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BY 4.0 license Open Access Published by De Gruyter Open Access October 8, 2019

Escape from model-land

Erica L. Thompson and Leonard A. Smith
From the journal Economics

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.

JEL Classification: C52; C53; C6; D8; D81

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Received: 2019-03-05
Revised: 2019-07-25
Accepted: 2019-09-16
Published Online: 2019-10-08
Published in Print: 2019-12-01

© 2019 Erica L. Thompson et al., published by Sciendo

This work is licensed under the Creative Commons Attribution 4.0 International License.

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