A Review of Agent-based Modeling (ABM) Concepts and Some of its Main Applications in Management Science

We live in a very complex world where we face complex phenomena such as social norms and new technologies. To deal with such phenomena, social scientists often use reductionism approach where they reduce them to some lower-lever variables and model the relationships among them through a scheme of equations. This approach that is called equation based modeling (EBM) has some basic weaknesses in modeling real complex systems so that assumptions such as unbounded rationality and perfect information are strongly emphasized while adaptability and evolutionary nature of all engaged agents along with network effects go unaddressed. In tackling deficiencies of reductionism, the complex adaptive system (CAS) framework has been proven very influential in the past two decades. In contrast to reductionism, under CAS framework, complex phenomena are studied in an organic manner where their agents are supposed to be both boundedly rational and adaptive. As the most powerful methodology for CAS modeling, agent-based modeling (ABM) has gained a growing popularity among academics and practitioners. ABMs show how agents' simple behavioral rules and their local interactions at micro-scale can generate surprisingly complex patterns at macro-scale. Despite a growing number of ABM publications, those researchers unfamiliar with it have to study a number of works to understand (1) why and what of ABM, (2) its differences with EBM (3) its main functionalities in scientific studies and (4) some of its applications in management science. So, this paper's major contribution is to help researchers particularly those unfamiliar with ABM to get insights regarding its philosophy and use and gain a big picture of it.