The World in the Model: How Economists Work and Think

Last updated
The World in the Model: How Economists Work and Think
Editors Mary S. Morgan
LanguageEnglish
Subjects History of economics
Economics
Philosophy of science
Sociology of quantification
History of science
Publisher Cambridge University Press
Publication date
2012
Pages442
ISBN 9781139560412

The World in the Model: How Economists Work and Think is a work by Mary S. Morgan published by Cambridge University Press in 2012.

Contents

Content

Mary S. Morgan, defined by Robert Sugden "a major philosopher and historian of economics", [1] analyzes with examples how economists work and think using models. [2] Her book reconstructs the path taken by models to become economists' "natural way of doing economics." [2] [3] : 17 

For Morgan, both the "method of mathematical postulation and proof" and that of modelling have emerged in late 19th century, [1] [3] : 18  and models have become economists' main tools only from the 1930s, replacing classical economics relying on "universal laws". [1]

A concept stressed throughout this work is that:

Economic modelling is not primarily a method of proof, but rather a method of inquiry. [3] : 239 

The pragmatic orientation of her work is stated right at the beginning, [4] [1] noting that "Science is messy", [3] : xv  thus

Asking: What qualities do models need to make them useful in a science? and What functions do models play in a science? are more fruitful than asking What are models? [3] : xvi 

According to Morgan, [3] : 225  who draws a parallel with physics, [5] economists follow four general steps in their work with models: [3] : 17  [6] [7]

For the Author, economists [3] : 37 

... reason about the small world in the model and reason about the big economic world with the model.

The existence of a world inside the model itself is a central feature of the work. [2] Modelling is not just an activity of abstraction, simplification, idealization, and mathematization, but entails the creation of new artifacts to be explored and reasoned with, in a play where the economist and the model are "jointly active participants". [2] [3] : 256 

As noted by Sugden, [1] Morgan repeats at several point this double function of models:

Models are objects to enquire into and to enquire with: economists enquire into the world of the economic model, and use them to enquire with into the economic world that the model represents [3] : 217 

The case studies span a period going from early nineteenth century to the second half of the twentieth century, though the earlier Quesnay's Tableau économiques are mentioned among the antecedents of modelling (Chapter 1). [4] Models start thus with Ricardo's "model farm" (Chapter 2), to study for example how an increase in grain prices would affect rents, [7] to continue with the Edgeworth box for the trading of goods, later the subject of developments by Vilfredo Pareto [7] (Chapter 3), with the rational agent (Chapter 4), and with Newlyn–Phillips hydraulic machine of the economy (Chapter 5). [4] The book continues with the business cycle work of Ragnar Frisch and Jan Tinbergen (this latter father of Econometrics), and the macroeconomic models of Meade, Samuelson and Hicks (Chapter 6), with supply and demand models (Chapter 7), all the way to modern simulation modelling (Chapter 8). [4] Monte Carlo methods are included, and a full chapter (Chapter 9) is devoted to the Prisoner Dilemma, [6] [4] where the Author discusses Nash equilibrium using both the classical example of the two prisoners confronted with the choice to either confess or stay silent while ignoring their companion's choice, and a less seen example drawn from Puccini's Tosca, with illustrations from a paper of Anatol Rapoport. [8]

As noted by economist Gene Callahan [7] Morgan is attentive to the specialized talents that are needed in economic modelling, including a tacit, craft-based, knowledge that can only be acquired via apprenticeship. [3] : 15 

In discussing what makes a model "fruitful" Morgan notes that while they must have enough internal resources to operate, including some salient aspects of "the economic world," [2] they need to be able to generate variety in their outcome, as to potentially surprise the analyst, even when the surprise is that too many solutions are possible, as noted by Paul Samuelson when trying to translate Keynes's General Theory of Employment, Interest and Money into a model. [3] : 229  [2] Also, size in relation to content matters, [3] : 237  so that models must also be small enough to be manipulable. [6]

Morgan aims to provide an account of "modelling (in economics) as an autonomous epistemic genre". [3] : xvi  In this, the use of narratives in relation to models is not just rhetorical; it is foremost epistemological. [6] Ragnar Frisch's image of the business cycle as a rocking horse randomly hit by a boy with a club successfully conveyed to the economist of the 1930's the concept of an harmonic process impulsed by shocks. [6] [3] : 239  The centrality of narration for models in the work of Morgan is noted by François Claveau [4] and Gene Callahan. This latter notes how this is well illustrated by the prisoner dilemma, that would be incomprehensible if offered only in terms of payoffs, without the accompanying story. [7] [3] : 372 

