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Model Thinking

In this class, you will learn how to think with models and use them to make sense of the complex world around us.

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Statement of Accomplishment

Course at a Glance

About the Course

We live in a complex world with diverse people, firms, and governments whose behaviors aggregate to produce novel, unexpected phenomena. We see political uprisings, market crashes, and a never ending array of social trends. How do we make sense of it? Models. Evidence shows that people who think with models consistently outperform those who don't. And, moreover people who think with lots of models outperform people who use only one. Why do models make us better thinkers? Models help us to better organize information - to make sense of that fire hose or hairball of data (choose your metaphor) available on the Internet. Models improve our abilities to make accurate forecasts. They help us make better decisions and adopt more effective strategies. They even can improve our ability to design institutions and procedures. In this class, I present a starter kit of models: I start with models of tipping points. I move on to cover models explain the wisdom of crowds, models that show why some countries are rich and some are poor, and models that help unpack the strategic decisions of firm and politicians. The models covered in this class provide a foundation for future social science classes, whether they be in economics, political science, business, or sociology. Mastering this material will give you a huge leg up in advanced courses. They also help you in life. Here's how the course will work. For each model, I present a short, easily digestible overview lecture. Then, I'll dig deeper. I'll go into the technical details of the model. Those technical lectures won't require calculus but be prepared for some algebra. For all the lectures, I'll offer some questions and we'll have quizzes and even a final exam. If you decide to do the deep dive, and take all the quizzes and the exam, you'll receive a certificate of completion. If you just decide to follow along for the introductory lectures to gain some exposure that's fine too. It's all free. And it's all here to help make you a better thinker!

Subtitles for all video lectures available in: English, Chinese (provided by Yeeyan), Ukrainian (Pinchuk Foundation), and Turkish (provided by Turkcell Akademi).

This course is also available in Chinese. Click here to visit the translated version of Model Thinking.

Course Syllabus

This course will consist of twenty sections. As the course proceeds, I will fill in the descriptions of the topics and put in readings.

Section 1: Introduction: Why Model?

In these lectures, I describe some of the reasons why a person would want to take a modeling course. These reasons fall into four broad categories:

  1. To be an intelligent citizen of the world
  2. To be a clearer thinker
  3. To understand and use data
  4. To better decide, strategize, and design

There are two readings for this section. These should be read either after the first video or at the completion of all of the videos.

The Model Thinker: Prologue, Introduction and Chapter 1

Why Model? by Joshua Epstein

Section 2: Sorting and Peer Effects

We now jump directly into some models. We contrast two types of models that explain a single phenomenon, namely that people tend to live and interact with people who look, think, and act like themselves. After an introductory lecture, we cover famous models by Schelling and Granovetter that cover these phenomena. We follows those with a fun model about standing ovations that I wrote with my friend John Miller.

In this second section, I show a computational version of Schelling's Segregation Model using NetLogo. Netlogo is free software authored by Uri Wilensky or Northwestern University. I will be using NetLogo several times during the course. It can be downloaded here:

NetLogo

The Schelling Model that I use can be found by clicking on the "File" tab, then going to "Models Library". In the Models Library directory, click on the arrow next to the Social Science folder and then scroll down and click on the model called Segregation.

The readings for this section include some brief notes on Schelling's model and then the academic papers of Granovetter and Miller and Page. I'm not expecting you to read those papers from start to end, but I strongly encourage you to peruse them so that you can see how social scientists frame and interpret models.

Notes on Schelling

Granovetter Model

Miller and Page Model

Section 3: Aggregation

In this section, we explore the mysteries of aggregation, i.e. adding things up. We start by considering how numbers aggregate, focusing on the Central Limit Theorem. We then turn to adding up rules. We consider the Game of Life and one dimensional cellular automata models. Both models show how simple rules can combine to produce interesting phenomena. Last, we consider aggregating preferences. Here we see how individual preferences can be rational, but the aggregates need not be.

There exist many great places on the web to read more about the Central Limit Theorem, the Binomial Distribution, Six Sigma, The Game of LIfe, and so on. I've included some links to get you started. The readings for cellular automata and for diverse preferences are short excerpts from my books Complex Adaptive Social Systems and The Difference Respectively.

Central Limit Theorem

Binomial Distribution

Six Sigma

Cellular Automata1

Cellular Automata2

Diverse Preferences

Section 4: Decision Models

In this section, we study some models of how people make decisions. We start by considering multi criterion decision making. We then turn to spatial models of decision making and then decision trees. We conclude by looking at the value of information..

The reading for multi-criterion decision making will be my guide for the Michigan Civil Rights Initiative. It provides a case study for how to use this technique. For spatial voting and decision models, there exist many great power point presentations and papers on the web. The Decision Tree writings are from Arizona State University's Craig Kirkwood.

