

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    Cited by:

    1. Tinsley, P A, 2002. "Rational Error Correction," Computational Economics, Springer;Society for Computational Economics, vol. 19(2), pages 197-225, April.
    2. Faust, Jon & Tryon, Ralph, 1995. "A Distributed Block Approach to Solving Near-Block-Diagonal Systems with an Application to a Large Macroeconometric Model," Computational Economics, Springer;Society for Computational Economics, vol. 8(4), pages 303-316, November.
    3. John Rust, 1996. "Dealing with the Complexity of Economic Calculations," Computational Economics 9610002, University Library of Munich, Germany, revised 21 Oct 1997.

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