For some time, I have been curious as to anybody attempting to develop computer models to test different economic theories. In light of recent advances in computing, models have been developed to help predict, though not precisely, hurricane paths, and even how stars formed.
Sure, it would be extremely complicated in terms of its input variables, but perhaps for a given specific economic situation, the model may give a short term success score vs a long-term success score for a given economic theory.
What am I trying to get at with all this? Party choice. Objectively speaking from an economic standpoint and altogether avoiding other political issues, it would be a tool to determine which economic theory to apply for a given situation.
Taking the next leap would be to vote for the political party that is most sympathetic to that economic theory. For example, voting for a more-Keynessian Democrat vs a less-Keynessian Republican.
I am not an economist and personally, I have already made a party choice, but for those who are still undecided and needed some sort of "proof" that one economic theory is better than the other would help in convincing undecided voters. If there's no such computer model, what link would you send as "proof" for undecided voters who want to choose the party with the best economic plan?
Considering that the Federal government is in a position to "maximize employment, production, and purchasing power" according to the Employment Act of 1946 - How do they know that they are applying the best economic practices for the given economic situation? Do they have sufficient evidence from computer models?
Here's the link to a good article on this chap. He has an impressive track record of predictions.
If anyone can model human intrigue then just about anything can be modeled...
http://www.goodmagazine.com/section/Features/the_new_nostradamus
Coming from an engineering background, I thought of plasma physics. The billion-dollar 40 year history of failure to achieve fusion's plagued by the same difficulties as modeling economic systems.Just doing a few hours of research, with my economic knowledge limited to a couple basic Austrian theory books, I found the method I had in mind already in use:"Agent-Based Computational Economics" (ACE) http://en.wikipedia.org/wiki/Agent-Based_Computational_Economics
ACE is based on relations of programming agent-objects' methods and attributes, like the popular Cellular-Automata "Game of Life". I see there are simple examples of trader-agents which would need much more elaborate, personality and emotional detail to model reality. And since real people's do myriad unrelated events (selling a pet-food stock because a dog bite, etc). A predictive model would need immense trivial detail. And as in chaos, there's emergence of markedly new dynamics at increasing scales of social order (e.g. family, village, state, nation, world). In plasma-physics the particle-in-cell approach is assumed to practically realize an approximation.
Perhaps its possible to technically depict, if not predict, as others have noted here, specific events by selecting specific parameters at each scale of organization?At the risk of changing the subject, this model could depict the Austrian approach and the error of trusting central-planners to the public, as the Hake's simplistic Return-To-Serfdom cartoon once was, but now using the latest video-game 3D rendering (something like the "Nightmare Before Christmas", etc). It would give students a fun video-game model to play with as scenarios are re-enacted with changing parameters. It would be a game like the popular "Civilization", but with useful economic and historical realism.There's a website, Sourceforge, where such a project could be started (if its not going on already). I suspect the theoretic talent I certainly lack is here. There's a large community of video-game modders that could hopefully be tapped for the artistic talent to add the artwork to already-existing games. I suspect the technical time and effort required for fine-tuning the model would scare off any commercial, if not academic interests, however.
Suggestions?
Austrianism isn't immune from empirical data. Past data, assuming its reliable, can serve to confirm tenets and hypotheses of Austrian theory. However, the data cannot be molded into a model due to the sheer complexity of the factors involved and the reduction needed to make the model-- the model itself could not yield reliable results for the future. The only thing we can adduce from economic data is the tendency of economic factors in the future which is the qualitative aspect of Austrianism. Yet, as some of the younger Austrians pointed out in their dogmatic ramblings, Austrianism is based on the axiomatic-deductive system. Thus, I will be quiet now and return to my self-study before I get labeled as a Neo-classical for attempting to link empiricism and Austrianism.
Reason is the guiding light that shines through the veil of ignorance.
I have a problem with accepting the notion that there is physical phenomena that cannot be expressed through mathematics. Perhaps we have yet to evolve our eloquence in math to describe macro-economics, but if we can try and model the uiverse through math then I don't think economics is beyond the stars...
baoinvestor - Thanks for that article about Bruce Bueno de Mesquita. He has taken game theory and the computer model idea much farther than expected!
In my opinion, the Mises Institute or a similar think tank, might consider his works as a "proof of concept" to begin studying the feasibility of using game theory, or "rational choice" in computer models to demonstrate the practical strengths of the Austrian theory. This research work could significantly support the Mises Institute's mission of advancing the Austrian School of economics today.
What do you think? Should the Mises Institute research this further?
I would think so Michael. I think clearly what we have seen these past few years is an illustration of players behaving very much in their own self interest but in not a classical rational wave. THe means with which they have behaved (carzy expansion of credit and money supply) also serves to illustrate the theory of Austrian economics - especially now with the nature of the consequences and the manner in which those consequences are being fought by the Govt.
To my line of thinking, the financial markets, whilst not a true zero-sum game, is very much focused to that end of the spectrum. Players will begger thy neighbour if it means maximizing their short-term utility even if it means in the long-run they hurt themselves - hardly rational behaviour yet very prevalent in today's markets. I think the application of Game THeory could throw unique insight into how certain policies would play out in the real world given this observation of short-term rationality (utility maximization) within a context of long-term irrationality.