Chapter 7 offers a discussion of what makes models different from physical experiments. [4] Morgan sees a difference in that experiments are "made of the same stuff" of the world, while in the case of models "there is no shared stuff". [3] : 287 

Coming to how economic models influence policy thanks to their scientific authority, Morgan, citing Nancy Cartwright, [9] offers a word of caution: [2]

the looseness of the criteria of plausibility always make it doubtful, difficult, and potentially dangerous, to use these little mathematical models to intervene directly in the economic world. [3] : 248 

Reception

The book is praised by Verena Halsmayer [2] and by Maxime Desmarais-Tremblay [6] for showing the variety of tools mobilized by economists, such as the hydraulic system of the Newlyn–Philips Machine made of pipes, valves and tanks, graphs such as those of the Edgeworth box, pen and paper tabulated records such as Ricardo's ideal farm, conceptual games such as the Prisoner dilemma, and modern day equations.

For François Claveau it is disappointing that Morgan, though author of The History of Econometric Ideas (1990) does not discuss econometric models, nor the distinction between these, embedded into real world data and statistical testing, and non-econometric models. Claveau also laments the absence of a discussion of the difference between theories and models. [4]

A limit of Morgan's work that is flagged by Verena Halsmayer is that in examining a selected set of successful models the book discounts alternative traditions, the "verbal economics" and other historical traditions, evading the strategic development leading to the dominance of (neoclassical) economic modeling, thus ignoring "what was lost by adopting modeling as the dominant mode of economic knowledge production". [2]

Robert Sugden praises Morgan's vivid portrait of Ricardo. Morgan details how the numerical examples of his model farm were inspired by agricultural experiments run by other gentleman farmers. [1] The same reviewer notes that the book of Morgan, as the tile implies, has more to say about how economist work inside the model than in how they look at the world outside it. As a modeller, Sugden suggests that Morgan's emphasis on how economists manipulate their models to obtain insights may discount models' autonomy, and in what way models may speak with their own voice.

For this work Morgan won in 2013 the best book award [6] from The European Society for the History of Economic Thought. [10]

See also

Related Research Articles

<span class="mw-page-title-main">Econometrics</span> Empirical statistical testing of economic theories

Econometrics is an application of statistical methods to economic data in order to give empirical content to economic relationships. More precisely, it is "the quantitative analysis of actual economic phenomena based on the concurrent development of theory and observation, related by appropriate methods of inference." An introductory economics textbook describes econometrics as allowing economists "to sift through mountains of data to extract simple relationships." Jan Tinbergen is one of the two founding fathers of econometrics. The other, Ragnar Frisch, also coined the term in the sense in which it is used today.

<span class="mw-page-title-main">Game theory</span> Mathematical models of strategic interactions

Game theory is the study of mathematical models of strategic interactions. It has applications in many fields of social science, and is used extensively in economics, logic, systems science and computer science. Initially, game theory addressed two-person zero-sum games, in which a participant's gains or losses are exactly balanced by the losses and gains of the other participant. In the 1950s, it was extended to the study of non zero-sum games, and was eventually applied to a wide range of behavioral relations. It is now an umbrella term for the science of rational decision making in humans, animals, and computers.

<span class="mw-page-title-main">James Tobin</span> American economist (1918–2002)

James Tobin was an American economist who served on the Council of Economic Advisers and consulted with the Board of Governors of the Federal Reserve System, and taught at Harvard and Yale Universities. He contributed to the development of key ideas in the Keynesian economics of his generation and advocated government intervention in particular to stabilize output and avoid recessions. His academic work included pioneering contributions to the study of investment, monetary and fiscal policy and financial markets. He also proposed an econometric model for censored dependent variables, the well-known tobit model.

<span class="mw-page-title-main">Neoclassical economics</span> Approach to economics

Neoclassical economics is an approach to economics in which the production, consumption, and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a good or service is determined through a hypothetical maximization of utility by income-constrained individuals and of profits by firms facing production costs and employing available information and factors of production. This approach has often been justified by appealing to rational choice theory.

