Masaryk University Faculty of Economics and Administration Master’s Thesis Brno 2019 Bc. Jakub Weiner Masaryk University Faculty of Economics and Administration Field of study: Mathematical and Statistical Methods in Economics Institutions and Agent-Based Computational Economics Master’s Thesis Advisor: Author: Mgr. Josef Menšík, Ph.D. Bc. Jakub Weiner Brno, 2019 Author: Bc. Jakub Weiner Title of Thesis: Institutions and Agent-Based Computational Economics Department: Department of Economics Supervisor: Mgr. Josef Menšík, Ph.D. Year of Defense: 2019 Annotation Thesis discusses the concept of spontaneously emergent social institutions within Agent Based Modeling. Specific cases of models are discussed and classified through the whole process of emergence, starting within minds of agents and finishing with backward influence of emergent phenomena on the minds. Special attention is being givento the notion of individualistic and holistic points of view towards the world as well as their relations with Agent Based Models (ABMs) incorporating emergence of social institutions. Key finding of the paper is, that the utilized methods of modeling social reality through ABMs in fact exhibit notable similarities with interrelations between the two points of view. Keywords Methodology of Economics, Agent-Based Modeling, Social Ontology, Emergence, Indi- vidualism and Holism, Micro-Macro Relationship, Social Institutions, Mind Declaration Hereby I declare that this paper is my original authorial work, which I have worked out on my own. All sources, references, and literature used or excerpted during elabora- tion of this work are properly cited and listed in complete reference to the due source. Brno, 3. January 2019 Author’s signature Acknowledgements As it is symptomatic for various types of literature, there is a group of people helping the author to shape the thoughts or just contributing to him not going mad. This case is not an exception. I would like to thank Dr. Josef Menšík for having enough courage, levity and irony to lead this project independently of the current scope of the sources and time constraints and for strengthening my critical thinking, which is here most expressed through learning to weight every word as the assumption of knowing something is ultimately doubtful. I would like to thank my parents, Věra and Jiří, for their everlasting moral and material support, including the one towards the three long-term trips abroad, which extensively widened my knowledge and at the same time ensured that I will never want to live in Vienna again. To my sister Joziš for not always requested but always valuable comments on both linguistic and contextual aspects of the text as well as for evil roads and movable wagons. To my (especially first year) study fellows, Honza Přikryl and Marek Soukup, with whom we explored much beyond the hidden beauty of Social Sciences. To JJJMMMMDDAKPZT for many benefits including tolerance for not delivered lunches and scalped heads. To Christian Baden & Claire Benn of Hebrew University who showed me the worlds of networks and technological ethics. To LATEXfor stimulating my scripting desires despite this being a theoretical study. To Tony Savarimuthu for providing me with scripts of his models and a couple of literature suggestions, which is what also makes me thankful to Neal Tsur. To our dog Indie for being my spare partner on more than 100km of walks during the last week of writing this paper. To my flatmates Viktorie and Silvie to sending me to sleep when it was too late to come up with additional asset for the research. To my superiors and a variety of friends for supporting my off-track mode... Contents 1 Introduction 1 1.1 The mainstream paradigm and contemporary research questions ........2 1.2 OIE, Transformational models and ABM .....................3 1.3 Aim, scope and structure of the thesis ......................5 2 Introducing ABMs with emergent Social Institutions 7 2.1 Technical properties of a Agent-Based Model ...................9 2.2 ABMs with emerging Social Institutions ..................... 15 2.3 Overview ..................................... 23 3 Classifying Mind within emergent Social Institutions 25 3.1 Towards framing of Mind within ABM context ................. 26 3.2 Fixed mean agents ................................. 32 3.3 Dynamic mind agents ............................... 36 3.4 Overview ..................................... 40 4 Classifying emergent Social Institutions 43 4.1 Emergence ..................................... 44 4.2 Macro-level phenomena .............................. 47 4.3 Backward influence of Institutions towards Minds ................ 53 4.4 Overview ..................................... 59 5 Dichotomy of Mind and Institutions in ABM 61 5.1 TMSA and ABMs with emergence ........................ 61 5.2 An overview of the classification ......................... 64 5.3 Overview ..................................... 71 6 Assesing relevance of ABMs with emergent Social Institutions 73 7 Conclusion 79 Index 81 List of Tables 89 List of Figures 91 1 Introduction “The art of modelling is to simplify as much as possible, but not to oversimplify to the point where the interesting characteristics of the phenomenon are lost.” – John H. Miller and Scott E. Page, 2004, 9 The present volume is a part of discussions on the ontological background of the social reality and viable methodical approaches towards researching it. This is being done mostly by questioning the mainstream Neoclassical Economical theory (based in the late 19th century marginalism, NCE henceforward) from the position of Old/Traditional Institutional Economics (OIE henceforward). Whereas the former concept believes in the world ruled by self-centered agents (as well as the famous Invisible hand) and self- propagating equilibrias, the latter sees the major explanatory power in social institutions. Those can be understood as a general context of our behavior and existence, shaped by a.o. the environment(s) which we occupy. Hence, the ways of how people reason (and then act) in certain situations can be dramatically different given where they come from and what they have gone through. For instance, people from certain countries might feel guilty for throwing food away for various reasons, which would not concern people from other places around the world. Caring for the environmental sustainability or nutrition for the poor is usually not enforced by legal authorities. Nevertheless, some people still do it even though axioms behind the principle of maximalization utilized within mainstream Economics would advice them not to. A different case are phenomena, which also constrain one’s behavior, but arebacked by punishment. To such phenomena, which can be possibly termed formal institutions, typically belong laws. A particular difference between formal and informal institutions is in the possibility of measurement. While the obediance to the formal institutions can be measured by objective indicators of compliance with their deontic nature (say evidence of crime acts), for informal institutions such as behaving nicely towards older people, objective measurement is much more difficult. Perhaps this difference is among the causes of why some researchers, such as Carl Menger (according to Furubotn and Richter 2005) understand only the informal institutions as truly scientifically interesting1. Measurement of the impact is not the only conceptual issue related to Social Institutions. Among others it is an issue related to attributing them to particular people within the society. Social institution defining that people in Nordic countries pay respect to the nature 1. Menger was interested in spontaneous emergence of trading unit - money. Hodgson and Knudsen (2004) denote modeling money (consisting at his time of the article by Marimon et al. 1989) in ABM as a rather complicated matter, for in the featured model an emergence of a single monetary unit is not always the case. The current approach of Gangotena (2016) is facing an issue with the need to pre-define liquidity of items within the system, which de-facto prescribes what the future institution is. Both models are discussed within the paper. 1 1. Introduction could serve as a matter for scientific verification. However, the compliance with such social institution is quite hard to identify and therefore measure. This issue can come up once the intention to preserve the nature is not reported by any of the respondents but still there are no cans in the forest. To whom should then such effects be attributed if the behavior is not motivated by compliance with formal rules? 1.1 The mainstream paradigm and contemporary research questions The current level of technological advance brings important changes to general function- ings of the societies, making the informal norms much stronger than before. This can be seen in some general trends of changes in the distrubution of power in decision-making over the past century. The Hobbesian idea of a powerful state ruler has in the Western world almost diminished over the years. The current role of state in specific processes is then deduced from a trust given to it by single agents rather than from enforced obediance to the system. The states have all along experienced decreasing power over information as the media have at first been privatized by various actors and then made almost equal with various sources on the internet. There is also the issue of borders, which are de iuere (Schengen) or de facto (any