If it is only for the purpose of parsing Austrian econ into mathematics (or better yet, formal logic), there's no problem with it. It's assuming the veracity of the hypothetico-deductive model of science with regard to economics that gets one into trouble. Game theory, on its own, is fine. It's just a conceptual tool.
-Jon
To darkness I condemn you...
Yet, as some of the younger Austrians pointed out in their dogmatic ramblings, Austrianism is based on the axiomatic-deductive system.
You said nothing that fundamentally contradicts them, yet then you come out with this silly pronouncement, relegating the works of men like Hoppe, Mises and Hollis to the status of "ramblings" because you do not understand them. I'm not a Kantian so I do not agree with how Mises phrased/argued his position, for the most part, and I think Austrianism has an "empirical" element in the sense Rothbard conceived of it, namely in its concept-formation and retroactive control over its axioms (as Smith puts it), but that is nowhere near endorsing the hypothetico-deductive methodology or abandoning Mises. "Dogmatic" my ass...
Jon,
Given the details and outcomes of the Game Theory article I linked to earlier, I think Game Theory is breaking out of being a conceptual tool and into something far more useful - a working, predictive modeling framework. I think the central area of breakthrough is around being able to express in math human nature within a definable context. In the article, the scientist in question was able to model and predict with accuracy the political machinations of more than one country as to who would emerge the eventual leader - this is as human as it gets and as far away from conceptual and into actual as possible. I feel the framework of axiomatic-deduction has applicability to the new style of Game Theory for modeling the frequency and amplitude of future business cycles. However, sadly, I lack the math skills to take this any further myself.
Yes, it could be used that way.
A great idea.
Among the numerous variables the model would have to take into account, evil and the potential for human beings to abuse any econonmic model would have to be factored in. In addition, the potential for human beings to improperly implement the superior model for the given situation would have to be factored in. Models will react differently to certain levels of abuse and mismanagement (more or less forgiving). It would be great if such a model would produce two results:
1. The model with the highest positive elasticity.
2. The most inelastic model.
As a comp-sci grad myself, I considered getting into something like this.
However, I have serious doubts about it's feasibility. Modelling human behaviour is impossible for a computer to do, let alone doing it for a global population. At best, you might be able to model behaviour in terms of odds and percentages but the more you generalize behaviour, the less accurate your results will be. Your results may approach uselessness pretty quick.
I think economics has a kind of butterfly effect factor involved. One purchase here could cause economic collapse elsewhere. You may not be able to predict economic conditions any better than you can predict weather conditions.
I think this is what draws me more to Austrian economics over anything else I've heard. Austrians seem to draw from historical precedent above anything else. And when dealing with something as volatile as economics, I have to put my trust in history more than I trust singular mathematical predictions.
I think it would be interesting to create a virtual world with a limited supply commodity/money built-in, and then just let people join and go nuts. Maybe something like Second Life, but of course with a "natural" hard money available instead of a fiat currency (although in this virtual world I would assume users would be able to create a fiat currency if they'd like).
Maybe such a virtual world could be built on one of these:
Croquet - http://www.opencroquet.org/index.php/Main_Page (open source)
Multiverse - http://www.multiverse.net/index.html (not sure if it's open source)
The Interreality Project - http://interreality.org/ (open source)
This would be far different than simulating an economy, though. You'd have a virtual world with real people acting in it, and real wealth being created and traded, even between the virtual world and the real world. Any intervention would be harming real people and their real wealth. Once real world wealth gets involved, though, you can be sure real world governments will want to interfere.
That many "Austrians" reject modelling I think is a shame.
Modeling is a crucial aspect in economics. Take RBCT, for example. Furthermore, if you want to do almost anything outside of political economy - for which you're probably going to have to work for the government - then you need to know your way around a financial model.
Without a basic understanding of computer models, you won't get anywhere in the real world.
The Origins of Capitalism
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I may be wrong (probably am) but I don't think spending, or for that matter sites like 2nd Life would be very popular. If I had family, it would scare me to think they were practicing spending money . I'd rather they be shooting something else off.
That wasn't what I was getting at, I was talking about simulating a real economy, just being able to use 3d icons at each level of scale -
Then have a little control panel to vary parameters to show how things like interest rates, reserve fraction, et. affects the economy. Typing numbers in a keyboard and watching spreadsheets isn't nearly as "fun" as watching an artistic 3d rendering. Especially if you want to make a documentary to show your stupid neighbors what they are enabling their government to do to them!
Thinking more about it though, to be realistic and simulate historical events could be too computationally intensive. You have several sorts of citizen, several sorts of families, several economic sectors, etc. to build massive databases of demographic data for, then recurse back from the macro to the micro scales to reiterate the myriad permutations of parameters. Plasma fusion physics is much simpler . Perhaps when quantum computing matures.
BTW, I meant to say Hayek's "Road to Serfdom" in my initial post.
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