Agent-Based Modeling of the El Farol Bar Problem

Abstract

In this chapter, the authors study the self-coordination problem as demonstrated by the well-known El Farol problem (Arthur, 1994), which has become what is known as the minority game in the econophysics community. While the El Farol problem or the minority game has been studied for almost two decades, existing studies are mostly only concerned with efficiency. The equality issue, however, has been largely neglected. In this chapter, the authors build an agent-based model to study both efficiency and equality and ask whether a decentralized society can ever possibly self-coordinate a result with the highest efficiency while also maintaining the highest degree of equality. The agent-based model shows the possibility of achieving this social optimum. The two key determinants to make this happen are social preferences and social networks. Hence, not only do institutions (networks) matter, but individual characteristics (preferences) also matter. The latter part are open to human-subject experiments for further examination.