Agent-Based Modeling: Introduction and Actuarial Applications

Agent-based modeling (ABM) has become an important and valued approach to modeling complex systems. In this paper, I advocate for actuaries to recognize the complex systems-nature of socioeconomic and risk processes and for ABM models to become a regular resource in our actuarial toolkits. These models allow for the observation of potential macro-behavior emerging from the underlying agent-level micro-activity and characteristics. Therefore, ABM models can provide significant insight into the quantification of risk and the identification of optimal strategies. This paper is an introduction and guide to ABM models, and it includes several case studies to illustrate their utility.