Modelling agent strategies in simulated market using iterated prisoner's dilemma

Computer-based simulations have been used extensively to model various economic problems in recent years. However, many of these studies are based on quantitative data that were taken at a certain point of time and thus could be deductive and inappropriate. This paper presents a unique agent based approach that places lower demand on data using Prisoner's Dilemma (PD), a classical non-zero sum game, to model the complexity within a market environment. We create a model with agents acting as firms to perform transactions among one another with chosen iterated PD (IPD) strategies. Our model shows that cooperation could emerge even though the simulated environment is highly variegated.