Multi Criterion Decision Making Case Study

Spatial Models

Decision Theory

Section 5: Models of People: Thinking Electrons

In this section, we study various ways that social scientists model people. We study and contrast three different models. The rational actor approach,behavioral models , and rule based models . These lectures provide context for many of the models that follow. There's no specific reading for these lectures though I mention several books on behavioral economics that you may want to consider. Also, if you find the race to the bottom game interesting just type "Rosemary Nagel Race to the Bottom" into a search engine and you'll get several good links. You can also find good introductions to "Zero Intelligence Traders" by typing that in as well.

Here is a link to a brief primer on behavioral economics that has more references.

Short Primer on Behavioral Economics

Section 6: Linear Models

In this section, we cover linear models. We start by looking at categorical models, in which data gets binned into categories. We use this simple framework to introduce measures like mean, variance, and R-squared. We then turn to linear models describing what linear models do, how to read regression output (a valuable skill!) and how to fit nonlinear data with linear models. These lectures are meant to give you a "feel" for how linear models are used and perhaps to motivate you to take a course on these topics. I conclude this section by highlighting a distinction between what I call Big Coefficient thinking and New Reality thinking. The readings for this section consist of two short pieces written by me, but you can find abundant resources on the web on linear models, R-squared, regression, and evidence based thinking.

Categorical Models

Linear Models

Section 7: Tipping Points

In this section, we cover tipping points. We focus on two models. A percolation model from physics that we apply to banks and a model of the spread of diseases. The disease model is more complicated so I break that into two parts. The first part focuses on the diffusion. The second part adds recovery. The readings for this section consist of two excerpts from the book I'm writing on models. One covers diffusion. The other covers tips. There is also a technical paper on tipping points that I've included in a link. I wrote it with PJ Lamberson and it will be published in the Quarterly Journal of Political Science. I've included this to provide you a glimpse of what technical social science papers look like. You don't need to read it in full, but I strongly recommend the introduction. It also contains a wonderful reference list.

Tipping Points

DIffusion and SIS

Lamberson and Page: Tipping Points (READ INTRO ONLY)

Section 8: Economic Growth

In this section, we cover several models of growth. We start with a simple model of exponential growth and then move on to models from economics, with a focus on Solow's basic growth model. I simplify the model by leaving out the labor component. These models help us distinguish between two types of growth: growth that occurs from capital accumulation and growth that occurs from innovation.

Growth Models

Section 9: Diversity and Innovation

In this section, we cover some models of problem solving to show the role that diversity plays in innovation. We see how diverse perspectives (problem representations) and heuristics enable groups of problem solvers to outperform individuals. We also introduce some new concepts like "rugged landscapes" and "local optima". In the last lecture, we'll see the awesome power of recombination and how it contributes to growth. The readings for this chapters consist on an excerpt from my book The Difference courtesy of Princeton University Press.

Diversity and Problem Solving

Section 10: Markov Processes

In this section, we cover Markov Processes. Markov Processes capture dynamic processes between a fixed set of states. For example, we will consider a process in which countries transition between democratic and dictatorial. To be a Markov Process, it must be possible to get from any one state to any other and the probabilities of moving between states must remain fixed over time. If those assumptions hold, then the process will have a unique equilibrium. In other words, history will not matter. Formally, this result is called the Markov Convergence Theorem. In addition to covering Markov Processes, we will also see how the basic framework can be used in other applications such as determining authorship of a text and the efficacy of a drug protocol.

Markov Processes

Section 11: Lyapunov Functions

Models can help us to determine the nature of outcomes produced by a system: will the system produce an equilibrium, a cycle, randomness, or complexity? In this set of lectures, we cover Lyapunov Functions. These are a technique that will enable us to identify many systems that go to equilibrium. In addition, they enable us to put bounds on how quickly the equilibrium will be attained. In this set of lectures, we learn the formal definition of Lyapunov Functions and see how to apply them in a variety of settings. We also see where they don't apply and even study a problem where no one knows whether or not the system goes to equilibrium or not.

Lyapunov Functions

Section 12: Coordination and Culture

In this set of lectures, we consider some models of culture. We begin with some background on what culture is and why it's so important to social scientists. In the analytic section, we begin with a very simple game called the pure coordination game In this game, the players win only if they choose the same action. Which action they choose doesn't matter -- so long as they choose the same one. For example, whether you drive on the left or the right side of the road is not important, but what is important is that you drive on the same side as everyone else. We then consider situations in which people play multiple coordination games and study the emergence of culture. In our final model, we include a desire consistency as well as coordination in a model that produces the sorts of cultural signatures seen in real world data. The readings for this section include some of my notes on coordination games and then the Bednar et al academic paper. In that paper, you see how we used Markov Processes to study the model. There is also a link to the Axelrod Net Logo Model.

