1. Metaphorical Models and Credible Worlds Insights from Small and Stylized Models OR54 Edinburgh September 2012 John Morecroft London Business School

2. Outline • Stylised Models and Credible Worlds - two classic models from economics • Useful Properties of Stylised Models • World Dynamics as a Credible World for exploring global industrial growth and sustainability • Comments on Modelling, Realism and Learning John Morecroft London Business School

3. Stylised Models and Credible Worlds • Akerlof’s 1970 ‘market for lemons’ • Schelling’s 1978 ‘checkerboard city’ • ... based on Robert Sugden’s interpretation John Morecroft London Business School

4. Useful Properties of Stylised Models • Few concepts; clear key assumptions about enduring traits of individuals and/or institutions • Skillfully embedded in a ‘context’ • Plausible and sufficiently understandable to stimulate comparisons with the real world • Vivid interpretation that slips easily between the real world and the model • … these properties enable inductive reasoning John Morecroft London Business School

5. Pollution Pollution generation Pollution absorption Industrial Capital Capital investment Capital discard Output and Material Standard of Living Asset Stocks and Coordination in a Stylised Model of an Industrial Society John Morecroft London Business School

6. Pollution Population Pollution generation Pollution absorption Birth rate Death Rate Industrial Capital Material Standard of Living Capital investment Capital discard Food ratio Capital in agriculture Natural resources Natural resource usage rate Land area Adapted from pages 20-21 of World Dynamics by Jay Forrester, Pegasus Coomunications, Waltham MA 1973. Asset Stocks and Coordination in Jay Forrester’s World Dynamics Model John Morecroft London Business School

7. 1900 1940 1980 2020 2060 2100 Base Case Archive Simulation of World Dynamics Natural Resources Population Quality of Life Capital Pollution Basic world model behaviour showing the mode in which industrialisation and population are suppressed by falling natural resources Source: World Dynamics by Jay Forrester, Pegasus Communications, Waltham MA 1973. John Morecroft London Business School

8. 1900 1940 1980 2020 2060 2100 Better Technology Archive Simulation of World Dynamics Natural Resources Quality of Life Population Capital Pollution A 75% technological improvement in the efficiency of resource usage unleashes additional growth that eventually leads to an unintended pollution crisis. Source: World Dynamics by Jay Forrester, Pegasus Communications, Waltham MA 1973. John Morecroft London Business School

9. High fidelity Low fidelity Schelling’s Checkerboard City to explore the issue of segregation and to challenge preconceptions Aircraft Flight Simulator to train pilots and rehearse crisis scenarios Adapted from Chapter 10 of Strategic Modelling and Business Dynamics by John Morecroft, Wiley 2007. Modelling and Realism – A Spectrum of Model Fidelity Analogue Illustrative Metaphorical Realistic detail Limited detail Minimal detail and accurate scaling yet plausible scaling yet transferable insight World Dynamics to explore the paradox of growth and sustainability in an industrial society John Morecroft London Business School

10. Thank You John Morecroft London Business School

11. Related Publications • Akerlof GA 1970. The Market for 'Lemons': Quality Uncertainty and the Market Mechanism, Quarterly Journal of Economics, 84: 488-500. • Forrester JW. 1973. World Dynamics (2nd ed.) Pegasus Communications, Waltham MA. The 1st edition of World Dynamics was published in 1971 by Wright-Allen Press, Cambridge MA. • Morecroft JDW. 2007. Strategic Modelling and Business Dynamics, Wiley, Chichester UK. • Morecroft JDW. 2012. Metaphorical Models for Limits to Growth and Industrialisation, forthcoming in Systems Research and BehavioralScience. • Schelling TC. 1978. Micromotives and Macrobehavior, Norton, New York. • Sugden R. 2000. Credible Worlds: The Status of Theoretical Models in Economics, Journal of Economic Methodology 7: 1-31. John Morecroft London Business School