A Changing World and the Prediction of Econometric Models |
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Nipawin - October 21, 2000 - by: Mario deSantis | |
Nobel prize |
Few days ago I talked to my son James who is presently finishing up his MBA program |
at the University of North Dakota. I like to keep in touch with him not only for the purpose | |
to know that he is healthy and doing well in school, but also as an opportunity to exchange | |
ideas and stimulate our thinking. So this time I asked him if he knew the people who won | |
the Nobel prize in Economics and I was surprised to know that he knew already about it. | |
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raise living standards |
This year's Nobel prize in Economics were awarded to two US professors: James Heckman(1) |
of the University of Chicago and Daniel McFadden(2) of the University of California. | |
These two professors have developed theories which could help raise living standards | |
through better predictions of human behavior based on statistical data. Excerpts of the | |
citation provided by the Royal Swedish Academy of Sciences included the following: | |
statistical methods and empirical applications |
"The micro-econometric methods developed by Heckman and McFadden are now part of the standard tool kit not only of economists but also of other social scientists... A recurring theme in McFadden's research is his ability to combine economic theory, statistical methods and empirical applications where his ultimate goal has often been a desire to resolve social problems(3). " |
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baffled with uncertainties |
I mentioned to James that econometrics is in essence the study of economic models |
through a system of linear equations and that this method of linear thinking(4) in | |
predicting economic events is not compatible with the present fast pace of social changes | |
emphasizing knowledge and sharing of information. Under the current trend of social | |
changes we are continuously baffled with uncertainties and rather than predicting the | |
future our emphasis will be in creating it. | |
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flexible and dynamic social and economic models |
Therefore, I said to James that the traditional discipline of econometrics has to give away |
to more flexible and dynamic social and economic models where simulation(5) and | |
system dynamic(6) techniques are being used to create imaginative microworlds(7), and | |
where such microworlds are continuously shared, validated and updated by interested | |
researchers. But I also reminded James that we must never forget where we are at, and that | |
therefore any change has a contextual component, that is we must never negate the present | |
world and that every change, even if unpredictable, must start somewhere, where we are at. | |
--------------Endnotes: | |
Jim Heckman is the Henry Schultz Distinguished Service Professor of Economics at TheUniversity of Chicago | |
Daniel L. McFadden, E. Morris Cox Professor of Economics and 2000 Nobel Laureate Director, Econometrics | |
US theorists take Nobel for numbers with a human face, Yahoo! Asia - News, October 11 7:50 PM SGT,STOCKHOLM, Oct 11 (AFP) | |
The paradox of Linear Thinking has been described by the saying that "nine women can't make a baby in one month" | |
Simulation is a powerful tool for checking your understanding of the world around you (microworlds). It is an efficient communication tool, showing how a process works while stimulating creative thinking about how it can be improved. | |
System Dynamics in Education: Commonality of Structure and Behaviour, by Mario deSantis, March 28, 1999 | |
A Microworld is a learning environment where people move beyond their defenses and design mini-experiments. The Fifth Discipline, by Peter Senge, first paper back edition, 1994, page 403 |