The Institute Blog

On the Playground: What is a good model in economics?

What is a good model in economics? “The Kids” asked a dozen economists in the halls of the Mount Washington Hotel in Bretton Woods, and we invite you to watch what they said:

Models in Economics

Good models are those that pass the test of time, says Philippe Aghion. Brad DeLong presents what has come to be called Friedman’s “F-Twist”: assumptions don’t matter – a good model is one that predicts well. Wrong, says Anatole Kaletsky, economists ought to model the whole range of human behavior, and doing so requires re-examining the very assumptions on which our models rest. And to George Akerlof, a good model applies to the specific question asked; it corresponds to the problem at hand. Click here to watch the video

More video clips from The Kids:

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Adam Smith labeled the machine the “invisible hand.” In The Wealth of Nations, published in 1776, Smith, widely considered the father of economics, emphasized the economy’s self-regulating nature—that agents independently seeking their own gain may produce the best overall result for society as well. Today’s economists build models—road maps of reality, if you will—to enhance our understanding of the invisible hand. Michael Lombardi Predictions

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