Microsimulation
Microsimulation is a modelling technique that operates at the level of individual units such as persons, households, vehicles or firms. Each unit has a set of associated attributes – e.g. a person has an associated age, sex, and employment status. In the case of discrete-time dynamic models, a set of rules (intended to represent individual preferences) are applied to these units at each time step, leading to simulated changes in state and possibly behaviour. These rules may be deterministic (probability = 1), such as ageing, or stochastic (probability < 1), such as the chance of dying, marrying, giving birth or moving within a given time period.
The aim of such simulations is to give insight about both the overall aggregate change of some characteristics and, most importantly, the way these changes are distributed in the population that is being modelled. The methodology is often used to design and evaluate public policies that are affected by earlier events and choices as is the case for pensions or education.
