Are socio-economic models useful in predicting societal actions?

The world that we live in is complex, hence, models are developed to help us comprehend and predict human behavior. These models are important, not only for individuals to make decisions, for businesses to make changes to their business methods, and even for policy makers to develop their social policies.

     Bronfenbrenner’s Ecological Framework for Human Development is a model which predicts how the five environmental systems with which an individual interacts will influence the character and behavior of a child. Parents can then decide how they should teach their child and impart the correct values in them. The education system can also be tailored to be more effective according to this model. In addition, from the economic theories and models that we derive, we learn that businesses operate in order to maximize their profits, and individual customers make buying decisions to optimize their utilities, like happiness and satisfaction. Hence, the price of a product is determined by demand and supply. At the same time, demand for the product reduces if prices go up. For example, if I wanted to buy a new iPhone, but when I find out that its price is increased significantly, I may change my mind and purchase a Samsung SIII instead. Understanding of such a model allows manufacturers to better predict consumer behavior, and thus business decisions to be made.

However, while models may be useful in predicting the human behavior, they are not always accurate. Some researchers conduct social experiments to verify or challenge the predictions made in models. The Milgram experiment exposed that people are willing to obey a figure of authority, even if the latter’s instructions conflicted with their personal conscience. The Asch Experiment was another famous social experiment designed to test how peer pressure to conform would influence a person’s judgment and ultimately his decisions. Back to the example of hand phones, if most of my friends have iPhones and it is perceived in society that iPhones are better, I may choose to buy the iPhone even if it costs much more than the Samsung. In this case, the economic model cannot accurately predict my final decision. It is reported that although the prices of luxury goods such as Louis Vutton handbags increased, its sales increased unexpectedly. This went against the demand and supply model which would have predicted sales to have decreased instead.  

Just because models cannot be applied to every single case does not change the fact that they are relevant to our daily lives. They allow government policy makers and business decision makers to understand and predict behaviors of a large population, since these models are largely accurate at predicting behaviors at a macro level. Models are useful because it is the only practical way of predicting the way a large population acts. On the other hand, as some social experiments show that predictions using models may not be accurate at all times, it is essential to understand the limitations of models. We can in fact modify these models to make them more encompassing of exceptions, and make them more accurate in predicting people’s actions.


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Hi guys, I'm a student in Singapore, and this are some thoughts and essays I have written over the years.