Deep Reinforcement Learning Agents for Strategic Production Policies in Microeconomic Market Simulations

TL;DR

This paper demonstrates how deep reinforcement learning can be used to develop adaptive, strategic production policies in complex, noisy microeconomic markets, outperforming traditional static strategies.

Contribution

It introduces a DRL-based framework for optimizing production decisions in competitive markets with multiple agents under stochastic conditions.

Findings

DRL agents outperform static and random strategies in simulations.

Agents learn to adapt production to market fluctuations.

DRL captures complex market interactions and improves profitability.

Abstract

Traditional economic models often rely on fixed assumptions about market dynamics, limiting their ability to capture the complexities and stochastic nature of real-world scenarios. However, reality is more complex and includes noise, making traditional models assumptions not met in the market. In this paper, we explore the application of deep reinforcement learning (DRL) to obtain optimal production strategies in microeconomic market environments to overcome the limitations of traditional models. Concretely, we propose a DRL-based approach to obtain an effective policy in competitive markets with multiple producers, each optimizing their production decisions in response to fluctuating demand, supply, prices, subsidies, fixed costs, total production curve, elasticities and other effects contaminated by noise. Our framework enables agents to learn adaptive production policies to several simulations that consistently outperform static and random strategies. As the deep neural networks used by the agents are universal approximators of functions, DRL algorithms can represent in the network complex patterns of data learnt by trial and error that explain the market. Through extensive simulations, we demonstrate how DRL can capture the intricate interplay between production costs, market prices, and competitor behavior, providing insights into optimal decision-making in dynamic economic settings. The results show that agents trained with DRL can strategically adjust production levels to maximize long-term profitability, even in the face of volatile market conditions. We believe that the study bridges the gap between theoretical economic modeling and practical market simulation, illustrating the potential of DRL to revolutionize decision-making in market strategies.