Escape from model-land

Erica L. Thompson and Leonard A. Smith

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Both mathematical modelling and simulation methods in general have contributed greatly to understanding, insight and forecasting in many fields including macroeconomics. Nevertheless, we must remain careful to distinguish model-land and model-land quantities from the real world. Decisions taken in the real world are more robust when informed by estimation of real-world quantities with transparent uncertainty quantification, than when based on “optimal” model-land quantities obtained from simulations of imperfect models optimized, perhaps optimal, in model-land. The authors present a short guide to some of the temptations and pitfalls of model-land, some directions towards the exit, and two ways to escape. Their aim is to improve decision support by providing relevant, adequate information regarding the real-world target of interest, or making it clear why today’s model models are not up to that task for the particular target of interest.

Keywords: decision-making; dynamical systems; model evaluation; modelling and simulation; radical uncertainty; structural model error; uncertainty (search for similar items in EconPapers)
JEL-codes: C52 D53 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2019-10-08
New Economics Papers: this item is included in nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published in Economics, 8, October, 2019, 13. ISSN: 1864-6042

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