Another modeling methodology that has developed at the same time as DSGE models is Agent-based computational economics (ACE), which is a variety of Agent-based modeling. Like the DSGE methodology, ACE seeks to break down aggregate macroeconomic relationships into microeconomic decisions of individual agents. ACE models also begin by defining the set of agents that make up the economy, and specify the types of interactions individual agents can have with each other or with the market as a whole. Instead of defining the preferences of those agents, ACE models often jump directly to specifying their strategies. Or sometimes, preferences are specified, together with an initial strategy and a learning rule whereby the strategy is adjusted according to its past success. Given these strategies, the interaction of large numbers of individual agents (who may be very heterogeneous) can be simulated on a computer, and then the aggregate, macroeconomic relationships that arise from those individual actions can be studied.
