ACE models are consistent with the ontological and epistemological

According to the previous elaborations on the ontology and epistemology of complex economies, an adequate method to study complex economic systems must meet the following general criteria: 1. From the ontological nature of complex economic systems it follows that an adequate method must be able to represent the system under investigation as a system of organized parts, or subsystems.

2. From this ontology it also follows that an adequate method must be able to represent mechanisms operating in these (sub)systems. In particular it has to account for a potential self-organization of the system, potential interaction effects among different mechanisms, and for both top-down and bottom-up effects.

42_{Aligning models with each other is generally difficult. Axtell, Axelrod, Epstein, and Cohen (1996) developed a}

useful framework to align simulation models. As we have shown in Alvarez-Pereira et al. (2015), this works equally well for the case of simulation and non-simulation models.

3. My epistemology of complex systems requires a method that is capable of providing mechanismic and generative explanations for the phenomena under study. In this context, it must be able to potentially represent a wide range of mechanisms (going beyond pure market mechanisms).

I argue that ACE modeling meets all these criteria and is therefore a viable method to study complex economic systems. I have elaborated on related arguments in the context of how ACE models can be helpful for institutionalist theorizing in chapters 2, 4, and 5. These arguments equally apply in the current context. In the following I will therefore only extend these arguments in relation to our conception of complex economic systems where necessary:

The representation of sub- and super-systems Today ACE models are usually programmed according to the object oriented programming paradigm. This means the programs consist of objects and methods working on these objects. This allows one to represent entities in the real world as objects giving them a straightforward interpretation. Such a way of programming aligns perfectly well with the ontology suggested above: each system can be modeled as an object (more specifically: an instantiation of a class), and the mechanisms this system carries are the methods of this class. Subsystems of these systems can equally be modeled as classes and refer directly to the properties of their super-system. Note that this hierarchical structure of sub- and supersystems is not a technical necessity. It is reflected only in the causal relationship among the classes and only during the interpretation of the model this hierarchy becomes explicit. Technically, an agent is a class just as a social institution and their hierarchical relation is constituted in the interpretation we give to the two classes. The fact that emergence of e.g. a certain wealth distribution is considered and upward effect, and that the way people orient themselves on social institutions is considered a downward effect does not follow from the technical specification of the ACE model alone.

The representation of mechanisms and their interactions Mechanisms are implemented in ACE models as methods - a very clear programming concept. ACE models are also a natural way to represent many different parts of a system (e.g. agents, which may be represented as instances of an agent class) that are related to each other in an organized way (through the exogeneously given or endogenously emerging network structure) and that lead to emergent properties of the system. Because the information of the agents is usually (but not necessarily) local, and the same is true for their interactions, ACE models are also predestined to represent self-organizing processes.43

43_{This capability is of particular importance for many heterodox schools of thought that do not consider self-}

organization to be a priori beneficial: the consequences may well be devastating for the agents involved. In such cases, it is appropriate to think about how to control the self-organizing mechansims. This is ultimately a question of studying the interaction effects of different mechanisms, a task that is very difficult to accomplish with non-computational tools.

1.4. METHODOLOGY: COMPLEXITY ECONOMICS NEEDS COMPUTATIONAL METHODS The isolation of mechanisms and mechanismic and generative explanations More impor- tant than representing mechanisms is to isolate their effect on the economic system under study: most mechanisms in an ACE model are (or at least should be) accounted for in a modular way: this means that the modeler can turn them on and off and thus elaborate very explicitly on their isolated effect and the interaction among different mechanisms by studying their effect both in co-existence and absence of another mechanism. In Alvarez-Pereira et al. (2015), for example, we study the effect of different institutions of reproduction on the inequality dynamics of a particular society. In our model we can vary the degree of assortativity among different social classes and determine the effect on the timing on inequality dynamics. This allows us very well to isolate the precise effect of assortativity when it comes to marriage and reproductive institutions.Another example that also illustrates how both upward and downward effects can be implemented in a simple ACE is the model by Hodgson and Knudsen (2004). For more details I refer to the extensive discussion of the model in chapter 4. In this chapter I also give various examples of how mechanisms that have received particular attention in institutionalist theory can be accounted for in ACE models. Furthermore, explanations in terms of ACE models are also consistent with the requirement for generative explanations: In fact, the whole concept of generative social sciences comes from the agent-based simulation community (Joshua Epstein & Axtell, 1996; J. Epstein, 1999). ACE models are the prototype to deduce aggregate dynamics from the interaction among heterogeneous and interdependent agents.

1.4.2

Why ACE models are required for the study of complex economic