Topic summary
Heterogeneous agent model
Extracted from the Wikipedia article Heterogeneity in economics.
Economic models with heterogeneous agents
Economic models are often formulated by means of a representative agent. Depending on the application, individual agents can be aggregated to or represented by a single agent. For example, individual demand can be aggregated to market demand if and only if individual preferences are of the Gorman polar form (or equivalently satisfy linear and parallel Engel curves). Under this condition, even heterogeneous preferences can be represented by a single aggregate agent simply by summing over individual demand to market demand. However, some questions in economic theory cannot be accurately addressed without considering differences across agents, requiring a heterogeneous agent model.