Simulation Models, ICTs, and Decision Making

1. You cannot solve the problem with the same thinking that created the problemAlbert Einstein Simulation Models, ICTs, and Decision Making Dr. John Shilling Millennium InstituteJanuary 28, 2013

2. Introduction • Millennium Institute is devoted to helping decision makers achieve sustainable development • Its Threshold 21 is an innovative system dynamics simulation model to help strategic decision making • I worked at the World Bank and have been involved with MI since I retired. • At the Bank, I learned the limitations of conventional models, which led me to T21

3. Why Models Are Useful Tools • Need to understanding complex relations in order to make decisions • Relations need to be expressed in manner that is manageable and understandable • Keep track of larger number of factors than your memory can • Provide a basis for discussing more clearly relations and processes with others involved • Generate quantitative simulations of alternative approaches and future outcomes

4. Basis of Modeling from Physics • Developed by translating interactions of physical objects into math equations that represent what occurs • Help determine further relations and predict results of changes in a precise manner that can be verified • Examples of gravity, airplanes, electronics • Based on inanimate objects, so highly consistent

5. Shift to Social Science Models • Use math approach of physics models to quantify economic and social relations • Derive relations from statistics and theories of behavior, which are not precise • Often the theoretic bases of models have ideological rather than empirical origin • Examples of market equilibrium, population growth, budget balancing, technological innovation • Based on animate objects, so relations change

6. Models to Simulate Economics • Political Economy and conceptual models • Introduction of quantification into Economics • Linear models and Econometrics • Linear accounting frameworks: RMSM, MTEF • Non-linear and exponential modeling • Matrix models: I-O, SAM, and CGE • Broader Systemic models: T21

7. Benefits of Building Model • Studies to build model reveal more about relations in areas addressed by the model • Identifies where more and better data is needed to understand relations • Provides a basis for analyzing the effects of policies through simulations • May clarify where theoretic basis isn’t valid • Need to recognize that conventional models only include a subset of all relevant relations and don’t account for changing patterns of behavior

8. ICT Has Enhanced Models • They can now include much more data and variables • They can gain more information about key issues from public opinion • They can generate more detailed and graphic output to illustrate results to “laymen” • They can communicate more information to decisions makers and other interested parties • They can be used by many more people, and even be the basis for games and apps

9. Models Help Decision Making • They can illustrate the likely results of policy changes, even over the longer term • They can show the effects policies in one sector have on other sectors if they include several sectors • They can show results in clear way, including causal effects, to help build consensus and reach better decisions • They also help avoid negative side effects • This, of course, depends on decision makers seeking better policies, not ideological rule

10. System Dynamic Approach • This innovation, as represented by the Threshold 21 model, is major step forward • It is based primarily on real world causal relations observed in areas being modeled • It readily integrates relations across sectors • It can incorporate any quantifiable variable, including those beyond the economy • It takes account of lags in the effects of policies and investments and generates long term scenarios graphically

11. Why Take a Systemic View?

12. We Need to be Careful

13. To Avoid Unexpected Results!

14. We Face Serious Challenges • Economies and societies depend on energy, water, and natural resources – the foundation of development • Economies depend on social structures, workforce skill, innovation, and governance • Reducing poverty requires social and environmental services as well economic growth • Economic, Environmental, and Social factors all interact, • Climate change results from economic and social activities and raises hurdles for sustainability • These links need to be taken into account in model simulations to assure sustainable growth and social stability

15. Why Use T21 S-D Approach • Market models not take account of public goods, the commons, and externalities • Human welfare is not based on economic production alone, but also social and environmental factors • Long term and cross sector relations are important • Equity and balance across gender, ethnic groups, and classes are needed • Management of natural resources is essential to avoid excessive depletion

16. The T21 Process • Includes activities in any sector that do effect other sectors, directly and indirectly: with good and/or bad impacts • Takes account of the many years before impacts are evident • Deals with issues systemically • Economic activities affect society and the environment -- Pollution, and climate change • Social activities affect the economy and environment -- Migration, and land degradation • Environmental factors affect the economy and society -- Soil erosion, floods, drought, and heat waves

17. The Threshold 21 Structure • System dynamics methodology • Based on existing sector analyses, models • Reflects observed real world relations • Analyzes cross-sector links and feedback loops • Composed of three main pillars • Economic -- SAM, key market balances, and production • Social -- dynamics in population, health, HIV/AIDS, education • Environmental -- area specific issues and information • Adapted to priority goals and vision for each individual country based on its own data, structure, and patterns of activity • Calibrated against history to provide reality checks and validation • Generates multiple medium-to-long-term scenarios • Transparent and easy to use

18. The Basic T21 Structure

19. The Key Connections in T21

20. T21’s Role in Decision Making • Provides an integrated approach to national planning to take account of many factors • Brings sector agents and stakeholders together to identify key issues to be addressed • Helps develop more efficient and cost effective paths to the country’s goals, including MDGs and CCA • Helps build joint ownership and support for changes that emerge from the process • Helps demonstrate benefits over a longer term to build popular support • Builds local capacity to continue and improve the analysis and modeling process

21. Some Examples • Ghana and MDGs • Bhutan and Cooperation • Mozambique and roads • Climate Change Adaptation in Namibia, Kenya, Nigeria, and more

22. Thank You for Your Attention Questions and comments are welcome www.millennium-institute.org Jed.shilling@verizon.net