Friday, August 5, 2011

Do you think a supply/demand model is too simple to explain the real word?

Depends on which supply/demand model you mean. The basic ones that are explained in Economics 101 are, of course, way to simple - they are used for introductory purposes only. However, the advanced econometric models being used by professional modelers are much more sophisticated and explain much more statistically. However, most modelers fail to include learnings from behavioral economics and that is the largest shortcoming of the current supply/demand models. Humans are notoriously fickle and illogical and until modelers begin to build in the behavioral patterns of consumers, the models will still fall short.

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