With the republican primaries going on in the USA and the always present polls for coalition governments in Europe, polls have become part of our daily lives. If polls are made properly, they are good for governments and the general public because they can tell us an indication on how the majority of people thinks about certain subjects. A government can use polls to see the effects of their policy on the population and might decide upon a change in it midterm, because their voters disapprove of it.
However polls are dangerous things, because all to often they are misinterpreted and taken more seriously than they should. One problem of polls is that people might not tell the the truth in a poll, because they are not anonymous. For instance: they might give the social acceptable answer of voting for a social party and then vote for an extreme right one (In Dutch: Links lullen, Rechts stemmen). Also people that are asked during a poll might not actually know what they would vote for and just give a random answer depending on what they have seen on that day on TV. And finally even if somebody truthfully answers he might not go voting because the weather is bad on voting day. And these are just some problems, there are many more...
Next to these inherent problems of polling there are also problems with to low sample sizes (that means that not enough people take part in the poll). To give an example (this involves some statistics 1.02): In the Dutch assembly there are 150 seats. So the question is: how many people do you need to ask before you can say up to 1 seat in uncertainty per party how the people would vote. To calculate the uncertainty you need to use a Poisson distribution and take roughly two times the standard deviation for the uncertainty. This amounts to roughly one over the square root of the number of people asked (it also depends on how much seats you expect, parties with less seats are predicted more accurately). Here we need an accuracy of 1/150, since there are 150 seats. So to get within 1 seat you need 150 square or 22500 voters asked. If you want an accuracy of 2 seats you need 22500/4 voters, if you need 3 seats 22500/9 etc. The average poll in the Netherlands has about a 1000 people in it, giving it an accuracy of 3% of the votes or 4.5 seats in the Dutch parliament. (please correct me if the math I did was wrong)
Now what does all of this math tell us? That any poll that we see in the Dutch news is probably inaccurate to about 4 seats per party. That makes questions like: so your party rose by one seat in today's poll, what do you think about that? Totally ridiculous. The same math also applies to other countries: If the number of people asked in CNN is the same, a lead of 3% in the polls for a US candidate does not really tell you anything.
In conclusion: most daily polls do not really tell much except for when they show major differences. What those polls can tell us is a trend: a political party which is falling by numerous polls over a long time(e.g. Dutch CDA) still needs to be worried and will probably need to adjust its policies. This is because with consequetive polls the uncertainty shrinks, simply because more people were asked. A political party which is bouncing up and down a bit in the polls should not worry, that is just statistical noise.
A final note: this post deals with acceptable polls with good techniques. I do not classify the polls from Maurice de Hond (most cited poll in the Netherlands) in here. As far as i am concerned his polls are of very little value to predict outcomes of elections.
Sunday, January 22, 2012
Economics at a turning point (2)
Yesterday I made a post on the need for a new economics. In this post I will elaborate more on the possibilities of replacing the economic science of today with the complexity of tomorrow.
The main questions for me are: where do we go from here? How do we make a new economic reasoning? We can do this using some economics that is already here: Evolutionary economics. This kind of economics is more based changes in systems rather than the optimization and equilibrium that is more present in classical economics. In evolutionary economics it is thought that all sorts of things (products, companies, strategies etc.) follow the evolutionary algorithm that was found in biology by Darwin. This means that less fit things (products, etc.) will eventually give way to more fit things (other products, etc.).
Evolutionary economics also employs another interesting concept: bounded rationality. In short, bounded rationality means that actors in systems (you and me) do not make the most optimal decision, or make a completely random decision but rather something that is in between: we make a strategy which is OK. These strategies are then mainly chosen, not because they are the optimal strategy, but because we are satisfied with them. I think that this is far closer to human nature (and also that of companies and other larger actors) than an optimizing approach.
Unfortunately there is always something to complain about: in evolutionary economics the focus is solely on the evolutionary algorithm that obscures systems of our economy which do not have evolutionary properties. A good example of this is the behavior of consumers (again you and me), where there is not really a process where bad consumers get replaced by good consumers. But this can be solved by taking a broader perspective of economic systems and creating a theory of complex systems in which the evolutionary algorithm is just one component, be it a very important one.
However, there is a real problem with the state of evolutionary and other ways of describing the economic system. By my knowledge (please answer this post if I am wrong) there is not a single complex way of describing the entire economy. There is no answer to the question what is the increase in GDP the next year or over the next 5 years. Or: what will happen in X years to our government debt if we raise taxes on middle-incomes by 3 percentage points? All models of from complexity economics are just models: they are good at describing one behavior or give an understanding into dynamics of different systems but they cannot really be applied to real-world economic policy questions.
Classical economic theory offers answers to these questions. But we know that these answers are not only inaccurate but they are also skewed towards certain outcomes (something that I will come back to in a later post). Therefore I believe that we need to come up with an economic theory based on complexity that is general and that can be applied to answer economic policy questions.
The main questions for me are: where do we go from here? How do we make a new economic reasoning? We can do this using some economics that is already here: Evolutionary economics. This kind of economics is more based changes in systems rather than the optimization and equilibrium that is more present in classical economics. In evolutionary economics it is thought that all sorts of things (products, companies, strategies etc.) follow the evolutionary algorithm that was found in biology by Darwin. This means that less fit things (products, etc.) will eventually give way to more fit things (other products, etc.).
Evolutionary economics also employs another interesting concept: bounded rationality. In short, bounded rationality means that actors in systems (you and me) do not make the most optimal decision, or make a completely random decision but rather something that is in between: we make a strategy which is OK. These strategies are then mainly chosen, not because they are the optimal strategy, but because we are satisfied with them. I think that this is far closer to human nature (and also that of companies and other larger actors) than an optimizing approach.
