ITGS Syllabus

Tuesday, July 04, 2006

Topic 104

social impact of reliance on simulations to examine issues of public policy by Haider

As I discussed in my previous paper, it is easy to create models to simulate reality when it comes to designing and testing new products, and the economic effects that result are generally positive. Public policy, however, unlike goods, has a much deeper social impact, and the effects from public policy on people are significantly harder to simulate using technology.

When designing a product, a designer can simulate its behavior using a computer model and understand how the product will act in the real world. The most fundamental issue with relying on simulations to examine the effects of public policy is that it is almost impossible to simulate human behavior in any situation.

That, however, does not mean that simulations that model human behavior don’t work. The effectiveness of a simulation comes down to how sure the person creating the simulation is of the behavior of the object he is modeling. A product designer can break down his object’s behavior into numbers and create simulations from there. With such objectivity involved, simulations tend to be very accurate, as 1 plus 1 almost always equals 2. Simulating human behavior, however, becomes more difficult due to the subjectivity involved.

The accuracy of simulation hence comes down to objectivity and subjectivity. Keeping this in mind, two hypothetical issues of public policy can be examined:

1. A decrease in interest rates. A decrease in interest rates means that saving money and depositing it in banks is no longer as attractive to people as it was before. Also, with low interest rates, businesses can afford to borrow and invest more. Hence, investment in the economy increases, leading to economic growth. This has been modeled by various economists over the years, such as Harrod and Domar. Although no such model ever comes to being 100% accurate at simulating the behavior of the economy, the mathematical objectivity involved allows models simulating the economy to be fairly accurate.

2. Devoting more of the annual budget towards poverty alleviation. No one knows how people will react to this policy. Hence, the subjectivity involved here hinders the formulation of a simulation to examine the issue in detail.

The social implications that arise from this are vast. Like simulations helping with product design, simulations that help analyze the effects of public policy make it easier for policymakers to understand the effects of their policies. However, as discussed, the subjectivity that’s involved with simulating public policy makes it almost impossible to create simulations that are 100% accurate. With inaccurate simulations, policymakers may create policies that may harm social welfare, creating a negative impact of reliance on simulation to examine


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