Monday, July 17, 2006

Economic Models

The Economist has a special report on Economic models and the numbers they generate as results. It basically questions how good economic models are. I remember what ticked me off modeling. While doing my masters I attended a seminar where two different authors had modeled something out of economic theory and tested it. The main difference between the two theses was significance level. One of them accepted the theory at 5% and the other rejected it at 1%. It shocked me that they could so easily accept or reject basic economic theories based on flimsy statistics.
My favourite sentence from the Economist article. "Mr Lucas and his disciples, echoing Margaret Thatcher, believe there is no such thing as society". Brings home the Austrian point that it is not society or firms that act, but individuals who act and take decisions.

1 comment:

Ali Hasanain said...

Hey, I'd like to borrow that article too!