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2. The Methodology of Modelling

3. The term 'model' is, however, rather vague. It is used in a variety of different ways by social scientists and, in addition, it is a common-speech term with a variety of different meanings.

4. A. EXAMPLES OF MODELS 1. The circular flow of expenditure This is the model of the economy as a circular flow of expenditure, which is the foundation of the branch of economics called 'macroeconomics'.

6. The theories of modern macroeconomics are too complex to be stated without using mathematics, but their central concept of a circular flow of expenditure can be modelled in a simple diagram: Figure 6-1.

7. In this diagram the economy is depicted as a flow of expenditures between two entities called 'individuals' and 'firms'. All production is presumed to take place inside firms.

8. The firms buy 'factors of production' ( labour, the use of capital equipment, raw materials) in order to carry on their production processes and the expenditures

9. they make for these factors are received by individuals who (as workers and property owners) are pictured as selling these services to firms.

10. Individuals, in turn, make expenditures, buying finished commodities from firms.

11. 2. The market model The study of how this is accomplished by ‘markets’ is the main focus of the branch of economics called 'microeconomic theory’.

12. Its principal objective is to analyse how market processes determine the quantities of specific goods that will be produced (and used) and the prices at which they will be sold.

13. The basic idea of microeconomic theory is that markets are two- sided: the purchasers (or users) of commodities on one side of the counter, so to speak, and the producers (or sellers) on the other.

14. What ensues - the quantities of goods produced and used, and their prices - is the result of the interaction of ‘the forces of supply and demand’.

15. In a general way this conception of market processes goes back to the eighteenth century and earlier; but if doing little more than stating the obvious to say that price is ‘determined’ by ‘supply and demand’.

17. 3. The prisoners' dilemma model For a third illustration of model construction let us look at one that focuses, on the important fact that when a person engages in an action the outcome may depend in part on what other people do.

18. This is obviously the case when one is engaged in a game like, say, bridge or chess, which has to be played with a strategy that takes into account the potential actions of the other players.

19. Realization that many social situations are similar has led to the construction of social models built upon the theory of games.

20. John von Neumann and Oskar Morgensten, The Theory of Games and Economic Behaviour (1944), was the pathbreaking work in this. (Note again how recent this is.)

21. The particular game model known as the 'prisoners' dilemma' has been widely used in virtually all the disciplines of social science.

23. B. SOME FEATURES OF MODELS In one respect, however, they may present a misleading picture of contemporary social science research, since they were discussed purely as theoretical models.

24. If one looks at the current literature of the social sciences it is immediately evident that most research is quantitative and empirical, making use of data from surveys reports, censuses, etc.,

25. and processing such data by complex statistical methods that have been developed (by physicists, biologists, and mathematicians as well as social scientists), especially during the past half-century or so.

26. It is not true that if something cannot be measured it is not worth talking about but, none the less, it is true that when we can measure we can talk more precisely.

27. In some of the general discussion of models by philosophers of science much emphasis is placed upon a quality called 'isomorphism‘.

28. This term is extensively used in biology and the other natural sciences, as well as mathematics, to refer to a structural correspondence between two or more things.

29. When a model is described as 'isomorphic' what is usually meant is that there is a high degree of correspondence between the model and the ‘real thing’.

30. If isomorphism were a necessary characteristic of models the social sciences would not do much modelling, because constructing a model that corresponds to a real society in any direct way is not possible.

31. From what has already been said about isomorphism it is evident that models are simpler than the real-world things or processes they represent. If this were not so, models would be as complex as the real-world phenomena themselves, and just as incomprehensible.

32. The whole point in building an analytical model is to construct a representation that is simpler than the real thing.

33. It is not a valid criticism of a model to say that it is necessarily wrong because it is simpler than the reality it purports to represent.