Why and how agent based modeling can help economics

Economic theory seeks to explain economic facts from the behavior of individuals. In this paper, it is argued that the type of individualism methodology (IM), the economic profession should consider, is an institutional IM which includes a structural one as a special case. It follows that the mechanism leading to individual behavior can be decomposed into a social mechanism and a decision mechanism. Moreover, economic theory and game theory have generally made too restrictive assumptions concerning interactions structures. It is argued that agent-based modeling may be a useful approach for understanding processes combining heterogeneous and situated decision rules, feed-back effects and non trivial interaction structures leading to complex systems and emergent properties.