Solution
Discussion Done
Important Characters of Economic Model
According
to David Laibson of Harvard University, a good model requires to have some of
the seven properties in order to serve its users purposefully. Since it is a
fact that a model is a simple of describing the world and these are meant on
several assumptions in order to avoid complexity. The two most important
characteristics of an economic model includes empirical consistency and
predictive precision. The other properties mentioned by the professor include
parsimony and generalizability. Tractability and fallibility along with conceptual
insightfulness are the rest of properties that describes a good model
especially if it’s an economic one (Laibson & Gabaix, 2014) .
There
is no limitation as to how many properties should be there in an economic model
to make it a good one or what pair helps to identify a better productivity of
an economic model. Many believed that an economic model must have the ability
to provide empirical consistency i.e. ability to be consistent with the real
world’s observation and experience over a considerable period of time. It is
important for an economic model to show consistency to basic observations (Laibson &
Gabaix, 2014) .
Another quality to have in an economic model is its ability to predict with
precision. The models are used to understand the world in present so that a
better preparation for the future is ensured.
Simplification
of the model doesn’t mean it is away from realistic world. The better
understanding of the world is highly attached with the models that are simple
in character but can grasp the highly complex concepts of the world. A simple
theory with the ability to make the other understand the complex real world is
the basic function of a theory and that is what most of the theories attempts
to achieve. Sometimes the assumptions attached to these theories make them a
little unrealistic and that’s why many claims some of the theories to be
unrealistic.
Reference:
Laibson, D., & Gabaix, X. (2014). The
Seven Properties of Good Models. NYU Methodology Conference , 1-13
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