How to Build an Economic Model in Your Spare Time

Very fun paper for my favorite econ phd candidates.

Click Here To Read: How To Build An Economic Model In Your Spare Time

Abstract (Via Hal Varian Berkeley)

Most of my work in economics involves constructing theoretical models. Over the years, I have developed some ways of doing this that may be worth describing to those who aspire to practice this art. In reality the process is much more haphazard than my description would suggest|the model of research that I describe is an idealization of reality, much like the economic models that I create. But there is probably enough connection with reality to make the description useful|which I hope is also true for my economic models.

Steps To Building An Economic Model (Excerpts Via Hal Varian @ Berkely)

1. The first step is to get an idea. This is not all that hard to do. The tricky part is to get a good idea. The way you do this is to come up with lots and lots of ideas and throw out all the ones that aren’t good.

2. Is your idea worth pursuing? So let’s assume (a favorite word of economists) that you have an idea. How do you know if it is any good? The rst test is to try to phrase your idea in a way that a non-economist can understand. If you can’t do this it’s probably not a very good idea. Before you start trying to decide whether your idea is correct, you should stop to ask whether it is interesting. If it isn’t interesting, no one will care whether it is correct or not.

3. Don’t look at the literature too soon. The first thing that most graduate students do is they rush to the literature to see if someone else had this idea already. However, my advice is to wait a bit before you look at the literature.

4. Building your model. So let’s skip the literature part for now and try to get to the modeling. Lucky for you, all economics models look pretty much the same. There are some economic agents. They make choices in order to advance their objectives. The choices have to satisfy various constraints so there’s something that adjusts to make all these choices consistent. This basic structure suggests a plan of attack: Who are the people making the choices? What are the constraints they face? How do they interact? What adjusts if the choices aren’t mutually consistent?

5. Generalizing your model. Suppose that you’ve nally made your model as simple as possible. At this point your model is probably too simple to be of much interest: it’s likely just an example or a special case. But if you have made your model as simple as possible, it will now be much easier to see how to generalize it since you know what the key pieces are that make the model work.

6. Making mistakes: This process|simplify to get the result, complexify to see how general it is|is a good way to understand your model. Most of the time that I spend modeling is involved in this back-and-forth process.

7. Searching the literature At this point you can start doing your literature search. Tell your professors about what you’ve discovered|nine times out of ten they’ll tell you to look in the “1983 AER” or “Econometrica 77″ or some textbook (maybe even one of mine). And lots of the time they’ll be right. You’ll look there and nd \your” model|but it will be much better done, much more fully developed, and much clearer

8. Giving a seminar: After you’ve bored your friends, relatives and pets to death, you should give seminar. This is a really important phase: the more you can talk about your work, the better the nal paper will be. This is because a talk forces you to get to the point. If you want your audience to listen to you, you’ve got to make your idea clear, concise, and organized|and…

9. Planning your paper:[Using a computer and notation software]

10. The Structure Of The Paper: There’s an old joke about academic papers. They are all supposed to have three parts. The first part, everyone can understand. The second, only a handful of readers can understand. The last part no one can understand|that’s how the readers know it’s a serious piece of
work! The big mistake that authors make these days is to leave out the rst part of the paper| that part that everyone can understand.

11. When To Stop: You can tell when your work is getting ready for publication by the reactions in the seminars: people stop asking questions.Once you’ve made your point, stop. Lots of papers drag on too long. I said earlier that people only remember about 20 minutes of your seminar (if you’re lucky), and they only remember about 10 pages of your paper. You should be able to say most of what you want to say in that length.

Favorite Lesson:

The road to wisdom? We’ll it’s plain
and simple to express:
Err
and err
and err again
but less
and less

Click Here To Read: How To Build An Economic Model In Your Spare Time