4 ms·

So you are saying the representative agent assumption limits current models to 100% centrally plannable economies? If that is not the implication, please tell

So you are saying the representative agent assumption limits current models to 100% centrally plannable economies? If that is not the implication, please tell us what limits this assumption implies. Careful buyers want to know.

exelius 11y ago
No, but there is an assumption that the representative agent is actually representative of the "average" of the agents participating in the market. So when we apply a model with this assumption to real world data, we are making an assumption that the "representative agent" described in the model is truly representative of the market participants. This causes a range of potential error in the outcomes predicted by the model (based on how representative the "representative agent" might actually be) on top of any error introduced by the model itself. In many circumstances, this amount of error is acceptable, and thus the model is useful even if the assumptions are incorrect. If you want to reduce the error further, come up with a series of categories (or multiple representative agents) to describe the behavior of the buyers participating in your market. There's always going to be some margin of error on predictions though, because the future isn't predetermined and events can happen randomly.
- jedharris 11y ago
  I don't think this addresses the issue. First, I think multiple representative agents have to be carefully defined to generate an equilibrium solution -- which implies some strong limitation on the space of possible agents. Second, and more important, you have not described the "Buyer beware" message you claim is implicit here. What limitation does the requirement for representative agents impose on the behavior or range of applicability of these models? Unless you can get specific about that we have to fall back on our dark suspicions.

4 ms·

So you are saying the representative agent assumption limits current models to 100% centrally plannable economies? If that is not the implication, please tell

by jedharris 11y ago

exelius 11y ago
No, but there is an assumption that the representative agent is actually representative of the "average" of the agents participating in the market. So when we apply a model with this assumption to real world data, we are making an assumption that the "representative agent" described in the model is truly representative of the market participants. This causes a range of potential error in the outcomes predicted by the model (based on how representative the "representative agent" might actually be) on top of any error introduced by the model itself. In many circumstances, this amount of error is acceptable, and thus the model is useful even if the assumptions are incorrect. If you want to reduce the error further, come up with a series of categories (or multiple representative agents) to describe the behavior of the buyers participating in your market. There's always going to be some margin of error on predictions though, because the future isn't predetermined and events can happen randomly.
- jedharris 11y ago
  I don't think this addresses the issue. First, I think multiple representative agents have to be carefully defined to generate an equilibrium solution -- which implies some strong limitation on the space of possible agents. Second, and more important, you have not described the "Buyer beware" message you claim is implicit here. What limitation does the requirement for representative agents impose on the behavior or range of applicability of these models? Unless you can get specific about that we have to fall back on our dark suspicions.