Another way to model complexity in economics: game it!

I heard that Marx struggled at the end of his life to learn enough mathematics to demonstrate his insights as calculations. He didn’t make it. But it is understandable. Society runs on expert calculation. We see them every day about the effects of interest rates and output and unemployment, estimates of share prices etc. The problem is, we are dealing with complexity and treating it like a simple case of “doing the maths” when mathematics is poorly equipped to do that.

Economic modelling requires complexity

As economist Steve Keen has demonstrated, along with many others, the mathematics of economists, is at best, naive. At worst, devastating. The calculations by Economics prize (in Nobel’s memory) winner Nordhaus have lulled most people into thinking that climate change will not affect economic growth to any large extent. This is under condition leading scientists doubt that human life in any recognisable form can continue.

The reason for this inability of mathematics to describe economy is simple: too many variables, too many parameters. In fact, just three variables and three parameters gets you into the world of complexity. Complex systems are inherently unstable. We know this because we ride bicycles. Without constant small adjustments, we crash.

Complex is not complicated

Fortunately complex does not have to mean complicated. With the help of computers we can simulate complex systems like economies. However; like bicycles, the simulations tell us that economies are likely to crash if not adjusted. And sometimes the adjustments that are needed are counter-intuitive

Create a game if you can’t do the maths!

There is another, time honoured way to get into this: gaming. They say (don’t make me look it up) chess was developed to teach the art of war. We can create games to investigate these complex systems. Again, you don’t need many variables. While on my management training at Ericsson we used a number of business games to help us develop our negotiation skills. The kind of economic games TSSEF have been developing are typically 12 rounds, with two or three teams with one or two decisions each per round.

One of the most fun and enlightening games is the UBS – the Basic Income game. This has three teams working alongside each other: Government, Corporations and Citizens (also employees). The aim of the game is to have all three performing better at the end of the game:

• Retain government spending on the essentials (PIE= Police and judiciary, Infrastructure and Education. This means the population at large are well served.
• Retain profitability of companies, above the starting mark of 50. Important for their contribution to the economy and supply of essential products and services.
• Retain wages after taxes including VAT above the starting point. Important for workers to be able to afford essentials.
• Moving UBI above minimum wage. This gives those without work enough to live on and drives up minimum wages.
• Popularity of Politicians – players can decide on end goals.

Above, spending increased and popularity, but wages took a fall and UBI did not take off. Can you do better?

It all sounds impossible, however, this is the power of complexity – you don’t know until your try, and your human brain is probably a lot better at it than you know.

Having played the game many times as part of the development team (even playing all the roles myself, highly recommended) I can say that achieving the above is quite simple of you know how. And it just goes to show that economics had to try to embrace complexity, get the tools to do it only to see that, like riding a bike, we humans can actually do this.

Don’t believe me, download the game and try for yourself. It’s an excel file. To keep you from the actual workings I have made the game engine hidden. However, TSSEF.se is happy to open up its methods to serious collaborators.

Keep in touch with what you learn!