Lord help me! It was enough trauma when the Teenager, aged 19, decided to ‘up’ his standard of living and learn driving at the local driving school. But things kind of escalated out of control when my aunt, aged 65, also decided to ‘up’ her senior citizen status by enrolling into the same driving school.

Conversations between the two are bizarre. Teenager breezed through the exam for the learner’s license without any stress at all, causing much stress to us, having glanced through those symbols (‘no parking’ etc.) with much disdain.

“The whole point of having symbols, Ma,” he explained to me, “is that you don’t have to study! The symbol is itself the explanation!” Whilst I was coming to terms with this wisdom, my aunt walked into our home unannounced.

“Should I do a mock test on the Saarthi app, beta ? My learner’s license exam is in one week!” she asked Teenager, whilst anxiously showing him the ‘notes’ she had prepared on the symbols. Teenager, who has built a solid reputation on never having scribbled so much as a single note during even the Boards years, was looking at the whole bunch of notes with stunned disbelief. “And apart from those 125 symbols, there are 18 laws that we have to know! Did you read all of those clauses on penalties and fines?” “Chill, Grandma, yo!” was the learned answer to handle the penalties.

Teenager and his Gran are now on the simulator part of the training. To their horror, they have discovered that the simulator does not work. This has caused further trauma in Auntie. “I crashed the car yet again. Oh, will I ever be able to drive correctly?” Teenager, typically, is indignant. “Oh man, that simulator doesn’t work! The car stops 10 seconds after I apply the brake! How silly is that — do you even know the horrors of simulations not working?”

Hmm, the horrors of simulations not working are definitely known to economists! Even as we grapple with truckloads of data getting created by the second, economists have been increasingly using simulation models to inform policy decisions. Economic policies, whether they are in the tax, trade, environment, agriculture, pandemic management, asset monetisation or any other space, create deep and wide impacts on economic structures.

Dangers of flawed design

If the policy design and/or its implementation is flawed, the impacts may well be irreversible, causing pain to the economic agents within the system. The situation becomes grimmer when one realises that economic ‘experiments’ in the policy space are normally unique and are created to address unique challenges within countries. Thus, one is not exactly privy to studying how a policy had impacted agents in the past, and hence is certainly not confident about making the claim regarding impact of the policy in the future.

Rather like Auntie’s angst – will I ever drive correctly? Add to that the fact that the behaviour, reactions and reaction times of agents is not uniform, nor is it predictable. The sentiment that economists live with was rather admirably captured by frustrated Teenager — the car stops 10 seconds after I apply the brake!

So, well, how does one go about constructing simulation models? Outline clearly the question at hand. Learn the ‘stylized facts’ of relevant variables in the past. Identify dependencies between variables. Use historical data to determine the baseline values of some of the model coefficients. Construct meaningful equations. Allow the model to converge to baseline reality. Now put in the policy shock and allow it to perpetrate through the system

There are basic differences in how economists view the realities of the world around them, leading them to interpret dependencies differently. Thus, the basic orientation of the economist — left, right, right-centre — influences the way she designs the model construct and allows for behavioural changes.

That is why two economists can argue very differently, and yet very scientifically, about the policy issue at hand! Is asset monetisation a good thing or a bad one? Are farm laws going to benefit the farmer or push him into vulnerability? Economists predict very different outcomes of the same policy on the same baseline, since their underlying constructs about the reality are very different!

In the meanwhile, Auntie has ‘converged’ into the queen of brakes. She is now used to the car stopping 10 seconds after she applies the brakes, so she brakes all the time, frustrating her trainer beyond belief. Teenager, who has to sit in the backseat when this happens, says that this is the closest camel-ride experience one can get in the city. Teenager has learnt not to apply brakes till the very last minute, leading Auntie dearest saying coldly that he “needs flight training, my dear”. The horrors of simulation indeed.

The author is a brave economist trying to laugh against the odds

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