Economic model

An economic model leaves details out on purpose. A supply-and-demand model may represent buyers, sellers, price, and quantity while omitting contract form, search costs, taxes, market power, and distribution within each group. The omissions are acceptable only when the model still answers its defined question within the stated domain.

Audit the chain

A reviewable model identifies:

• the question and unit of analysis;
• actors, choices, and constraints;
• variables treated as inside or outside the model;
• the mechanism connecting a change to an outcome;
• assumptions needed for that mechanism;
• comparative predictions or accounting identities;
• evidence that could calibrate, test, or reject the model; and
• conditions under which the model should not be used.

A model can be useful without being literally complete. Conversely, a highly detailed simulation can be unhelpful if it obscures the mechanism or answers a different question.

Model output is not automatically a fact

An identity follows from definitions. A comparative result follows from the model and assumptions. An estimate also depends on data and an empirical method. A forecast extends the structure into an uncertain future. A recommendation adds objectives, constraints, alternatives, and judgment. Labeling each output correctly prevents a clean diagram from acquiring more authority than its evidence supports.