Interaction Unit
Economic Interaction Units (also referred to as agents, actors, or decision-making units (DMUs)) are entities that participate in economic interactions by making decisions related to resource allocation, production, exchange, or consumption.
Economic Actor Space
What is the most general characterization of the "economic actor space"? The economic actor space is the set of all entities—individual or collective, natural or artificial—that possess the capacity to make decisions, act upon resources, and participate in economic interactions within a given economic system.
| Actor Type | Description | Agency | Interaction Capacity | Scale | Modularity | Institutional Embedding |
|---|---|---|---|---|---|---|
| Individual | A single human decision-maker participating in consumption, labor, or trade. | High (personal decisions) | Consumption, labor supply, informal trade | Micro (1:1) | None | Often low (varies by legal system) |
| Household | A group of individuals living together sharing resources and decisions. | Collective agency | Joint consumption, labor allocation, savings | Small group (2–10+) | Low–Medium (roles, structure) | Partial (legal, cultural) |
| Firm | A business organization producing goods or services with strategic goal orientation. | Goal-oriented, strategic | Production, employment, contracts, markets | Meso (10s–1000s) | High (departments, units) | Strong (legal entity, market system) |
| Cooperative | A member-owned enterprise based on democratic control and shared benefits. | Shared democratic agency | Production, pooling, trade | Meso (10s–1000s) | High (member units) | Strong (formalized under cooperative law) |
| Trade Union | An organization representing workers to negotiate labor conditions and rights. | Representational agency | Bargaining, negotiation, advocacy | Meso–Macro | Medium (branches, locals) | Strong (labor law, political links) |
| State | The sovereign political entity with authority over economic regulation and resource allocation. | Sovereign, composite agency | Taxation, redistribution, regulation, production | Macro (millions) | Very high (ministries, agencies) | Very strong (constitutional systems) |
| Multilateral Institution | International body coordinating policies, development finance, or governance among states. | Delegated, negotiated agency | Coordination, governance, development finance | Supra-national | Very high (committees, boards) | Strong (treaty-based, intergovernmental) |
| Non-Governmental Organization (NGO) | Private, nonprofit entities working on social, environmental, or advocacy issues. | Advocacy/Service agency | Advocacy, development projects, social services | Local to international | Medium (chapters, affiliates) | Medium (nonprofit legal status) |
| Informal Group (Community) | Loosely organized social groups engaging in informal trade or mutual aid. | Collective agency | Informal trade, mutual aid, local cooperation | Small to local | Low (loosely structured) | Low (social norms, informal institutions) |
| Financial Institution | Entities providing capital, credit, and investment services to markets and actors. | Strategic, fiduciary agency | Capital provision, credit, investment | Meso to Macro | High (branches, divisions) | Strong (financial regulation) |
| Market Platform (Exchange) | Entities facilitating buyer-seller matching and price discovery in markets. | Facilitative agency | Matching buyers and sellers, price discovery | Local to global | Medium to High (functional units) | Strong (regulated marketplaces) |
| Entrepreneur (Startup) | Individual or small team engaged in innovative new business ventures. | Goal-oriented, innovative agency | Product/service innovation, market entry | Micro to Meso | Low to Medium (small teams) | Partial (business registration) |
| Professional Association | Organizations that govern standards and practices of specific professions. | Representational agency | Standard setting, professional development | Regional to national | Medium (chapters) | Medium (certification, legal recognition) |
| Religious Institution | Bodies organizing religious practice and providing moral guidance and social capital. | Normative, collective agency | Moral guidance, resource allocation, social capital | Local to global | Medium (congregations, orders) | Medium (legal and social embedding) |
| Educational Institution | Organizations dedicated to knowledge dissemination and socialization through teaching. | Institutional agency | Knowledge creation, training, socialization | Local to global | High (departments, faculties) | Strong (accreditation systems) |
| Research Institution | Entities focused on generating and diffusing scientific and technical knowledge. | Knowledge production agency | Innovation, knowledge diffusion | Local to global | High (labs, centers) | Strong (grant systems, accreditation) |
| Informal Entrepreneur (Microenterprise) | Small-scale business actors operating outside formal regulations. | Individual or small group agency | Small-scale production, trade | Micro to small | Low (single proprietorship) | Low (informal sector) |
| Social Enterprise | Organizations combining social goals with commercial business activities. | Hybrid agency | Social impact + commercial activity | Micro to Meso | Medium (teams, projects) | Medium (hybrid legal forms) |
| Investor (Venture Capitalist) | Actors allocating capital to high-risk, high-reward opportunities. | Capital allocation agency | Funding innovation, risk management | Meso to Macro | Low (individual or fund structures) | Strong (regulated financial sector) |
| Labor Contractor (Broker) | Mediators who match labor supply with demand, often temporarily. | Mediating agency | Labor supply matching, temporary employment | Local to regional | Low to Medium | Medium (employment laws) |
| Consumer Group (Advocacy Group) | Collectives representing consumer interests to influence markets and policies. | Collective agency | Market influence, consumer protection | Local to national | Low to Medium | Medium (consumer rights laws) |
| Cultural Institution | Organizations promoting cultural production and value transmission. | Normative agency | Cultural production, value transmission | Local to national | Medium (branches, affiliates) | Medium (legal and social embedding) |
| State-Owned Enterprise | Commercial organizations owned and controlled by the state. | Sovereign, commercial agency | Production, service provision under state ownership | Meso to Macro | High (departments, units) | Very strong (state ownership) |
Behavioral Schema
How to model the Actor?
