Sunday, February 25, 2007

Economists "do it" with models

A week ago, I was entering the quiet study room in campus trying to cram for my econometrics exam which will be held in the next two hours. As I sat down and put all my books on the table, I gazed into the blackboard in front of me and started to laugh quietly. Someone had scribbled numerous equations along with graphs and on top of it was these words “economists do it with models”. I know these words may not seem as funny to others, but to me it was very entertaining.

To those of you who may not yet familiar with economics, the way economics explain or try to explain daily phenomena is by using models. Models in this sense are not what you perceived as good-looking men or women walking on the catwalk or in the pages of magazines. Rather, they are basically a formal statement of a theory. Now, theory basically is a general statement of cause and effect. And models are based on theories to explain how the world works. So, what is a good model then? Well, a good model is a simple one and yet practical. One of the examples of a good model is the supply and demand framework. It is simple and practical.

Now, do economists really "do it" with “models"? Perhaps, I don’t know, maybe.


Berly said...

Economists do it with models.
Economists do it at bliss point
Economists do it cyclically
Economists do it in an Edgeworth Box
Economists do it on demand
Economists do it risk-free (in reference to the risk-free interest rate)
Economists do it with a dual
Economists do it with an atomistic competitor
Economists do it with crystal balls
Economists do it with interest

Puspini said...

berly, you should just be a poet instead of an economist!

berly said...

Ups. sorry for not putting up the reference.
( I didn't write it.

Now you know that I am not a poet and not yet an economist :-D

The Dreamer said...

A good model is one with a good predictive ability. I think this is the rule of thumb.

Yet, this is not necessarily the simple one. :-). Simple model sometimes could be misleading.

Puspini said...

good predictive ability? sure....but the foundation for a model with good predictive ability is a model that best captures real behavior of the variables...

Anonymous said...

huahahahaha dude, cramming for an econometrics exam just 2 hours from it is no good...
but very a very interesting topic... well, uve proven with ur blog that "economists do it with models", make sense to me... but economists "do it" with models??, mmmm that seems to be proven... the closest an indonesian economist has gone is a tv presenter, do u wanna be the one to 'prove' this statement?? huahahaha... whoever it is, she/he will be one lucky economist hehehehe...