The Promises and Perils of Agent-Based Computational Economics

In this paper I review the main strengths and weaknesses of agent-based computational models. In particular I rationalise the main theoretical critiques, which point to the following problematic areas: (i) interpretation of the simulation dynamics, (ii) estimation of the simulation model, and (iii) generalisation of the results. I show that there exist solutions for all these issues. Moreover, this paper clarifies some confounding differences in terminology between the computer science and the economic literature.