I agree and that's basically my criticism of the article. The underlying economic model can be expressed in 2-3 arithmetic equations. It competes in a field where people routinely spend years to research very sophisticated models that nonetheless often prove inaccurate in the field [1].
To give an analogy, how would this sound as an argument to develop a business: "I assume that we can borrow 10M at 5% interest and pay it back over 5 years and that sales will increase 50% over that period. Here, I wrote some code and it turns out positive. I'm not interested in discussing the reasons for my sales forecast; if you have a different opinion, just write your own code." And we're not even talking about a business here, but the whole economy.
I didn't attempt to claim that my proposal was the economic state of the art. I claimed it was a jumping off point to illustrate how to do monte carlo modelling in the third paragraph.
If you showed me your business forecast, I would indeed tweak the model until I felt the probability distributions governing the assumptions covered all the plausible values. The net result would likely just be a very fat distribution that said nothing. And if so, that's useful information to have.
That's very nearly the result we get here - note that the Basic Job estimates range from $300B to $1.5T. See Scarmig's excellent comment which cuts to the heart of this matter.
> That's very nearly the result we get here - note that the Basic Job estimates range from $300B to $1.5T.
The problem I have with this post is this. It is NOT useful information to have.
What is that range based on? Nothing. Your guesses. There is no known probability of the real-life result lying between those values, therefore the values are meaningless.
I'm all for models, models are great, but they need data. There's no point in a model based on assumptions, it's basically just a smokescreen for making your opinion look like fact.
> I would indeed tweak the model until I felt the probability distributions governing the assumptions covered all the plausible values.
Basically you would tweak the model until the result matched your opinion. If you had data of 100 similar startups and you calculated the distributions of their loans and sales growths, THEN AND ONLY THEN is your model useful
edit: I'm giving up on this thread now because I feel like this - http://xkcd.com/386/
I agree and that's basically my criticism of the article. The underlying economic model can be expressed in 2-3 arithmetic equations. It competes in a field where people routinely spend years to research very sophisticated models that nonetheless often prove inaccurate in the field [1].
To give an analogy, how would this sound as an argument to develop a business: "I assume that we can borrow 10M at 5% interest and pay it back over 5 years and that sales will increase 50% over that period. Here, I wrote some code and it turns out positive. I'm not interested in discussing the reasons for my sales forecast; if you have a different opinion, just write your own code." And we're not even talking about a business here, but the whole economy.
[1] http://en.wikipedia.org/wiki/Econometrics#Limitations_and_cr...