Luis R. Izquierdo

What every agent-based modeller should know about floating point arithmetic

Floating point arithmetic is a subject all too often ignored, yet, for agent-based models in particular, it has the potential to create misleading results, and even to influence emergent outcomes of the model. Using a simple demonstration model, this paper illustrates the problems that accumulated floating point errors can cause, and compares a number of techniques that might be used to address them. We show that inexact representation of parameter values, imprecision in calculation results, and differing implementations of mathematical expressions can significantly influence the behaviour of the model, and create issues for replicating results, though they do not necessarily do so. None of the techniques offer a failsafe approach that can be applied in any situation, though interval arithmetic is the most promising.

Market Failure Caused by Quality Uncertainty

The classical argument used to explain why markets can fail when there is product quality variability (e.g. the used car market) relies heavily on the presence of asymmetric information —i.e. there must exist some reliable quality indicators that can be observed by sellers, but not by buyers. Using computer simulation, this paper illustrates how such market failures can occur even in the absence of asymmetric information. The mere assumption that buyers estimate the quality of the product they buy using their past experience in previous purchases is enough to observe prices drop, market efficiency losses, and systematic underestimation of actual product quality. This alternative explanation is shown to be valid for a very wide range of learning rules and in various market contexts.