Marco Pangallo

Corrado Monti, Marco Pangallo, Gianmarco De Francisci Morales et al.

Agent-Based Models (ABMs) are used in several fields to study the evolution of complex systems from micro-level assumptions. However, ABMs typically can not estimate agent-specific (or "micro") variables: this is a major limitation which prevents ABMs from harnessing micro-level data availability and which greatly limits their predictive power. In this paper, we propose a protocol to learn the latent micro-variables of an ABM from data. The first step of our protocol is to reduce an ABM to a probabilistic model, characterized by a computationally tractable likelihood. This reduction follows two general design principles: balance of stochasticity and data availability, and replacement of unobservable discrete choices with differentiable approximations. Then, our protocol proceeds by maximizing the likelihood of the latent variables via a gradient-based expectation maximization algorithm. We demonstrate our protocol by applying it to an ABM of the housing market, in which agents with different incomes bid higher prices to live in high-income neighborhoods. We demonstrate that the obtained model allows accurate estimates of the latent variables, while preserving the general behavior of the ABM. We also show that our estimates can be used for out-of-sample forecasting. Our protocol can be seen as an alternative to black-box data assimilation methods, that forces the modeler to lay bare the assumptions of the model, to think about the inferential process, and to spot potential identification problems.

Maxime Saxena, Marco Pangallo, Fabio Caccioli et al.

As Large Language Models (LLMs) become increasingly integrated into financial systems, understanding their behavioural properties is crucial. Do LLMs conform to the rational expectations paradigm, do they exhibit human-like "animal spirits", or do they instead manifest distinct "machine spirits"? We investigate these questions with a simulated financial market, exploring the behaviour of 15 LLMs spanning a range of sizes, capabilities, and providers. Our results show that LLMs exhibit a spectrum of economic behaviours, from stable coordination on the fundamental value to human-like speculative bubbles. These behaviours are generally inconsistent with the rational expectations hypothesis. We also consider an ecology of heterogeneous agents, a more realistic setting compared to markets with identical LLM agents. These mixed markets can produce outcomes which vary substantially across repeated simulations. Even the most advanced models fail to consistently stabilise the market, with price bubbles sometimes forming despite only a minority of agents naturally forming bubbles. Instead, advanced models in mixed markets adapt their forecasting strategies to the behaviour of other agents. This adaptation can allow them to successfully exploit less sophisticated counterparts and achieve higher profits, but can also contribute to increased market volatility. These findings suggest that the introduction of AI agents into financial markets fundamentally reshapes their ecology. In particular, heterogeneous populations of LLMs can generate endogenous instability, while individual-level adaptation may amplify, rather than mitigate, market volatility.

R. Maria del Rio-Chanona, Marco Pangallo, Cars Hommes

We explore the potential of Large Language Models (LLMs) to replicate human behavior in economic market experiments. Compared to previous studies, we focus on dynamic feedback between LLM agents: the decisions of each LLM impact the market price at the current step, and so affect the decisions of the other LLMs at the next step. We compare LLM behavior to market dynamics observed in laboratory settings and assess their alignment with human participants' behavior. Our findings indicate that LLMs do not adhere strictly to rational expectations, displaying instead bounded rationality, similarly to human participants. Providing a minimal context window i.e. memory of three previous time steps, combined with a high variability setting capturing response heterogeneity, allows LLMs to replicate broad trends seen in human experiments, such as the distinction between positive and negative feedback markets. However, differences remain at a granular level--LLMs exhibit less heterogeneity in behavior than humans. These results suggest that LLMs hold promise as tools for simulating realistic human behavior in economic contexts, though further research is needed to refine their accuracy and increase behavioral diversity.

Francesco Cozzi, Marco Pangallo, Alan Perotti et al.

Agent-Based Models (ABMs) are powerful tools for studying emergent properties in complex systems. In ABMs, agent behaviors are governed by local interactions and stochastic rules. However, these rules are, in general, non-differentiable, limiting the use of gradient-based methods for optimization, and thus integration with real-world data. We propose a novel framework to learn a differentiable surrogate of any ABM by observing its generated data. Our method combines diffusion models to capture behavioral stochasticity and graph neural networks to model agent interactions. Distinct from prior surrogate approaches, our method introduces a fundamental shift: rather than approximating system-level outputs, it models individual agent behavior directly, preserving the decentralized, bottom-up dynamics that define ABMs. We validate our approach on two ABMs (Schelling's segregation model and a Predator-Prey ecosystem) showing that it replicates individual-level patterns and accurately forecasts emergent dynamics beyond training. Our results demonstrate the potential of combining diffusion models and graph learning for data-driven ABM simulation.

Jacopo Lenti, Lorenzo Costantini, Ariadna Fosch et al.

It is increasingly important to generate synthetic populations with explicit coordinates rather than coarse geographic areas, yet no established methods exist to achieve this. One reason is that latitude and longitude differ from other continuous variables, exhibiting large empty spaces and highly uneven densities. To address this, we propose a population synthesis algorithm that first maps spatial coordinates into a more regular latent space using Normalizing Flows (NF), and then combines them with other features in a Variational Autoencoder (VAE) to generate synthetic populations. This approach also learns the joint distribution between spatial and non-spatial features, exploiting spatial autocorrelations. We demonstrate the method by generating synthetic homes with the same statistical properties of real homes in 121 datasets, corresponding to diverse geographies. We further propose an evaluation framework that measures both spatial accuracy and practical utility, while ensuring privacy preservation. Our results show that the NF+VAE architecture outperforms popular benchmarks, including copula-based methods and uniform allocation within geographic areas. The ability to generate geolocated synthetic populations at fine spatial resolution opens the door to applications requiring detailed geography, from household responses to floods, to epidemic spread, evacuation planning, and transport modeling.

Blas Kolic, Corrado Monti, Gianmarco De Francisci Morales et al.

In this paper, we present the first systematic comparison of Data Assimilation (DA) and Likelihood-Based Inference (LBI) in the context of Agent-Based Models (ABMs). These models generate observable time series driven by evolving, partially-latent microstates. Latent states need to be estimated to align simulations with real-world data -- a task traditionally addressed by DA, especially in continuous and equation-based models such as those used in weather forecasting. However, the nature of ABMs poses challenges for standard DA methods. Solving such issues requires adaptation of previous DA techniques, or ad-hoc alternatives such as LBI. DA approximates the likelihood in a model-agnostic way, making it broadly applicable but potentially less precise. In contrast, LBI provides more accurate state estimation by directly leveraging the model's likelihood, but at the cost of requiring a hand-crafted, model-specific likelihood function, which may be complex or infeasible to derive. We compare the two methods on the Bounded-Confidence Model, a well-known opinion dynamics ABM, where agents are affected only by others holding sufficiently similar opinions. We find that LBI better recovers latent agent-level opinions, even under model mis-specification, leading to improved individual-level forecasts. At the aggregate level, however, both methods perform comparably, and DA remains competitive across levels of aggregation under certain parameter settings. Our findings suggest that DA is well-suited for aggregate predictions, while LBI is preferable for agent-level inference.