Fecund, cheap and out of control: Heterogeneous economic agents as flawed computers vs. markets as evolving computational entities

Our objective in this paper is to try and clarify what we perceive to be tw o major approaches to the problem of heterogeneous interactive economic age nts, and argue in favor of the option which we feel has suffered relative n eglect. The first option, perhaps best represented by the work of Alan Kirm an, but found throughout the avant garde of the profession, tends to charac terize agents as flawed automata or limited computational entities. Exercis es in this tradition tend to produce simulations of specific economic situa tions. While there is much to admire in this program, we maintain that invo king a gestalt reversal which regards markets as computational devices, or literal formal automata, would achieve many of the same goals as the former research program, but would foster a rich and viable evolutionary economic s to boot, one which would encourage both mathematical rigor and historical relevance, while avoiding many of the mechanistic excesses of neoclassical theory. Because the second path is the road less traveled, we survey what we call a computational understanding of markets, in order to provide a fra mework for incorporation of automata theory into a consciously evolutionary approach. For after all, what is the purpose of acknowledging the heteroge neity of agents, if not to then subject them to some form of selection proc ess? We work through an explicit example of the automata theory approach, u sing two papers by Gode & Sunder [1993, 1997] to illustrate how some recent literatures could be recast into this novel approach. We close with the su ggestion that it is experience with real-time markets being run as automata on computers, and not just some academic simulations, which will induce bo th economists and market participants to come to an appreciation of this ki nd of evolutionary economics.