David K. Levine has written a white paper for the NSF proposing that they invest in large-scale simulated economies as virtual laboratories:
An alternative method of validating theories is through the use of entirely artificial economies. To give an example, imagine a virtual world – something like Second Life, say – populated by virtual robots designed to mimic human behavior. A good theory ought to be able to predict outcomes in such a virtual world. Moreover, such an environment would offer enormous advantages: complete control – for example, over risk aversion and social preferences; independence from well-meant but irrelevant human subjects “protections”; and great speed in creating economies and validating theories. If we were to look at the physical sciences, we would see the large computer models used in testing nuclear weapons as a possible analogy. In the economic setting the great advantage of such artificial economies is the ability to deal with heterogeneity, with small frictions, and with expectations that are backward looking rather than determined in equilibrium. These are difficult or impractical to combine in existing calibrations or Monte Carlo simulations.

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September 21, 2010 at 2:41 pm
michael webster
Levine is a bright mathematical guy, but this is a moronic suggestion. You don’t need to test predictions in a model which already has the answers because of your initial assumptions. My 7 year old son knows that Warcraft isn’t “real, Dad.”
September 21, 2010 at 3:18 pm
jeff
I don’t think World of Warcraft is exactly what he has in mind.
September 21, 2010 at 5:01 pm
Andrew
“..designed to mimic human behaviour.” Easy enough, right?
September 22, 2010 at 10:55 pm
Kenneth Schulz PhD
I doubt I could change the mind of anyone still lost in the opium dream of economics-as-physics, but let me speak as a psychologist with some experience working in complex human-technical systems (nuclear power plant operations, and currently, air traffic control). How do behavioral scientists research improvements in these systems? We simulate the systems; human behavior is represented by — the actual behavior of trained, experienced operators/controllers. It’s called Human-in-the-Loop simulation. Simulating a nuclear power plant, or the entire US domestic airspace and its traffic, is just a matter of buildings full of computers and person-decades of programming. But accurate models of the performance of plant operators and air traffic controllers is beyond the state of our art, even though they work in far more highly constrained domains than do economic actors (see for example http://www.faa.gov/documentLibrary/media/Order/ATC.pdf).
I suggest this might be a fruitful path for economics: everything simulated but the human participants, who stand in for themselves, until we have enough basic knowledge of behavior to build reasonable models. My guess is that we’ll be ready before the next millenium…
September 22, 2010 at 11:07 pm
michael webster
Kenneth’s observations are spot on.
It is simply idiotic to pretend that we can mimic human behaviour in simulated worlds, thus the reference to WOW.
What is the fascination with treating a solution to a series of equations as a recommendation for practical action? The fact that we use “solution” as the same word? Can we all say, togther, “fallacy of equivocation”.
October 3, 2010 at 3:26 pm
beau
Wouldn’t this be like to large scale agent-based modeling?