Comment by rishubhav | Hacker News Reader

Comment by rishubhav | Hacker News Reader

The model in the paper is offensively dumb. A basic explanation (taken from a web-forum where economists hang out):

The paper says

The model consists of N agents, each with capital ci with i = 1, . . . , N. Agents are allowed to trade among themselves M objects. Each object m = 1, . . . , M has a price πm.

Starting from a feasible allocation matrix A, we introduce a random trading dynamics in which a good m is firstly picked up uniformly at random among all goods. Its owner then attempts to sell it to another agent i picked up uniformly at random among the other agents. If agent i has enough cash to buy the product m, that is if `i > πm, the transaction is successful and his/her cash decreases by πm while the cash of the seller increases by πm.

In other words:

1. Prices cannot vary. The price a good is set in stone.

2. Agents do not purchase things they want. They "pick up" goods and immediately try to sell them.

3. They sell them at these pre-determined prices to other people, whether the other people want them or not. Well, there's no such thing as "want" in this model.

4. Nor is there any planning by agents. No ability for them to say "Crap, I only have $5 left. Better not spend it on this vase this guy is selling."

Original discussion source:

http://www.econjobrumors.com/topic/physicists-model-economic...

You would be surprised how oversimplified most economic models are, particularly those taken as gospel. For instance, I won't deny that there are certain situations in which supply and demand curves are predictive (we all know how commonly they are cited to explain pricing in a market), but consider how many conditions must be assumed in order for them to apply as originally constructed:

1. The good is a commodity, i.e. its labeling has no effect on perceived value

2. The selling firms are perfectly competitive (i.e., no partial or complete monopolies that allow price-fixing)

3. The buyers are perfectly competitive (i.e., no purchasing groups)

4. All sellers can sell to all buyers equally easily

5. All parties in the market have equal access to information

6. All parties act rationally and based only on the marginal utility of each individual transaction

etc., etc., and a whole litany of other things that we know are rarely true. Since the theory is so "squishy" in practice, one could even protest that it does more harm than good when treated as a de facto starting point for price modeling: https://en.wikipedia.org/wiki/Supply_and_demand#Criticisms

So this model, even if it too is sadly oversimplified, may still be useful simply by starting from a different set of assumptions than whatever is typical in the field, and seeing how the modeled behavior differs from existing theories. There's basically no hope of experimental validation for any of this, though.

Yes, but are these any simpler than most written discussions of the same topics, in things like essays? It seems that the once they're codified in some kind of mathematical model then we can see the shortcomings right away, whereas an essay might obfuscate this, and yet be conceptually even weaker.

In another way, the same arguments could be made in a mathematical model and an essay, but the model might just be easier to criticise. I'd say that's a good thing.

Random models are very hard to analyze, so people rely on using very basic models - a good example is random graphs, where there is still a lot of research on the very basic Erdos-Renyi model, even if basically everybody is aware of its shortcomings regarding an accurate portrayal of real-world data (none). But it's a model where it's possible to get some good bounds for many problems, basically the only such model, so it's good for papers.

But how those "scientists" deduce things on the real-world based on these simplistic models is utterly unjustifiable. In many cases, we know that some statistical properties show the models are inadequate, yet they still dare to write their BS about how "the internet" or "social networks" work based on such trivial models... (and the media disseminates these idiocies, like Ted and Wired...).

Sad!

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