Abstract
The three simple models presented in Chapter 2 are pedagogically interesting, as their scope is to answer important questions. Now we will show, first, that they are essentially conceptual as, rather than trying to explain the causes of specific real situations, they aim to answer a theoretical question, to challenge our ways of thinking about reality. And second that they manage to do so, by improving our understanding of collective effects of individual choices. But as soon as one tries to use these simple models to understand real events, one runs into serious trouble, as we’ll explore further in the next chapter.
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Hotelling’s error is exposed in d’Aspremont et al. on Hotelling’s stability in competition, Econometrica, vol. 47, 1979
On the analysis of stock market fluctuations: J. Ph. Bouchaud, “The endogenous dynamics of markets: Price impact and feedback loops”, arXiv, 2009
Keynes quotation is from chapter xii of his General Theory of Employment, Interest and Money, 1936
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Jensen, P. (2021). What Can Be Learnt from Simple Models?. In: Your Life in Numbers: Modeling Society Through Data. Copernicus, Cham. https://doi.org/10.1007/978-3-030-65103-9_3
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DOI: https://doi.org/10.1007/978-3-030-65103-9_3
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