Day 6: How model thinking helps you

Nope, I’m not talking about Baywatch babes of any type, but more about the scientific versions that are out there.  I am following a course at Coursera which is amazing.  It shows you all kinds of models that simplifies life around you.  By using these models you can either analyse history or predict the future.  Of course there are no true fortune tellers but they do provide insight in how things work.  Yesterday I followed the training about economic models which predicts the flattening of China’s economy as long as no innovative measurements are taken.  It was very interesting to see how curves show the past and future.

The tutor also informs you that it can be easier to think with the help of a model as it enables you to understand the data.  Actually, to start using a model you first need to destruct the separate parts of your case.  To note this down you are already forced to simplify the case. Once we have the model we can use it to understand the data.  There are several reasons why we want to use a model:

  1. To understand patterns;
  2. To predict the future;
  3. To produce a band width in which your forecast will fall when there are many uncertainties;
  4. To analyse something from the past in a retrospective way;
  5. To understand which sub parts there are and what kind of relationship they have when compared with each other;
  6. To analyse if there are hidden parameters that are also able to nudge the prediction in a certain direction;

The course provides you with loads of examples for which these models are used.  For example to decide if a bank needs to be supported by the government or not (so in essence to assess if the bank is too big to fail) they have ways to analyse the impact when a chain of events occurs. Other examples are for instance the Game Theory that can surprisingly also be used in real life.  The Game Theory depicts that your choice is based on what you think that others will do.  This is very well seen during election day, that there is always a part that votes strategically.

I figured that creating models might actually help me with more than just economics. Look at the very interesting Action blog that accompanies this article to see why the aha-moment is just so much more!

Conclusions

  • We can use models to simplify and understand the world around us better.
  • Models can not only be used to understand the past but also predict the future.
  • There are a lot of reasons why models can help us figure things out.

Leave a Reply

Your email address will not be published. Required fields are marked *