| Actor Type | Common Modeling Behavioral Schema |
|---|---|
| Individual | Utility maximization; bounded rationality; behavioral heuristics |
| Household | Collective utility maximization; cooperative bargaining models |
| Firm | Profit maximization; principal-agent models; game-theoretic strategy |
| Cooperative | Democratic decision-making; collective welfare maximization |
| Trade Union | Collective bargaining models; negotiation game theory |
| State | Public choice theory; bureaucratic models; principal-agent frameworks |
| Multilateral Institution | Collective action frameworks; institutional economics |
| Non-Governmental Organization (NGO) | Advocacy network models; principal-agent with social goals |
| Informal Group (Community) | Social norms; reciprocity models; trust-based interactions |
| Financial Institution | Risk-return optimization; portfolio theory; agency models |
| Market Platform (Exchange) | Matching theory; auction models; mechanism design |
| Entrepreneur (Startup) | Entrepreneurial opportunity recognition; innovation diffusion models |
| Professional Association | Regulatory capture models; standard-setting game theory |
| Religious Institution | Norm internalization; social capital theory |
| Educational Institution | Human capital theory; institutional learning models |
| Research Institution | Knowledge production and diffusion models; innovation systems |
| Informal Entrepreneur (Microenterprise) | Survivalist economics; informal sector behavior |
| Social Enterprise | Double bottom line models; hybrid organizational theory |
| Investor (Venture Capitalist) | Portfolio theory; risk-return optimization; agency theory |
| Labor Contractor (Broker) | Matching theory; labor market intermediation models |
| Consumer Group (Advocacy Group) | Collective action; interest group theory |
| Cultural Institution | Cultural reproduction theory; social norms modeling |
| State-Owned Enterprise | Public enterprise models; principal-agent with state objectives |
Theory: Agent Model
- Rational Choice Theory - This model assumes that individuals make decisions based on their self-interest and available information. The critical paper for this model is “An Axiomatic Characterization of the Quadratic Scoring Rule” by Amos Tversky and Daniel Kahneman (1981).
- Game Theory - Game theory studies decision-making involving two or more individuals in strategic situations. The critical paper for this model is “Theory of Games and Economic Behavior” by John von Neumann and Oskar Morgenstern (1944).
- Behavioral Economics - This model assumes that individuals are not always rational and can be influenced by psychological factors. The critical paper for this model is “Prospect Theory: An Analysis of Decision under Risk” by Daniel Kahneman and Amos Tversky (1979).
- Agent-Based Modeling - This model focuses on the behavior of individual agents and how they interact with one another. The critical paper for this model is “Garden of Forking Paths: Why multiple comparisons can be a problem, even when there is no ‘fishing expedition’ or ‘p-hacking,’ and the research hypothesis was posited ahead of time” by Andrew Gelman and Eric Loken (2013).
- New Classical Economics - This model assumes individuals have rational expectations and make decisions based on available information. The critical paper for this model is “Rational Expectations and the Theory of Economic Policy” by Robert Lucas Jr. (1976).
Behavior
Behavior
Behavior is the observable expression of an entity’s internal dispositions as it interacts with its environment over time. It reflects the structured sequence of actions or responses performed by an interaction unit in relation to stimuli, goals, norms, and constraints.
Signature
Note: While behavior can be modeled as an external process, in this framework we treat behavior as the internal dispositional structure of an agent that governs how it responds to stimuli and makes decisions.
| Aspect | Description |
|---|---|
| Type | Dispositional Process |
| Bearer | Interaction Unit (e.g., individual, group, organization) |
| Temporality | Temporally extended; behavior unfolds across time as a patterned process |
| Context-Sensitivity | Behavior adapts to external stimuli, internal states, and regulatory conditions |
| Relation to Norms | Can conform to, deviate from, or challenge shared regulations and cultural scripts |
| Observation Level | Can be analyzed at micro (individual), meso (group), or macro (system) levels |
| Ontological Role | Connects internal state (e.g., preferences, beliefs) with external phenomena (e.g., outcomes, events) |
References
- Agent
- Economic agents and markets as emergent phenomena
- Arthur, W. B. (1993). On designing economic agents that behave like human agents.
- Kirman, A. (1991). Whom or what does the representative individual represent?. Journal of Economic Perspectives, 5(2), 117-136.
- Sargent, Thomas J., and Neil Wallace. "Rational expectations and the theory of economic policy." Journal of Monetary economics 2.2 (1976): 169-183.
- Behavior