{"id":5084,"date":"2019-12-04T19:00:44","date_gmt":"2019-12-04T13:30:44","guid":{"rendered":"https:\/\/triumphias.com\/blog\/?p=5084"},"modified":"2019-12-04T19:00:44","modified_gmt":"2019-12-04T13:30:44","slug":"role-of-artificial-intelligence-to-shape-economic-theories","status":"publish","type":"post","link":"https:\/\/triumphias.com\/blog\/role-of-artificial-intelligence-to-shape-economic-theories\/","title":{"rendered":"Role of artificial intelligence to shape economic theories"},"content":{"rendered":"<p><strong>Relevance: Mains: G.S paper III: Economy<\/strong><\/p>\n<p><strong>Context:<\/strong><\/p>\n<ul>\n<li>Recently, two big impediments limited what research economists could learn about the world with the powerful methods that mathematicians and statisticians.<\/li>\n<\/ul>\n<p><strong>Data summary and pattern recognition:<\/strong><\/p>\n<ul>\n<li>It was starting in the early 19th century, developed to recognize and interpret patterns in noisy data.<br \/>\n\u2022 Data sets were small and costly, and computers were slow and expensive.<br \/>\n\u2022 So it is natural that as gains in computing power have dramatically reduced these impediments, economists have rushed to use big data and artificial intelligence to help them spot patterns in all sorts of activities and outcomes.<br \/>\n\u2022 Data summary and pattern recognition are big parts of the physical sciences as well.<\/li>\n<\/ul>\n<p><strong>What is a game?<\/strong><\/p>\n<ul>\n<li>The mathematician John von Neumann defined a game as;<br \/>\n\u2022 a list of players;<br \/>\n\u2022 a list of actions available to each player;<br \/>\n\u2022 a list of how pay-offs accruing to each player depend on the actions of all players; and<br \/>\n\u2022 a timing protocol that tells who chooses what when.<br \/>\n\u2022 This elegant definition includes what we mean by a \u201cconstitution\u201d or an \u201ceconomic system\u201d: a social understanding about who chooses what when.<\/li>\n<\/ul>\n<p><strong>improved outcomes might produce different \u201cgames\u201d<\/strong><\/p>\n<ul>\n<li>We want to conduct experiments to study how a hypothetical change in the rules of the game or in a pattern of observed behaviour by some \u201cplayers\u201d (say, government regulators or a central bank) might affect patterns of behaviour by the remaining players.<br \/>\n\u2022 Thus, \u201cstructural model builders\u201d in economics seek to infer from historical patterns of behaviour a set of invariant parameters for hypothetical (often historically unprecedented) situations in which a government or regulator follows a new set of rules.<br \/>\n\u2022 The government has strategies, and the people have counter-strategies, according to a Chinese proverb.<\/li>\n<\/ul>\n<p><strong>What are the Challenges ahead to build up structural models?<\/strong><\/p>\n<ul>\n<li>\u201cStructural models\u201d seek such invariant parameters in order to help regulators and market designers understand and predict data patterns under historically unprecedented situations.<br \/>\n\u2022 The challenging task of building structural models will benefit from rapidly developing branches of artificial intelligence (AI) that don\u2019t involve more than pattern recognition.<\/li>\n<\/ul>\n<p><strong>Case study:<\/strong><\/p>\n<ul>\n<li>AlphaGo team of computer scientists that created the algorithm to play the Chinese game Go combined a suite of tools that had been developed by specialists in statistics, simulation, decision theory, and game theory communities.<br \/>\n\u2022 Many of the tools used in just the right proportions to make an outstanding artificial Go player are also economists\u2019 bread-and-butter tools for building structural models to study macroeconomics and industrial organization.<\/li>\n<\/ul>\n<p><strong>Physics vs. Economics:<\/strong><\/p>\n<ul>\n<li>The economics differs from physics in a crucial respect.<br \/>\n\u2022 Pierre-Simon Laplace regarded \u201cthe present state of the universe as the effect of its past and the cause of its future,\u201d the reverse is true in economics: what we expect other people to do later causes what we do now.<br \/>\n\u2022 The \u201crational expectations\u201d, reflects a sense in which \u201cthe future causes the present\u201d in economic systems. Taking this into account is at the core of building \u201cstructural\u201d economic models.<br \/>\n\u2022 There are similar trade-offs with unemployment and disability insurance\u2014insuring people against bad luck may weaken their incentive to provide for themselves\u2014and for official bailouts of governments and firms.<\/li>\n<\/ul>\n<p><strong>Conclusion:<\/strong><\/p>\n<ul>\n<li>Like physicists, economists use models and data to learn.<br \/>\n\u2022 They don\u2019t learn new things until we appreciate that our old models cannot explain new data.<br \/>\n\u2022 They construct new models in light of how their predecessors failed.<br \/>\n\u2022 This explains how we have learned from past depressions and financial crises.<br \/>\n\u2022 Big data, faster computers and better algorithms, we might see patterns where once we heard only noise.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Relevance: Mains: G.S paper III: Economy Context: Recently, two big impediments limited what research economists could learn about the world<\/p>\n","protected":false},"author":1,"featured_media":3299,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[123,42,43,69],"tags":[392],"class_list":["post-5084","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-current-affairs","category-general-studies-iii-technology-economic-development-bio-diversity-environment-security-and-disaster-management","category-indian-economy","category-science-and-technology","tag-union-public-service-commission-upsc"],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts\/5084","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/comments?post=5084"}],"version-history":[{"count":1,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts\/5084\/revisions"}],"predecessor-version":[{"id":5085,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/posts\/5084\/revisions\/5085"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/media\/3299"}],"wp:attachment":[{"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/media?parent=5084"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/categories?post=5084"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/triumphias.com\/blog\/wp-json\/wp\/v2\/tags?post=5084"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}