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Unless we compare simulated models with reality via empirical studies? (: I believe the same issues plague subjects like theoretical physics. Then again, we d

Unless we compare simulated models with reality via empirical studies? (: I believe the same issues plague subjects like theoretical physics. Then again, we do have the preference-utility and utility-maximization core of microeconomic theory, which appears quite well-accepted. Accepted, in spite of it's inability to reconcile with some of the non-rational parts of human behaviour. Having said that, I'm quite partial to some of the PDE models (i.e. the works of Dr Yang Xiao Kai). And PDE models have at least one corresponding agent-based model simulation. I think that at some point, a leap of faith based on intuition is taken enmasse. Although this really goes into the philosophy of science...

pash 15y ago
Yes, and of course economists do test their models empirically. But many economic models are inherently or practically untestable because the quantities they employ are inherently or practically unmeasurable. And even when you can measure most of what you need, models of complex economic phenomena just haven't worked. The lesson most economists took from the failure of efforts to build useful CGE [1] and DSGE [2] models in the 1960s–1980s was that this approach was a dead-end. Agent-based models, though built on better-founded micro theory, are arguably even harder to get right because agents are adaptive in unexpected ways. And because it's possible to make many models give results that "look right" if you fiddle with the parameters enough, you're just not going to convince anyone that you've built a model that represents the way the world really works. Nobody trusts a black box. I think that's why most economists still build little mathematical models that try to give some targeted insight into some small aspect of some economic phenomenon. If you can understand how a model works (and, again, you usually don't "understand" simulations—all the interesting stuff is emergent), you feel like you've learned something about how the real world might work. Then you can get down to bickering about assumptions, which effects dominate, etc. 1. http://en.wikipedia.org/wiki/Computable_general_equilibrium http://en.wikipedia.org/wiki/Computable_general_equilibrium 2. http://en.wikipedia.org/wiki/Dynamic_stochastic_general_equilibrium http://en.wikipedia.org/wiki/Dynamic_stochastic_general_equi...
- dingfeng_quek 15y ago
  Exactly. I don't think models, math, and simulations in the area of economics are evaluated by their predictive power or their fidelity to the real word. I'd say that they are generally exploratory models and pedagogical models. That's why the critic by the original poster is off-target: it hardly addresses the commonly used/accepted metric for economic insight.

pash 15y ago

Yes, and of course economists do test their models empirically. But many economic models are inherently or practically untestable because the quantities they employ are inherently or practically unmeasurable. And even when you can measure most of what you need, models of complex economic phenomena just haven't worked. The lesson most economists took from the failure of efforts to build useful CGE [1] and DSGE [2] models in the 1960s–1980s was that this approach was a dead-end. Agent-based models, though built on better-founded micro theory, are arguably even harder to get right because agents are adaptive in unexpected ways. And because it's possible to make many models give results that "look right" if you fiddle with the parameters enough, you're just not going to convince anyone that you've built a model that represents the way the world really works. Nobody trusts a black box. I think that's why most economists still build little mathematical models that try to give some targeted insight into some small aspect of some economic phenomenon. If you can understand how a model works (and, again, you usually don't "understand" simulations—all the interesting stuff is emergent), you feel like you've learned something about how the real world might work. Then you can get down to bickering about assumptions, which effects dominate, etc. 1. http://en.wikipedia.org/wiki/Computable_general_equilibrium http://en.wikipedia.org/wiki/Computable_general_equilibrium 2. http://en.wikipedia.org/wiki/Dynamic_stochastic_general_equilibrium http://en.wikipedia.org/wiki/Dynamic_stochastic_general_equi...

dingfeng_quek 15y ago
Exactly. I don't think models, math, and simulations in the area of economics are evaluated by their predictive power or their fidelity to the real word. I'd say that they are generally exploratory models and pedagogical models. That's why the critic by the original poster is off-target: it hardly addresses the commonly used/accepted metric for economic insight.