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A path integral approach to business cycle models with large number of agents

Author

Listed:
  • Pierre Gosselin

    (Université Grenoble Alpes)

  • Aïleen Lotz

    (Cerca Trova)

  • Marc Wambst

    (Université de Strasbourg)

Abstract

This paper presents an analytical treatment of economic systems with an arbitrary number of agents that keeps track of the systems’ interactions and agents’ complexity. This formalism does not seek to aggregate agents. It rather replaces the standard optimization approach by a probabilistic description of both the entire system and agents’ behaviors. This is done in two distinct steps. A first step considers an interacting system involving an arbitrary number of agents, where each agent’s utility function is subject to unpredictable shocks. In such a setting, individual optimization problems need not be resolved. Each agent is described by a time-dependent probability distribution centered around his utility optimum. The entire system of agents is thus defined by a composite probability depending on time, agents’ interactions and forward-looking behaviors. This dynamic system is described by a path integral formalism in an abstract space—the space of economic variables—and is very similar to a statistical physics or quantum mechanics system. The usual utility optimization of a representative agent is recovered as a particular case. Compared to a standard optimization, such a description eases the treatment of systems with small number of agents. It becomes however useless for a large number of agents. In a second step therefore, we show that for a large number of agents, the previous description is equivalent to a more compact description in terms of field theory. This yields an analytical though approximate treatment of the system. This field theory does not model the aggregation of a microeconomic system in the usual sense. It rather describes an environment of a large number of interacting agents. From this description, various phases or equilibria may be retrieved, along with individual agents’ behaviors and their interactions with the environment. For illustrative purposes, this paper studies a business cycle model with a large number of agents.

Suggested Citation

  • Pierre Gosselin & Aïleen Lotz & Marc Wambst, 2020. "A path integral approach to business cycle models with large number of agents," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 15(4), pages 899-942, October.
    • Handle: RePEc:spr:jeicoo:v:15:y:2020:i:4:d:10.1007_s11403-019-00280-3
    DOI: 10.1007/s11403-019-00280-3
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    Cited by:

    1. Lotz, Aïleen, 2011. "An Economic Approach to the Self : the Dual Agent," MPRA Paper 50771, University Library of Munich, Germany.
    2. Pierre Gosselin & Aïleen Lotz & Marc Wambst, 2021. "A statistical field approach to capital accumulation," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 16(4), pages 817-908, October.
    3. Pierre Gosselin & Aïleen Lotz & Marc Wambst, 2019. "A Statistical Field Approach to Capital Accumulation," Working Papers hal-02280634, HAL.

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    More about this item

    Keywords

    Path integrals; Statistical field theory; Business cycle; Budget constraint; Multi-agent model; Interacting agents;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • E1 - Macroeconomics and Monetary Economics - - General Aggregative Models

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