H. Dawid et M. Kopel, ON ECONOMIC APPLICATIONS OF THE GENETIC ALGORITHM - A MODEL OF THE COBWEB TYPE, Journal of evolutionary economics, 8(3), 1998, pp. 297-315
This paper explores the idea of using artificial adaptive agents in ec
onomic theory. In particular, we use Genetic Algorithms (GAs) to model
the learning behavior of a population of adaptive and boundedly ratio
nal agents interacting in an economic system. We analyze the behavior
of a GA in two versions of a model of the cobweb-type, one in which fi
rms make only quantity choices, and the other one in which firms first
decide to exit or to stay in the market, and subsequently decide how
much to produce. We present simulations with different coding schemes
and interpret the rather surprising differences between the results fo
r different setups by employing the mathematical theory for GAs with s
tate-dependent fitness functions. In particular, we explain the relati
onship between coding and convergence properties of GAs.