week 4 Flashcards
Models as idealization, what is it?
Assume that the economy is a system that can be represented in equations.
Step 1: Defining economy, Deductive theorization bout the most important factors. (consumption, national income)
Step 2: assumptions, Ceteris absentibus (factors that do not affect the model). Ceteris neglictis (factors that have small effects). Ceteris paribus (all else equal)
Step 3: de-idealizing model. empirical measurement, operationalization and calibration.
Model as Construction, what is it?
Believe models are useful tools and stand apart from reality. Thought experiments.
General characteristics;
Simple and abstract, unrealistic assumptions
Untestable and incomplete theory.
Shocking paradoxes: the results are often against conventional wisdom.
Wide application of results but poor generalization.
What is the goal of models as idealization
understand mechanism and reveal causality (representation)
make predictions and provide policy advice (instrument/bridge)
What is the goal of a model as construction
Experiment with concepts to make economics understandable (narrative). Determine the importance of factors or variables (concept clarity).
What are the limitations of models in general?
Validity: internal, are models correctly specified? External: can results be generalized?
Reductionism and holism: is a system more than its individual components or vice versa?
Causality: which factor is the cause, and which is the effect?
Black swans: models are built based on past experience, but the economy changes.
Performativity: are models true because we use them?
What is a side effect of thinking in models?
The process of constructing, testing and revising models forces economists and policymakers to tighten their views. And it promotes scientific debate.
Who the fuccc is Sugden?
His main point was that models where unrealistic and they do not lead to clearly testable hypotheses. Induction is hard to generalize, but it is possible if the significant similarities are visible.
Akerlof market for lemons
Is about second hand cars and the concept of asymmetric information, markets are inefficient.
Schelling dynamic models of segregation
Was about the unintended consequences of uncoordinated individual actions. Mild preferences leads to unintended racism.
What is the justification problem
Sugden was critical of papers like lemon and the segregation paper.
What was Sugden’s solution to the justification problem
- Possible function of abstract models. “conceptual exploration” and not emprical theorizing.
(not true, both discuss the real world) - Possibility: if considered as instrumentalist, only used for predictions.
(not true, both models describe cause and effect –> realism) - possibility: models are use as methophors and caricatures,
(not clear how this mode of explanation works) - possibility: models are ineaxact generalization, use method of isolation.
(not clear)
What justification is required to make the inductive step from model to the real world
Separability of causes would justify transfer of causal relations in models to the real world.
Robustness, the results from a model are robust to changes in the specification of the model, even if the model changes the results stay the same.
Credible worlds, by the same causality in the model world and the real word, because this sameness produces a significant similarity between the two world.
what is the general conclusion about the usefulness of abstract economic models according to Sugden?
Depens on inductive inferencces from the world of model to the real world.
What justifies an inductive generalization?
A significant similarity between factor F in the model and in the real world.
What are the criticism on Sugden work?
The use of induction
Nature of causality, the causal factors of the model world differ from the causal factors in the real world. the inductive step from the model world to the real world cannot be justified.
