
Does human behaviour render all economic models useless?
Debunking Economics - the podcast
Exploring Complexity and Segmenting the Market in Economic Models
The level of complexity in modeling behavior might not go far enough. People don't always behave the same way and there are unseen factors at play. For example, small businesses struggle because they care about their customers while large businesses prioritize profits. The system dynamics model can account for different segments in the market and produce dramatic changes in behavior. By adding elements like borrowing money and paying interest, the model predicted the possibility of a financial crisis in 2007. Segmentation and simple rules about behavior create structure and dynamics in the economy.
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