I've been thinking about some stuff for a while now and since the readership on this blog has grown by leaps and bounds, I think its the right time to try and incorporate some open-ended quesitons here.
Like I mentioned, I don't have the answers and most of the quesitons I post over here are mere thoughts and may seem very naive to the well trained (brainwashed) economist. So I would really appreciate some constructive comments by all of you who spend more than the average 1 minute on this blog to take some time and help me take these germs of ideas to some kind of logical conclusion.
The posts are going to deal with issues like this:
1. The impact of removing the perfect divisibility assumption in consumer theory. If I had to contend with the fact that I cannot buy .67 of a book, how would discrete math help me solve the optimization problem?
2. Considering that demand curves, when empirically estimated, obviously involve many data points that deviate from the mean, can I meaningfully incorporate all the data points by coming up with a theory that talks about a demand correspondence (and its associated features) instead of a precise funtional form?
3. Creating a Bayesian updation framework (after reading up about it!) for a) firm vaulation and b) option pricing.
4. Exploring the possibilities of intermarket relationships from a non-general equilibrium framework. Something a little more game-theoretic I suppose, so as to have a platform to analyse an entire industry with its input markets, its substitute and complement market.
5. Reviewing Econometric methodology. What is the most efficient algorithm to tackle an econometric problem and is there some way to rank the possible approaches in terms of some desirability criteria.
6. Using rational expectations to explain microeconomic dynamics and other movements in individual markets.
So lets see how this goes. I'll tackle each of theses thoughts in separate posts. Please do post comments and help me sort these issues out.
Like I mentioned, I don't have the answers and most of the quesitons I post over here are mere thoughts and may seem very naive to the well trained (brainwashed) economist. So I would really appreciate some constructive comments by all of you who spend more than the average 1 minute on this blog to take some time and help me take these germs of ideas to some kind of logical conclusion.
The posts are going to deal with issues like this:
1. The impact of removing the perfect divisibility assumption in consumer theory. If I had to contend with the fact that I cannot buy .67 of a book, how would discrete math help me solve the optimization problem?
2. Considering that demand curves, when empirically estimated, obviously involve many data points that deviate from the mean, can I meaningfully incorporate all the data points by coming up with a theory that talks about a demand correspondence (and its associated features) instead of a precise funtional form?
3. Creating a Bayesian updation framework (after reading up about it!) for a) firm vaulation and b) option pricing.
4. Exploring the possibilities of intermarket relationships from a non-general equilibrium framework. Something a little more game-theoretic I suppose, so as to have a platform to analyse an entire industry with its input markets, its substitute and complement market.
5. Reviewing Econometric methodology. What is the most efficient algorithm to tackle an econometric problem and is there some way to rank the possible approaches in terms of some desirability criteria.
6. Using rational expectations to explain microeconomic dynamics and other movements in individual markets.
So lets see how this goes. I'll tackle each of theses thoughts in separate posts. Please do post comments and help me sort these issues out.
7 comments:
George,
I am not going to touch the Micro, so I am going to give you some off the top of my head opinions on 2,3,5,6.
2. You probably mean nonparametrics. Advantages you have included in your statement. Disadvantages, refer to curse of dimensionality (it is exceptionally difficult to fit nonparametric curves where more than 2 variables are involved) and overfitting: http://en.wikipedia.org/wiki/Overfitting
If you meant causality in demand factors then clearly you see that the entire literature on simultaneous equations applies, also if you are interested lok up establishing causality by Rubin methods or matched sampling.
3. Bayesian updating or Bayesian Econometrics is very similar to the Likelihood based approach, except that prior subjective beliefs are multiplied. So as long as you can write down a likelihood function for data and parameters, you can in theory appeal to Bayesian estimation techniques subject only to the shortcomings of the estimation techniques (MCMC)
5. An excellent discussion of the philosophy of econometrics and a book on its methodology by Aris Spanos. Also this:
http://www.econ.duke.edu/~kdh9/Source%20Materials/Research/econometric_methodology_plus_abstract.pdf
For a working distinction between the LSE and Cowles commission approaches to the methodology of macroeconometrics, see the book by Carlo Favero.
