
Computing the Perfect Model: Why Do Economists Shun Simulation? [pdf] - dllthomas
http://www2.econ.iastate.edu/tesfatsi/WhyEconomistsShunSimulation.Lehtinen2008.pdf
======
tristanz
A problem with simulation in economics is that there is always a feeling that
that simulation results are inferior to what could have been done if the
writer was better at math. Let's say you derive some insight on heterogeneous
agents transacting on a network. This is likely quite hard to tackle without
simulation, but most of your peers reading the paper will hope there is some
cleaner way to get the insight of the model. The result is that it's unlikely
that economists will consider your result a classic, which is ultimately what
is required to have a big influence in the discipline.

~~~
slurry
Since I know a couple of mathematicians (and like to pretend I understand what
they work on) I am always a little skeptical of economists' claims to be
mathlords. But perhaps my skepticism is misplaced?

How rigorous/sophisticated is the math in research-level econ, really? The
econ undergrads I knew went up to basic engineering math (calc 3, linear
algebra, diff eq's) at most, and those who did were considered to be _really_
hardcore. Do research economists use higher-level math than that?

~~~
rvn1045
A lot of economists who have a phd in in economics, were Engineering, Math and
Physics majors as undergrads. To get into a good phd program in Econ, you have
to have taken and aced a lot of math classes such as Real Analysis and some
very advanced Probability courses. Taking some grad level math classes would
probably increase an applicants chance. So yes a lot of economists are really
really good at math. And yes a lot of it is used in research.

~~~
slurry
I know economists are good at math, I'm more curious what kinds of math they
tend to use.

~~~
tedsanders
It very much depends on the application. Econometrics uses lots of statistics.
Finance uses stochastic calculus. Microeconomics uses linear algebra and
calculus. To see how incomprehensible things can get, here's a paper by one of
my old econometrics professors:
[http://econweb.ucsd.edu/~bbeare/pdfs/vinecopula.pdf](http://econweb.ucsd.edu/~bbeare/pdfs/vinecopula.pdf)

------
dj-wonk
As a matter of context, this paper was published in Philosophy of Science.
This tells you quite a bit about its goals and audience.

The central claim is "Our claim is that economists are willing to accommodate
mere computation more readily than simulation mainly because the epistemic
status of computational models is considered acceptable while that of
simulation models is considered suspect." and "We argue that a major reason
why simulation is not granted independent epistemic status is that it is not
compatible with the prevailing image of understanding among economists."
(pages 306-307)

Somewhat surprisingly, they also write "The claim that economists shun
simulation for epistemic and understanding-related reasons is a factual one.
Our aim is to explain and evaluate these reasons by considering the
philosophical presuppositions of economists." (page 306)

These claims make sense from the tradition of philosophy, where the study of
meaning and knowledge is central. But, from the perspective of a practicing
economist, you have to question how many are conscious of (or aware of) the
biases and preferences of economics when it comes to what counts as valid
knowledge, experimentation, and reasoning.

In addition to the explanations inside the paper, it is implicitly or
indirectly promoting the importance of the field of philosophy of science. Put
this way, if economists were more aware and open to their biases, they would
be more likely to "break away from ... methodological constraints" (page 326)
and escape the constraints of traditional economic orthodoxies.

In particular, I'd be interested to see a survey of economists to see how many
have been exposed to the key concepts from the philosophy of science.

~~~
plorg
I had Dr. Tesfatsion (from whose page this paper is hosted) for a Masters-
level intro to macroeconomics course. This is a course that all first-semester
graduate students in economics take at Iowa State, and Dr. Tesfatsion begins
the course with a small examination of the epistemology of economics, and a
discussion of where it fits between the "soft" and "hard" sciences.

I was taking this course in 2009, and we spent much of the course discussing
the assumptions that economists make in building their models in light of the
economic meltdown of the previous years. The course was heavy on traditional
Keynsian-derived macro theory and the many historical assumptions that have
eventually been shown to be problematic, but it also included an analysis of
economics through diverse methods that included behavioral psychology and game
theory, many of which emphasised testable small-scale interactions and the way
in which they which may lead to larger-scale emergent patterns. (Tesfatsion is
very much into agent-based simulation of markets)

I was coming from a religious liberal arts background and an engineering
program which was fairly heavy on the philosophy of science, and I appreciated
a well-rounded and diverse approach to the analysis of economic systems. I'm
not sure, however, what my peers thought of all of this.

~~~
dj-wonk
Thanks for sharing your experience!

------
mindcrime
Haven't had time to read and digest the entire paper yet, but I would like to
point out that not all economists shun simulation. There has been quite a bit
of work around Sugarscape[1], although I'm not sure what the most recent such
work is. But Sugarscape was mentioned quite prominently in Eric Beinhocker's
_The Origin of Wealth_ , which paints a picture where economists who associate
themselves with "Complexity Economics"[2] are more amenable to simulation.