Coordination Games

Bednar et al. 2010

Axelrod Culture Model in Netlogo

Section 13: Path Dependence

In this set of lectures, we cover path dependence. We do so using some very simple urn models. The most famous of which is the Polya Process. These models are very simple but they enable us to unpack the logic of what makes a process path dependent. We also relate path dependence to increasing returns and to tipping points. The reading for this lecture is a paper that I wrote that is published in the Quarterly Journal of Political Science

Path Dependence

Section 14: Networks

In this section, we cover networks. We discuss how networks form, their structure -- in particular some common measures of networks -- and their function. Often, networks exhibit functions that emerge, but that we mean that no one intended for the functionality but it arises owing to the structure of the network. The reading for this section is a short article by Steven Strogatz.

Strogatz

Section 15:Randomness and Random Walks

In this section, we first discuss randomness and its various sources. We then discuss how performance can depend on skill and luck, where luck is modeled as randomness. We then learn a basic random walk model, which we apply to the Efficient Market Hypothesis, the ideas that market prices contain all relevant information so that what's left is randomness. We conclude by discussing finite memory random walk model that can be used to model competition. The reading for this section is a paper on distinguishing skill from luck by Michael Mauboussin.

Mauboussin: Skill vs Luck

Section 16: The Colonel Blotto Game

In this section, we cover the Colonel Blotto Game. This game was originally developed to study war on multiple fronts. It's now applied to everything from sports to law to terrorism. We will discuss the basics of Colonel Blotto, move on to some more advanced analysis and then contrast Blotto with our skill luck model from the previous section. The readings for this section are an excerpt from my book The Difference and a paper that I wrote with Russell Golman of Carnegie Mellon. You need only read the first four pages of the Golman paper.

Blotto from The Difference

Golman Page: General Blotto

Section 17:The Prisoners' Dilemma and Collective Action

In this section, we cover the Prisoners' Dilemma, Collective Action Problems and Common Pool Resource Problems. We begin by discussion the Prisoners' Dilemma and showing how individual incentives can produce undesirable social outcomes. We then cover seven ways to produce cooperation. Five of these will be covered in the paper by Nowak and Sigmund listed below. We conclude by talking about collective action and common pool resource problems and how they require deep careful thinking to solve. There's a wonderful piece to read on this by the Nobel Prize winner Elinor Ostrom

The Prisoners' Dilemma in the Stanford Encyclopedia of Philosophy

Nowak and Sigmund: Five Ways to Cooperate

Ostrom: Going Beyond Panaceas

Section 18: Mechanism Design: Auctions

In this section, we cover mechanism design. We begin with some of the basics: how to overcome problems of hidden action and hidden information. We then turn to the more applied question of how to design auctions. We conclude by discussion how one can use mechanisms to make decisions about public projects. The readings for this section consist of a piece by the Eric Maskin who won a Nobel Prize for his work on mechanism design and some slides on auctions by V.S. Subrahmanian. The Maskin article can be tough sledding near the end. Don't worry about necessarily understanding everything. Focus on the big picture that he describes.

Maskin: Mechanism Design

V.S. Subrahmanian's auction slides

Section 19: Learning: Replicator Dynamics

In this section, we cover replicator dynamics and Fisher's fundamental theorem. Replicator dynamics have been used to explain learning as well as evolution. Fisher's theorem demonstrates how the rate of adaptation increases with the amount of variation. We conclude by describing how to make sense of both Fisher's theorem and our results on six sigma and variation reduction. The readings for this section are very short. The second reading on Fisher's theorem is rather technical. Both are excerpts from Diversity and Complexity

The Replicator Equation

Fisher's Theorem

Section 20: The Many Model Thinker: Diversity and Prediction

In our final section, we cover the value of ability and diversity to create wise crowds when making predictions. We start off by talking about category models and linear models and how they can be used to make predictions. We then cover the Diversity Prediction Theorem, which provides basic intuition for how collective prediction works. We conclude by talking about the value of having lots of models. The reading for this section is a short explanation of the diversity prediction theorem.

Diversity Prediction Theorem

Recommended Background

Students should be very comfortable with basic algebra.  Calculus isn’t necessary but a conceptual understanding of how derivatives give the slope at a point  proves useful.

Course Format

The class will cover a variety of models. For each model, I will give an introductory lecture accessible to a general audience that last approximately ten minutes. I will follow this with advanced lectures that explain how model's details and how to use it, as well as possible extensions. Many of these more detailed lectures will include integrated questions so you can test your knowledge of the material. I will also offer quizzes separate from the video lectures. I anticipate covering two models per week and recording approximately one hour of video per model.

FAQ

  • Do I need to buy a textbook?

    No. I'm working to get all necessary reading material to be available for free on the course web site.

  • Will I get a certificate after completing this class?

    Yes. Students who successfully complete the class will receive a certificate signed by the instructor.