Manufactured Reality

A model is a set of rules that defines the relationship between two or more states of existence. In the most common and simplest of cases, there is quite often a causal relationship between these states. There is always a cause and there is always an effect. There is always a stimulus and there is always a response. To be a little more accurate, the simplest case would be when there is only one cause which can lead to only one effect. The model gets a little complicated when we have more than one cause which can have an impact on the one effect.

But we are never content knowing that there is an impact. There is almost a pathological need to dissect the model and try to understand the nature of impact that each cause has on the effect. It is in the nature of man to question everything. Of course there will be exceptions to this rule. There will be people who are content not knowing things. I'm generalising, where will we be without generalisations. I'll get back to the topic before I diverge any further.

When we have multiple causes which can impact the effect, how do we study the impact of each individual cause on the effect ? Simple, we make assumptions. Lets say we have two causes which form the input factors to the model and the model outputs only one effect. The effect is a function of the two causes. In order to understand the impact that each cause has on the effect, we make an assumption that one of the causes remains fixed and the other is changing. The value of one of the inputs, to the model, is fixed and the other is varied to see how the effect, or output of the model, reacts to the change.

Once a relationship has been established between this varying input and the output, the same process is carried out with the second input keeping the first one constant. Ceteris Paribus, as the guys who invented the Latin language called it.

Please note, I'm using the word "input" and "cause" interchangeably just as I'm using "output" and "effect" interchangeably.

People mostly only remember the relationship that has been established between the input and the output and there is probably a brief mention of the assumptions made while arriving at the relationship. Of course, most of them are carried away by the newly found and pay less attention to the newly flawed.

Enough has been said about the inputs, the outputs and the models. Lets talk about the not-so-commonly-talked-about assumptions.

One fundamental fact which most researchers tend to ignore is, the relationship(s) derived are only as good as the model and the model is only as good as the assumptions on which it is built. If the assumptions are completely baseless and unrealistic, there is a good chance that the assumptions will never hold good and can never be practically achieved. Which means the test environment which is a fundamental requirement for establishing the relationship can never be created. Although the world seems perfect and everything falls into place on paper, when it comes to practice, its a whole new ball game.

Economics, simply called the Study of Human Behaviour, is the biggest contribution that has resulted from the evolution of social sciences. The economy or the people are affected by multiple factors at any point in time. The learned people before my time have managed to study the various factors and their effect on economy or people. All such studies are done using the same scientific approach outlined earlier in the post. Only problem being, the assumptions are all faulty. Pretty much every basic theory in economics which is currently being preached religiously by the academic fraternity is fundamentally flawed. The flaw being, the assumptions on which these theories have been devised are never practically achievable.

Law of Demand and Supply is a perfect example. Law of demand states if the price of a product is high, there will be lower demand, ceteris paribus. Law of supple states if the price of a product is high, there will be high supply as more suppliers would like to take advantage of the high price, ceteris paribus. One law is the inverse of the other. It's the law of supply and demand together that determines the equilibrium state where quantity produced, price demanded and consumer requirement tend to complement each other.

Ceteris Paribus is used in the above mentioned laws in order to isolate the price effect on the quantity produced. Other factors which can affect quantity such as consumer preference for the product and the availability of substitute products etc have been comfortably assumed as non existent or more realistically have been assumed as being constant.

That is never the case in reality. Consumer preference changes all the time. There are new products being introduced in the market all the time. The assumptions never hold and hence the laws are never completely fool proof. I can confidently extrapolate this to most of the theories that have been derived over the years.

In the famous words of Albert Einstein, "Reality is an illusion, albeit a very persistent one".

Reality does not exist. We only live in our perception of reality.

We live in Manufactured Reality.