Author

Will Hayworth

Date of Award

2012

First Advisor

Daniel Neilson

Second Advisor

Paul Shields

Abstract

The recession following 2008's financial crisis led many economists to search their souls: few economic models had predicted what would transpire, and the relative macroeconomic tranquility of previous years had inspired some academics to declare the period the Great Moderation. In order to better understand the world in which we live and avert future calamity, we need not depart radically from economic principles as we currently understand them. We ought, however, to incorporate them more thoroughly into our models.

Economic activity consists of human behaviors moderated and amplified through institutions: previous modeling paradigms have sacrificed detail and made assumptions in order to render economic models tractable. Advances in computing power mean that we need make fewer tradeoffs in this respect than we once did, but the progress of computer science may not automatically result in improved economic models. This thesis examines financial dynamics and their underlying economic principles, describes a novel software framework (globe) for agent-based modeling, and models a simple financial system using that framework. In doing so, it suggests that a better way forward is not merely plausible but, in fact, possible.

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