Saturday, April 25, 2009

Of modeling and predictions

rational and irrational man

Model of a system is not the system. It is an approximation, by definition.

When one models a system, certain assumptions are made, some aspects of the system is taken as invariable or at times independent of each other.

How then is one to determine if the approximation, the model makes sense?

The success of a model depends on its ability to predict. Models can be twisted and turned to fit the existing data and therefore can explain the known or the past in the most brilliant way possible. But if the model cannot predict the unknown or the future, then it is of no use. Einstein's model of the universe is an approximation but makes sense because it could predict certain phenomena that was till then unknown or unexplained. The success of environmental models will lie in its predictability. Unfortunately, we will get to know of the models' success only when it is too late.

I recently read (see here) that reduction in pollution will actually result in increased global warming. How? Pollution causes scattering of light which enables more leaves even those that are not at the top to carry out the process of photosynthesis at increased efficiency. Reduction in pollution will reduce the scattering and hence low photosynthesis resulting in low carbon absorption. So either you die of pollution or due to global warming! Nice!

The book I am reading now, The Logic of Life, by Tim Harford, is also about modeling. The premises are simple but effective. Human beings are capable of reacting to any situation rationally as well as irrationally. The book models the human society as rational and explores various non-economic issues. From what I have read so far, the rational model seems to be explaining the past well. There is no prediction of the future. I am hoping desperately that the book will make predictions somewhere down the line. But I won't be disappointed if there are none. Why? Well, if economic (and financial) models were that good at predicting, we wouldn't be facing the worst global financial crisis of all times, now would we?

Picture courtesy: Tory Byrne

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