And, indeed, the description of Complexity Economics from Wikipedia reads:

 _Complexity economics is the application of complexity science to the
problems of economics. It studies computer simulations to gain insight into
economic dynamics, and avoids the assumption that the economy is a system in
equilibrium._

[1]:
[http://en.wikipedia.org/wiki/Sugarscape](http://en.wikipedia.org/wiki/Sugarscape)

[2]:
[http://en.wikipedia.org/wiki/Complexity_economics](http://en.wikipedia.org/wiki/Complexity_economics)

~~~
aet
I think 'complexity economics' is well out of the mainstream. I sincerely
doubt this type of modeling is taught in economics departments (outside Iowa
State). That being said, there are departments that teach "experimental
economics" \- which sounds like the same thing. You are now just doing
"computational" experiments.

~~~
dllthomas
I think this kind of stuff has tremendous space to add value, but we should
always keep in mind that experimentation by simulation gives us insight into
the extrapolation of theories, and only into _reality_ so far as those
theories are correct. Of course, done well it can help to validate or disprove
theories when we have sufficient ability to measure starting points...

~~~
mindcrime
It's interesting you would say that... one of the big arguments of the
"complexity economics" folks, as I understand it, is that since economies are
not actually equilibrium systems, all of the math imported into economics from
physics (and elsewhere) that assumes equilibrium, fails to represent reality.

TBH, I'm not an economist (just a computer science guy who's really interested
in economics) but from what I have read, Beinhocker makes a pretty strong case
that mainstream economics started going off the rails way back when Walras
"borrowed" equilibrium based math from physics and brought it into economics
in an attempt to establish economics as a science with the same grounding as
the natural sciences.

------
joelgrus
In a former life I was an economics grad student, spent a few weeks at the
Santa Fe Institute, and returned to school full of zeal for simulation and
complexity.

At which point it was subtly suggested to me by senior faculty members that --
if I wanted to graduate and become a "real" economist -- I should really focus
on proving things, not on simulating things.

(Shortly thereafter I left the program, although not particularly because of
this episode.)

~~~
msellout
The Santa Fe Institute is awesome. I'm especially a fan of Mark Buchanan
([http://physicsoffinance.blogspot.com/](http://physicsoffinance.blogspot.com/)).
I also found that simulations weren't exciting to the economists in my
program. My advisor suggested I move to Paris. He followed his own advice
shortly after.

------
a-nikolaev
I'm not an Economist, my background is in Physics and CS, so my experience is
anecdotal. But I was really surprised by this story, so let me share my
thoughts.

Once, I was programming a game and wanted to implement a simple economical
simulation in it (how goods are produced and consumed by the population, maybe
some price adjustments?.. I did not want anything complex or realistic, very
simple linear approximation could be more than enough, I did not want to model
agents, I wanted some sort of realistically-looking
Production/Consumption/Supply/Demand behavior).

I asked a PhD student to give me an advice. Well, it took quite a lot of time,
maybe half an hour, simply to explain the task I wanted to accomplish. Really,
the whole idea of simulating things seemed to be foreign to her, and she could
not really help me a lot. The economical models seemed to be almost orthogonal
to the simulationist perspective. At least, this is how it looked.

It seems that Economics is very much like the laws of conservation in
Mechanics. It describes the system from the high-level perspective, but does
not really help too much, if you want to simulate individual particles (where
you need Newton's laws, for example).

I have the impression that there is, probably, some intellectual
predisposition among Economists. Maybe because of the way they are taught.

------
bitwize
Because there are four kinds of lies: lies, damned lies, statistics and
computer models.

------
knoepfle
"Analytical solutions are considered necessary for a model to be accepted as a
genuine theoretical contribution."

That's hardly true, the usual macro model is solved numerically using
approximate dynamic programming.

~~~
knoepfle
Here we go, they contradict themselves later: "Computational general
equilibrium (CGE) models provide an example of accepted computerized problem
solving in economics."

~~~
dj-wonk
I don't see this as a contradiction. The authors probably would include
simulation and computerized solvers as "computerized problem solving". Such
applied techniques are certainly welcomed in the field of economics. That
said, they are not usually considered a theoretical approach. So, using them
in a paper won't get you published if a journal is looking for a theoretical
advance.

------
spikels
Philosophy professors talking about something they don't fully understand.
Analytic solutions are almost always prefferable when they are available
because they are much easier to analyze. Naturally economists will prefer
models with analytic solutions. However when simulation is required to
understand something economists embrace it as is common in finance, pricing
theory and even macroeconomics.

I guess the point is to bash economists. And why is this even on HN? From
2007?

~~~
dllthomas
It's on HN because someone had referenced it in a different discussion, it
looked interesting and I wanted to see what people had to say about it, so I
submitted it. It's on the front page because people voted it up more than they
voted other things up.

------
crb002
The web link is off Dr. Tesfatsion's website. She has long advocated that the
agents in an economy are Turing complete, thus you run into the halting
problem in the general case.

