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Modeling economic risk

from Lars Syll

sav2Model builders face a constant temptation to make things more complicated than necessary because this makes them appear more capable than they really are.

Remember that a model is not the truth.

It is a lie to help you get your point across.

And in the case of modeling economic risk, your model is a lie about others, who are probably lying themselves.

And what’s worse than a simple lie?

A complicated lie.

  1. April 14, 2018 at 8:05 pm

    Modeling risk is possible. Multiscenario multicriteria optimization models with enormous number of scenarios – likely, “black swans,” and impossible. With main criterion of catastrophe avoidance. And with iterative change of scenario probabilities. With a number of resulting candidate strategies and subjective selection of the strategy to be implemented.

    And I do not try to impress anybody. Do not give a damn.

  2. David Harold Chester
    April 15, 2018 at 7:00 am

    I resent the calling of models in economics a lie, even though there are elements of doubt in them. These models are serious attempts to reach the truth as is all scientific investigation. The imperfection and failures in them to find a perfect representation are not due to somebody saying to him/her self that we need to show something however incorrect, but rather that we need to get as close as we can to what deductible knowledge and experimental experience that we possibly can–this itself being a shrinking variable.

    • Prof James Beckman, Germany
      April 15, 2018 at 7:30 pm

      Totally agree with you, David.

  3. Prof James Beckman, Germany
    April 15, 2018 at 10:30 am

    Vladimir, right on, but isn’t the challenge to identify measurable variables to power your analysis?

  4. April 15, 2018 at 12:49 pm

    To anticipate the impact on multiple risks of “unknown unknowns,” for any variables a range of possible values is expanded compared with what we get from the past. Then simulation creates “black swan” scenarios. Does it answer your question?

    • Prof James Beckman, Germany
      April 15, 2018 at 4:19 pm

      Vladimir, for me your response makes clear sense. Thanks.

  5. April 15, 2018 at 5:43 pm

    if you are interested, look up my papers:
    Environment, Systems, and Decisions, 33(2013), 1, DOI 10.1007/s10669-013-9433-x.;
    Review of Economics and Finance, 8(2017), 2. ID 1923-7529-2017-02-17-14.
    Can email.

    • Prof James Beckman, Germany
      April 15, 2018 at 7:31 pm

      Email please, Vladimir.

      • April 15, 2018 at 10:31 pm

        Your address?

      • Prof James Beckman, Germany
        April 16, 2018 at 6:14 am

        Guess it didn’t show on my response, Vladimir. “happybim@hotmail.com”–that puts my nickname into the way I try to live. Thanks, again. Best.

      • April 15, 2018 at 11:54 pm

        James:
        If you prefer, you can send the address to skipandscan@optonline.net.

  6. April 16, 2018 at 11:29 am

    James:

    I tried to email at that address – it did not go through.

    • Prof James Beckman, Germany
      April 16, 2018 at 6:50 pm

      Yes, instead I down-loaded some anti-virus software. Ok, then “BimBhappy@aol.com”. If it gets through, let me know since I don’t check it all the time. Sorry.

  7. April 16, 2018 at 11:31 am

    James:
    Send email to my address, I’ll answer. Easier.

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