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Economics 1a

Economics 1b

Economics 2

Economics 2a

Economics 3

Economics 4

Economics 5


Simulation model

5. Methodological Considerations

Analytical mathematics

The study of the kinds of economic systems explored by Idle Theory is largely mathematical in nature. To some extent it is possible to consider these systems analytically. And this was what was being done in the case of the simple 2-person economies with fixed prices.

This is very often useful and instructive, but for the most part is only applicable to relatively simple situations, such as equilibrium systems. Non-equilibrium systems, with many members, and many tools, are far harder to explore (at least given this author's relatively limited mathematical toolset).

Numerical Simulations

Perhaps the only way to look at complex trading systems with many members using different strategies and many different types of tools is to build numerical computer simulation models, and explore their behaviour.

In the latest simulation model, there a number of individual members of a trading community. Each member of the trading community needs to perform some amount of work each day, unaided by any tools, in order to sustain themselves for another day. They may be thought of as each having some plot of land on which they grow vegetables and keep animals which provide them with food.

However, each member also makes and sells some tool or other which reduces this self-maintenance work by some amount of time. So there is a set of tools each of which has an assigned production cost, use value, and useful lifetime.

Members also use some currency to buy and sell tools from each other. They may use this currency to buy each other's labour. The currency may be labour, or one or other of the tools in the trading system. Individuals are given a set of rules of behaviour. They try to maintain a small stock of each tool in the system for their own use. As tool producers, they try to maintain a stock of tools on sale in their 'shop window'. They price the tools they sell according to some rule, which may be to fix the price at some level, or raise and lower it according to some other rule.

At the outset, the trading system is primed by giving each member some number of tools and production and purchase targets, and the simulation model is set running. Each day, if they have enough stored-up time, they are given another 24 hours of life. And every day each member performs their self-maintenance work, using whatever tools they have available, and then spends some other part of the day working to meet their tool production targets, manufacturing some tool. And they may also perform work for one of the other members of the community. And last of all they will go shopping each day to stock up on new tools for their own use, using what money they have in their purses. The time left at the end of the day, if any, is the idle time available to them for that day, during which they do nothing.

A typical simulation run entails defining some set of tools, handing out some number to each member, giving them rules of conduct, and then watching what happens. Very often these runs throw up some sort of unforeseen problem, which will require the simulation model to be changed to fix it.

Some of these problems are simply technical problems. others may raise some quite deep issues. For example, sometimes 'poverty traps' appear, whereby some members get stuck with no money and no tools to sell, and never manage to climb out of the trap they've landed in.

As the simulation model is developed and perfected, further complications are added. Initially. for example, all prices may be fixed, resulting in an equilibrium system in which idleness is also effectively fixed. And the results that come out of the simulation model can then be compared with predictions made independently using analytical techniques. Prices may then be allowed to float, with sellers raising prices when they sell out of tools, and lowering prices when their tools don't sell, or perhaps using some other rule. Equally buyers may buy the cheapest tools on sale, or those that offer best value for money, refusing to buy tools whose price exceeds their value.

Further complications may also be introduced. The 'climate' may be made to vary so, that daily self-maintenance work takes longer or shorter. 'Banks' may be introduced which offer to lend money at interest. 'Foreign trade' may be simulated by having two or more trading systems running in tandem, making different sets of tools, some of which are useful in other 'countries'. Luxuries may be manufactured and sold. Further members may be added and subtracted to simulate population growth and decline.

Such simulation models might be used to carry out research to study some particular thing (like the effect of a plague or epidemic). They might also be used as educational tools. Or they might be computer games, in which players take part in a simulated economy, as a manufacturer or trader or banker, and works their way up by skill or hard graft.

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Author: Chris Davis
First created: Jan 2009