Economic Modeling Using Evolutionary Algorithms: The Effect of a Binary Encoding of Strategies

25 Pages Posted: 8 Jun 2009

See all articles by Ludo Waltman

Ludo Waltman

Erasmus University Rotterdam - Faculty of Economics and Business

Nees Jan van Eck

Erasmus University Rotterdam - Erasmus School of Economics

Rommert Dekker

Erasmus University, Rotterdam (EUR) - Erasmus School of Economics ; Econometric Institute; Erasmus University, Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM) ; Tinbergen Institute Rotterdam

U. Kaymak

Erasmus University Rotterdam (EUR) - Faculty of Economics - Department of Computer Science; Erasmus Research Institute of Management (ERIM)

Date Written: 20 2009 5,

Abstract

We are concerned with evolutionary algorithms that are employed for economic modeling purposes. We focus in particular on evolutionary algorithms that use a binary encoding of strategies. These algorithms, commonly referred to as genetic algorithms, are popular in agent-based computational economics research. In many studies, however, there is no clear reason for the use of a binary encoding of strategies. We therefore examine to what extent the use of such an encoding may influence the results produced by an evolutionary algorithm. It turns out that the use of a binary encoding can have quite significant effects. Since these effects do not have a meaningful economic interpretation, they should be regarded as artifacts. Our findings indicate that in general the use of a binary encoding is undesirable. They also highlight the importance of employing evolutionary algorithms with a sensible economic interpretation.

Keywords: agent-based computational economics, evolutionary algorithm, genetic algorithm, binary encoding, premature convergence

JEL Classification: M11, R4, M, R15, B41

Suggested Citation

Waltman, Ludo and van Eck, Nees Jan and Dekker, Rommert and Dekker, Rommert and Kaymak, Uzay, Economic Modeling Using Evolutionary Algorithms: The Effect of a Binary Encoding of Strategies (20 2009 5,). ERIM Report Series Reference No. ERS-2009-028-LIS, Available at SSRN: https://ssrn.com/abstract=1414682

Ludo Waltman (Contact Author)

Erasmus University Rotterdam - Faculty of Economics and Business ( email )

P.O. Box 1738
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Netherlands
+31 10 408 1182 (Phone)
+31 10 408 9640 (Fax)

Nees Jan Van Eck

Erasmus University Rotterdam - Erasmus School of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

HOME PAGE: http://people.few.eur.nl/nvaneck/

Rommert Dekker

Erasmus University, Rotterdam (EUR) - Erasmus School of Economics ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
+31 10 408 1274 (Phone)
+31 10 408 9162 (Fax)

HOME PAGE: http://www.few.eur.nl/few/people/rdekker/

Econometric Institute ( email )

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HOME PAGE: http://https://www.eur.nl/people/rommert-dekker

Erasmus University, Rotterdam (EUR) - Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Tinbergen Institute Rotterdam ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Uzay Kaymak

Erasmus University Rotterdam (EUR) - Faculty of Economics - Department of Computer Science ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

Erasmus Research Institute of Management (ERIM)

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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