Many disciplines contain two seemingly opposing halves. Physics has its quantum theory and general relativity. Chemistry can be organic and inorganic. Late night television offers either David Letterman or Jay Leno. Similarly, in a Levitt Center summer research project, Andrew Miller '10 is working with Professor Christophre Georges on a computer program for a simplified economy that accurately simulates both microeconomic and macroeconomic phenomena. Microeconomics is the study of individual market behavior, while macroeconomics is concerned with a broader picture of the economy as a whole. As Miller explains, the program "shows that realistic macroeconomic fluctuations can be generated from idiosyncratic, microeconomic interactions between firms and workers." In other words, the program has produced movements in things such as the interest rate by starting with the production and trade of individual companies as a building block.
Georges's simulation is a highly simplified economy: firms sit in a row, and each firm is allowed to interact with the two companies to which it is adjacent. To make the economy more realistic, the program first generates identical companies and then makes random changes to their productivity and the quality of their goods, because the result more closely resembles the variety of companies in the real world. Miller reports that "in its current state, the simulation generates realistic macroeconomic fluctuations." Yet the program is not perfect, and the behavior of individual firms is often unrealistic, as many firms "may grow very large over a long period of time and then die off suddenly." Miller reports that this does not match the behavior of real firms, because small firms tend to fold more frequently than large ones. He points to the recent failure of Bear Stearns as evidence, noting that the rapid failure of a large firm is actually shocking and unusual: "Many people covering the event are startled at how such a large company that has been an industry leader for a very long time could go under in a span of weeks."
Miller is actively working to improve the microeconomic side of the simulation so that it better reflects reality. Yet the program has implications that extend beyond the production of macroeconomic phenomena from a microeconomic foundation. He and Georges also hope that their research will challenge existing economic thought: "In contrast to much of mainstream economic theory, it shows how aggregate behavior cannot necessarily be chalked up to the behavior of a representative individual," Miller says.
Miller's research this summer is funded by the Levitt Research Fellows Program, operated through the Arthur Levitt Public Affairs Center. The students spend the summer working intensively in collaboration with a faculty member on an issue related to public affairs.
A double major in economics and math, Miller is gaining experience in his two concentrations while exploring an interest in computer science by working with Professor Georges on improving the simulated economy. An active member of the campus community, Miller plays intramural ice hockey and serves as vice president of the Psi Upsilon fraternity. The Moorestown, N.J., native plans on working in finance or studying economics or math at the graduate level.
-- by David Foster '10
Georges's simulation is a highly simplified economy: firms sit in a row, and each firm is allowed to interact with the two companies to which it is adjacent. To make the economy more realistic, the program first generates identical companies and then makes random changes to their productivity and the quality of their goods, because the result more closely resembles the variety of companies in the real world. Miller reports that "in its current state, the simulation generates realistic macroeconomic fluctuations." Yet the program is not perfect, and the behavior of individual firms is often unrealistic, as many firms "may grow very large over a long period of time and then die off suddenly." Miller reports that this does not match the behavior of real firms, because small firms tend to fold more frequently than large ones. He points to the recent failure of Bear Stearns as evidence, noting that the rapid failure of a large firm is actually shocking and unusual: "Many people covering the event are startled at how such a large company that has been an industry leader for a very long time could go under in a span of weeks."
Miller is actively working to improve the microeconomic side of the simulation so that it better reflects reality. Yet the program has implications that extend beyond the production of macroeconomic phenomena from a microeconomic foundation. He and Georges also hope that their research will challenge existing economic thought: "In contrast to much of mainstream economic theory, it shows how aggregate behavior cannot necessarily be chalked up to the behavior of a representative individual," Miller says.
Miller's research this summer is funded by the Levitt Research Fellows Program, operated through the Arthur Levitt Public Affairs Center. The students spend the summer working intensively in collaboration with a faculty member on an issue related to public affairs.
A double major in economics and math, Miller is gaining experience in his two concentrations while exploring an interest in computer science by working with Professor Georges on improving the simulated economy. An active member of the campus community, Miller plays intramural ice hockey and serves as vice president of the Psi Upsilon fraternity. The Moorestown, N.J., native plans on working in finance or studying economics or math at the graduate level.
-- by David Foster '10