The prisoner's dilemma is a game theory thought experiment involving two rational agents, each of whom can either cooperate for mutual benefit or betray their partner ("defect") for individual gain. The dilemma arises from the fact that while defecting is rational for each agent, cooperation yields a higher payoff for each. The puzzle was designed by Merrill Flood and Melvin Dresher in 1950 during their work at the RAND Corporation. They invited economist Armen Alchian and mathematician John Williams to play a hundred rounds of the game, observing that Alchian and Williams often chose to cooperate. When asked about the results, John Nash remarked that rational behavior in the iterated version of the game can differ from that in a single-round version. This insight anticipated a key result in game theory: cooperation can emerge in repeated interactions, even in situations where it is not rational in a one-off interaction.

<span class="mw-page-title-main">Jan Tinbergen</span> Dutch economist (1903–1994)

Jan Tinbergen was a Dutch economist who was awarded the first Nobel Memorial Prize in Economic Sciences in 1969, which he shared with Ragnar Frisch for having developed and applied dynamic models for the analysis of economic processes. He is widely considered to be one of the most influential economists of the 20th century and one of the founding fathers of econometrics.

<span class="mw-page-title-main">Richard Stone</span> British economist, Nobel Memorial Prize winner

Sir John Richard Nicholas Stone was an eminent British economist. He was educated at Gonville and Caius College and King's College at the University of Cambridge. In 1984, he was awarded the Nobel Memorial Prize in Economic Sciences for developing an accounting model that could be used to track economic activities on a national and, later, an international scale.

<span class="mw-page-title-main">Trygve Haavelmo</span> Norwegian economist and econometrician

Trygve Magnus Haavelmo, born in Skedsmo, Norway, was an economist whose research interests centered on econometrics. He received the Nobel Memorial Prize in Economic Sciences in 1989.

<span class="mw-page-title-main">Philosophy and economics</span> Branch of philosophy

Philosophy and economics studies topics such as public economics, behavioural economics, rationality, justice, history of economic thought, rational choice, the appraisal of economic outcomes, institutions and processes, the status of highly idealized economic models, the ontology of economic phenomena and the possibilities of acquiring knowledge of them.

<span class="mw-page-title-main">Wesley Clair Mitchell</span> American economist (1874-1948)

Wesley Clair Mitchell was an American economist known for his empirical work on business cycles and for guiding the National Bureau of Economic Research in its first decades.

<span class="mw-page-title-main">Economic methodology</span> Subfield of economics

Economic methodology is the study of methods, especially the scientific method, in relation to economics, including principles underlying economic reasoning. In contemporary English, 'methodology' may reference theoretical or systematic aspects of a method. Philosophy and economics also takes up methodology at the intersection of the two subjects.

<span class="mw-page-title-main">Applied economics</span> Application of economic theory and econometrics

Applied economics is the application of economic theory and econometrics in specific settings. As one of the two sets of fields of economics, it is typically characterized by the application of the core, i.e. economic theory and econometrics to address practical issues in a range of fields including demographic economics, labour economics, business economics, industrial organization, agricultural economics, development economics, education economics, engineering economics, financial economics, health economics, monetary economics, public economics, and economic history. From the perspective of economic development, the purpose of applied economics is to enhance the quality of business practices and national policy making.

<span class="mw-page-title-main">Dale W. Jorgenson</span> American economist (1933–2022)

Dale Weldeau Jorgenson was an American economist who served as the Samuel W. Morris University Professor at Harvard University. An influential econometric scholar, he was famed for his work on the relationship between productivity and economic growth, the economics of climate change, and the intersection between economics and statistics. Described as a "master" of his field, he received the John Bates Clark Medal in 1971, and was described as a worthy contender for the Nobel Memorial Prize in Economic Sciences.

<span class="mw-page-title-main">Complexity economics</span> Application of complexity science to economics

Complexity economics is the application of complexity science to the problems of economics. It relaxes several common assumptions in economics, including general equilibrium theory. While it does not reject the existence of an equilibrium, it features an non-equilibrium approach and sees such equilibria as a special case and as an emergent property resulting from complex interactions between economic agents. The complexity science approach has also been applied to computational economics.

<span class="mw-page-title-main">Mary S. Morgan</span> British economist

Mary Susanna Morgan FBA FRDAAS, is an economist, philosopher, historian, and the Albert O. Hirschman Professor of the History and Philosophy of Economics in the London School of Economics. She was Department Chair of Economic History between 2002 and 2005. In 2002, she was elected a Fellow of the British Academy.