For other questions like model selction and modelling frameworks (LS, EL, MM, ML) see David Hendry's work for the last few years and a paper by Anil Bera on a unifying concept for the different estimation methodologies. For left of centre discussions of econometric methodology, look at Donald (aka Dierdre) McCloskey. Also see here:
http://ideas.repec.org/s/taf/jecmet.html
and here:
http://ideas.repec.org/a/taf/jecmet/v8y2001i1p49-63.html
6. This is a very nice point. Rational Expectations can be looked at from two perpectives (or atleast its measurement). Either you form a model on the basis of RE and check if it holds, or you design a survey in the Reuters/Bloomberg vein whereby you look for RE in survey responses. An excellent introduction to the latter methods (this is something I have worked with) is given here:
http://www.cesifo.de/pls/guestci/download/CESifo%20Working%20Papers%202005/CESifo%20Working%20Papers%20November%202005/cesifo1_wp1599.pdf
This paper in particular I like a lot.
Anyhoo, I am hoping you have follow up questions to these and that you will be able to do some of the reading I have been procrastinating for some time.
T
Thanks dude for the references..I guess I'll start off on the non parametric reading..Do correct me as and when you see fit.. I don't plan to do too mucj reasearch for a post coz I want to see what a fresh perspective can come up with so guide me!
Hi George, this is really nice place.
Makes me want to find out more. Economics for me is like a lurking shadow in everything I do (work related). I think this is very nice place to start, since I don't have to be bothered by the fact that I am dumb. You guys have known that for years.
T, I'll be perfectly normal here. Its your fault you contribute to a blog which is called the Rant Reader. So where do you suggest I start?
Thanks a lot Salil.
My personal suggestion is to start by asking questions.. It always works.For instance I may know some physics but a simple qustion like why is the sky red at sunset may lead me on to a good investigation by first looking at light, the properties of light and refraction and so on (I think!)
Also when it comes to any science, before we get to the nitty gritty's of derivations and proofs, we have to be certain that the platform we chose to study it is right. I'll explain my approach with an analogy.. You hear some noise in the forest and want to know about it. you come to some cross-roads and choose one road among them based on what people have told you or what has happened in the past. Now, established economists have travelled quite far down that road and so now have to contend with only minor distractions.
I don't plan to study further and so this is just a personal philosophical endeavor and as such I have the liberty of choosing my path. I'm still at the cross roads and am trying to see if some other roads too lead to the noise.
So I think that having the freedom to choose my own set of questions and explore them in my own way is a good approach. This may not be scientific and may lead to many dead-ends, but it's way more satisfying.
That's why this post started off with the questions. Thankar knows a lot about the work that has happened in many of these areas I've mentioned and so may help clear obstructions that come along.
I have a question. Don't know if this is in your field, but figured I might as well toss it out there.
(It's been a loooong day... I hope this makes sense.)
How viable is the model that Radiohead used for their latest album? Would such a system be economically viable? Can the same model apply for *anybody* (ie: not just someone as established as Radiohead)? And I heard that they actually made a profit (unconfirmed) - if that is true, does this possibly create a whole new avenue for new-age companies to compete with existing giants?
What do you think?
...
Oh, and not bad, man! The content's really improved! It's actually interesting now! ;)
Although I do tend to get lost every now and then... but I'll get the hang of it!
George...hmmmm....welll....i would love to be an active part in this conversation but i cannot for the life of me figure what perfect divisibility assumption in consumer theory or bayesian updation framework or half of the terms in your requests....i'd like to believe its not because i am superiorly dumb but because our education systems are extremely localised and polarised at that...so if you want advice from non-economic "pals"....please clarify some of the basic terms...not a five page theoritical discourse but a laymans logical expln....will help...that is if you think it is a necessary premise to have non-economic brains working with you
For 1: this is an old problem, deemed uninteresting, because the gain from discretizing is not worth the effort
For 2: you don't need to always assume functional form, but that does not mean that you should not either.
For 3: has been done.
For 4: network theory? what is the purpose of doing so? this is going to be extremely complicated, and what really is the point?
For 5: look at any issue of the Journal of Econometrics, this is pretty much all that theoretical econometricians do
For 6: no idea...
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