Unfortunately there is always something to complain about: in evolutionary economics the focus is solely on the evolutionary algorithm that obscures systems of our economy which do not have evolutionary properties. A good example of this is the behavior of consumers (again you and me), where there is not really a process where bad consumers get replaced by good consumers. But this can be solved by taking a broader perspective of economic systems and creating a theory of complex systems in which the evolutionary algorithm is just one component, be it a very important one.
However, there is a real problem with the state of evolutionary and other ways of describing the economic system. By my knowledge (please answer this post if I am wrong) there is not a single complex way of describing the entire economy. There is no answer to the question what is the increase in GDP the next year or over the next 5 years. Or: what will happen in X years to our government debt if we raise taxes on middle-incomes by 3 percentage points? All models of from complexity economics are just models: they are good at describing one behavior or give an understanding into dynamics of different systems but they cannot really be applied to real-world economic policy questions.
Classical economic theory offers answers to these questions. But we know that these answers are not only inaccurate but they are also skewed towards certain outcomes (something that I will come back to in a later post). Therefore I believe that we need to come up with an economic theory based on complexity that is general and that can be applied to answer economic policy questions.
Economics at a turning point
Economics is at a point where physics was some 100 years ago. We think we have solved all the mayor issues and that there is just some small details to be solved before we can complete this chapter of knowledge. This in fact is like physics 100 years ago not true, as the current crisis showed and keeps showing us. Therefore it is time for a new paradigm: complexity economics (my expertise)
First lets discuss some history of economics(the really short version): the foundation of our current thought of economics comes from Walras. His thought that economics are the result of general equilibria (e.g. between supply and demand) are still common good in economics. But that was not the only thing that he did, thanks to him (and others) also the mathematical description of economics was introduced. The main thought for this all was the description of economics as a kind of phyiscs. After him other economists have shown that economics is not only about equilibrium's (notably Keynes) but the two other points (mathematics and physics) have stayed.
What we see in the world now is that economics is actually quite far from physics: unlike physics, all parts of the economics system (that's you and me) are not the same. Also the different parts of the system think and plan strategic behavior, thus undermining general equilibria. These two small arguments make that economics cannot be simply seen as a physical system which can be described by nice differential equations and integrals but is rather a complex system in which modelling is more the way to go. Recently the economic science has kinda acknowledged this and introduced behavioral economics
I believe that this acknowledgement is not enough: economics needs to be transformed into a science that is based on complexity rather than just makes a complexity addition. With this new economics the results of classical economics are not waisted, nor untrue. They are stylist versions of the real complex system that hold true in limit situations. Just like classical physics is a limit situation of relativity and quantum theory.
First lets discuss some history of economics(the really short version): the foundation of our current thought of economics comes from Walras. His thought that economics are the result of general equilibria (e.g. between supply and demand) are still common good in economics. But that was not the only thing that he did, thanks to him (and others) also the mathematical description of economics was introduced. The main thought for this all was the description of economics as a kind of phyiscs. After him other economists have shown that economics is not only about equilibrium's (notably Keynes) but the two other points (mathematics and physics) have stayed.
What we see in the world now is that economics is actually quite far from physics: unlike physics, all parts of the economics system (that's you and me) are not the same. Also the different parts of the system think and plan strategic behavior, thus undermining general equilibria. These two small arguments make that economics cannot be simply seen as a physical system which can be described by nice differential equations and integrals but is rather a complex system in which modelling is more the way to go. Recently the economic science has kinda acknowledged this and introduced behavioral economics
I believe that this acknowledgement is not enough: economics needs to be transformed into a science that is based on complexity rather than just makes a complexity addition. With this new economics the results of classical economics are not waisted, nor untrue. They are stylist versions of the real complex system that hold true in limit situations. Just like classical physics is a limit situation of relativity and quantum theory.
Saturday, January 21, 2012
Hello world!
Dear reader
As a first post i shall give you an idea into what i think this blog is all about. But first a small introduction: My name is Jurriën Bakker and I'm a Dutch student of Innovation Sciences at the university of Eindhoven (aka TU/e). Before that I did a bachelor of applied physics so some ideas from these studies will make it to this blog.
This blog is in general about the complexity of the world around us. I think that in the media and in most of our world view not enough attention is devoted to how complex most systems in the world actually are. This feeling also originates from the fact that I am a 'complexity' economist, and have dedicided to study complex economic systems. But describing the world alone is not enough for me, I want to improve it. And that is where you come in my dear reader: I want to discuss ways with you of changing some of the things that we have grown to accept. My strong believe is in discussion and i hope that you will engage on the subjects that i discuss over here.
Of course this blog is not the only nice place to read interesting things about the world. My good friend Ryan hosts this nice blog on science and technology: and if you like this blog i advise you to check it out.
Yours
Jurriën
As a first post i shall give you an idea into what i think this blog is all about. But first a small introduction: My name is Jurriën Bakker and I'm a Dutch student of Innovation Sciences at the university of Eindhoven (aka TU/e). Before that I did a bachelor of applied physics so some ideas from these studies will make it to this blog.
This blog is in general about the complexity of the world around us. I think that in the media and in most of our world view not enough attention is devoted to how complex most systems in the world actually are. This feeling also originates from the fact that I am a 'complexity' economist, and have dedicided to study complex economic systems. But describing the world alone is not enough for me, I want to improve it. And that is where you come in my dear reader: I want to discuss ways with you of changing some of the things that we have grown to accept. My strong believe is in discussion and i hope that you will engage on the subjects that i discuss over here.
Of course this blog is not the only nice place to read interesting things about the world. My good friend Ryan hosts this nice blog on science and technology: and if you like this blog i advise you to check it out.
Yours
Jurriën
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