Search

When advising policy we face the fundamental problem that economic processes are uncertain. Consequently, policy can err. In this paper we show how the use of simulation models can reduce policy errors by inferring empirically reliable and meaningful statements about economic processes. We suggest that policy is best based on so-called abductive simulation models, which help to better understand how policy measures can influence economic processes. We show that abductive simulation models use a combination of theoretical and empirical analysis based on different data sets. By way of example we show what policy can learn with the help of abductive simulation models, namely how policy measures can influence the emergence of a regional cluster. [ABSTRACT FROM AUTHOR]

The article discusses the opportunities and risks facing the use of various models of simulation methods in economics. Opportunities mentioned include modeling the economic problems. However, it states that the success of the simulation models in economics brings in risks such as remaining implicit of the methodological issues and the problem of deciding how simple and how descriptive the model should be.