Navigating through Economic Complexity: Phase Diagrams & Parameter Sloppiness

We argue that establishing the phase diagram of Agent Based Models (ABM) is a crucial first step, together with a qualitative understanding of how collective phenomena come about, before any calibration or more quantitative predictions are attempted. Computer-aided gedanken experiments are by themselves of genuine value: if we are not able to make sense of emergent phenomena in a world in which we set all the rules, how can we expect to be successful in the real world? ABMs indeed often reveal the existence of Black Swans/Dark Corners i.e. discontinuity lines beyond which runaway instabilities appear, whereas most classical economic/finance models are blind to such scenarii. Testing for the overall robustness of the phase diagram against changes in heuristic rules is a way to ascertain the plausibility of such scenarii. Furthermore, exploring the phase diagrams of ABM in high dimensions should benefit enormously from the identification of stiff'' and sloppy’’ directions in parameter space.