Towards Credible Agent-Based Policy Simulations: Disentangling Opportunities and Preferences in a Financial Inclusion Case Study of Egypt

Abstract

Credibility is a central topic for agent-based models intended to support policy-making. Simulations must not only represent the target scenarios and their core dynamics but also demonstrate that their assumptions, parameters, and outputs are empirically grounded and sufficiently accurate for their intended use. This paper addresses this challenge by presenting a general modelling framework, aligned with the Capability Approach, for building credible policy simulations that rely on data and domain-expert knowledge. It then demonstrates how it can be contextualised and implemented to study the social challenge of financial inclusion in Egypt, building on an agent-based model that represents heterogeneous individuals and firms behaving according to their financial states, barriers, opportunities, and preferences. The model is fitted to real-world data in two stages, initialisation and calibration, which respectively build representative synthetic populations and estimate behavioural parameters. By fixing the feasibility parameters, which determine agents'opportunities, and calibrating preference parameters across different population groups, we are able to distinguish and analyse the role of institutional and social barriers in the system, as well as the role of agents'motivations and priorities. This calibration stage provides transparent and group-specific hypotheses about the drivers of observed financial-inclusion gaps, which can further be analysed as gaps between agents'opportunities and realised outcomes, a very relevant insight for policy-making. This paper is thus a step towards improving the credibility and usefulness of policy simulations, strengthening the relationship between the model, the real target system, and the stakeholders who will use it. The code is available at: \url{https://www.comses.net/codebase-release/df8383cb-f49b-4f09-8cce-73603b59adcc/}.