The visible hand in economics

In praise of abstraction

Posted on: April 5, 2008

Economics seems to endure an awful lot of criticism for using models which simplify reality. I really like the analogy Free Exchange draws between economic models and geographical maps:

If a map included every detail in the geography (trees, country roads, etc.) it would be intractable, rendering it useless. Maps do give you a sense of scale and how variables relate. This facilitates your journey, but does not eliminate unforeseen diversions and the potential for accidents.

Our models are far from perfect and are constantly improving. However, it is our ability to simplify that makes the models useful. If we had to REALLY model reality we’d be neuroscientists, not economists, and have yet to contribute anything to an understanding of markets, policy or finance.

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