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Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page Smart Systems and Simple Agents: Industry Pricing by Parallel Rules
Raymond Board and P.A. Tinsley

Abstract: A standard macroeconomic specification is that the aggregate economy is directed by a single, smart representative agent using optimal decision rules. This paper explores an alternative conjecture--that the dynamic behavior of markets is often better interpreted as the interactions of many heterogeneous, rule-of-thumb agents who are loosely coupled in smart systems--much like the contrast of a single serial processor with global information versus parallel processors with limited communications. The illustration used in this paper is the contrast between a conventional macro model of sluggish adjustments in an aggregate producer price index and a model of delayed industry price adjustments in a distributed production system under costly inter-firm communications.

Keywords: Costly communications, parallel Jacobi solutions, producer pricing

Full paper (180 KB PDF) | Full paper (183 KB Postscript)

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