Individuals differ in many characteristics such as sex and age, which implies that they usually have different chances of reproducing and surviving. Even stronger differences are usually observed if individuals belong to different species. This chapter presents two types of model for the consideration of individual variability. The first is equation-based models that differ from the models of Chapter 4 by the fact that several equations (one for each age class or each species, etc.) are needed. If the dimensions along which individuals differ are too numerous, or if additional features such as adaptive behaviour are included, individual-based models are more appropriate. An example demonstrates that equation-based models and individual-based models, when considering the same features of the modeled population, lead to the same results. It is argued that individual-based models are generally more complex than equation-based models but also more flexible and able to consider more details.

We describe the structure of the model, built plugging the entry/exit decisions into a macroeconomic system, by using a notion of statistical distribution of expectations that is consistent with the idea of rational expectations (at least in its original formulation) to model the entry decision of potential entrants. The theoretical framework is also useful to analyze, on a theoretical ground, the behavior of the firms’ markups over the cycle and is employed for the agent-based simulations. In particular, we model a macroeconomic system with oligopoly, entry/exit, and heterogeneous individuals. The algebraic framework of a new macro-model is analytically dissected, to prepare a sound basis for the experiments in simulation.