<span class="mw-page-title-main">Mathematical economics</span> Application of mathematical methods to represent theories and analyze problems in economics

Mathematical economics is the application of mathematical methods to represent theories and analyze problems in economics. Often, these applied methods are beyond simple geometry, and may include differential and integral calculus, difference and differential equations, matrix algebra, mathematical programming, or other computational methods. Proponents of this approach claim that it allows the formulation of theoretical relationships with rigor, generality, and simplicity.

The methodology of econometrics is the study of the range of differing approaches to undertaking econometric analysis.

Disequilibrium macroeconomics is a tradition of research centered on the role of deviation from equilibrium in economics. This approach is also known as non-Walrasian theory, equilibrium with rationing, the non-market clearing approach, and non-tâtonnement theory. Early work in the area was done by Don Patinkin, Robert W. Clower, and Axel Leijonhufvud. Their work was formalized into general disequilibrium models, which were very influential in the 1970s. American economists had mostly abandoned these models by the late 1970s, but French economists continued work in the tradition and developed fixprice models. Other approaches that focus on the dynamic processes and interactions in economic systems that are constantly changing and do not necessarily settle into a stable state are discussed as non-equilibrium economics.

The sociologyof quantification is the investigation of quantification as a sociological phenomenon in its own right.

<i>Models as Mediators</i> 1999 book

Models as Mediators: Perspectives on Natural and Social Science is a multi-author book edited by Mary S. Morgan and Margaret Morrison and published in 1999 by Cambridge University Press.

References

  1. 1 2 3 4 5 6 Sugden, R. (20 May 2013). "Mary S. Morgan's The world in the model: how economists work and think. Cambridge University Press, 2012, 435 pp". Erasmus Journal for Philosophy and Economics. 6 (1): 108–114. doi: 10.23941/ejpe.v6i1.121 . ISSN   1876-9098.
  2. 1 2 3 4 5 6 7 8 9 Halsmayer, V. (September 2014). "Mary Morgan, The World in the Model: How Economists Work and Think". Journal of the History of Economic Thought. 36 (3): 380–382. doi:10.1017/S105383721400039X.
  3. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Morgan, M. S. (17 September 2012). The World in the Model: How Economists Work and Think. Cambridge University Press. ISBN   978-1-107-00297-5.
  4. 1 2 3 4 5 6 7 8 Claveau, F. (March 2015). "The World in the Model: How Economists Work and Think, Mary S. Morgan. Cambridge University Press, 2012, xvii + 421 pages". Economics & Philosophy. 31 (1): 161–168. doi:10.1017/S0266267114000443.
  5. ↑ Hughes, R. I. G. (1997). "Models and Representation". Philosophy of Science. 64 ((Proceedings)): S325 –S336. doi:10.1086/392611.
  6. 1 2 3 4 5 6 7 Desmarais-Tremblay, M. (4 May 2018). "The world in the model. How economists work and think" (PDF). The European Journal of the History of Economic Thought. 25 (3). Routledge: 493–498. doi:10.1080/09672567.2018.1486577. ISSN   0967-2567.
  7. 1 2 3 4 5 Callahan, G. (1 June 2016). "Morgan, Mary S. 2012., The World in the Model: How Economists Work and Think. Cambridge; New York: Cambridge University Press. 2012. xvii + 421 Pages. $44.99". The Review of Austrian Economics. 29 (2): 227–231. doi:10.1007/s11138-015-0303-2. ISSN   1573-7128.
  8. ↑ Rapoport, A. (1962). "The Use and Misuse of Game Theory". Scientific American. 207 (6). Scientific American, a division of Nature America, Inc.: 108–119. Bibcode:1962SciAm.207f.108R. doi:10.1038/scientificamerican1262-108. ISSN   0036-8733. PMID   13973104.
  9. ↑ Cartwright, N. (1 January 2009). "If No Capacities Then No Credible Worlds. But Can Models Reveal Capacities?". Erkenntnis. 70 (1): 45–58. doi:10.1007/s10670-008-9136-8. ISSN   1572-8420.
  10. ↑ The European Society for the History of Economic Thought - ESHET , retrieved 7 December 2024
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.