A. Adelman and Adelman (1959). The Dynamic Properties of the
Klein-Goldberger Model
1. What is the question that this article intents to investigate? Express in your
own words.
The authors try to prove the Klein-Goldberger Model does indeed really
work, without simplifying it. They want to investigate whether the model
really produces/shows the cyclical movements the real economy behaves
in.
2. To investigate this question, a few modifications of the model were
introduced. Why?
‘For this study of the Klein-Goldberger system several changes were
introduced into the most recent Klein-Goldberger model, some for
convenience and some for consistency or logic.’ Blz. 598 This made
calculations (more) possible and left out a few factors not significantly
contributing.
3. Before running the simulation, further modifications were needed. Why?
The authors ‘linearized’ the model to ease the calculations. ‘For this
reason it was decided to "linearize"'2 (18), and then to utilize a successive
approximation procedure to find the solution of the non-linear set to the
desired degree of accuracy.’ Blz. 600
And they reduced the equations of the model to a set of 4 simultaneous
equations, by using substitution.
4. What are the outcomes of the simulations?
The dynamic nature of the model turned out mostly linear; ‘After a brief
"settling-down" period, the system is quite monotonic and essentially
linear. There is no hint whatever of any internally generated business
cycle.’ Blz. 602
The authors also found that the economy/model will (slowly) go back to its
steady state after a big shock. However, when multiple (maybe smaller)
shocks are integrated to the model, it does show cyclical movement, alike
with the actuality.
B. Kahneman and Tversky (1979). Prospect Theory: An Analysis of
Decision Under Risk
1. Describe the authors’ critique of the expected utility theory.
The expected utility theory does not always hold, it is determined from
average calculated utilities, while, as discovered in the paper, people
sometimes make different choices, contrary to the expected utility theory.
‘(…) common attitudes toward risk or chance that cannot be captured by
the expected utility model.’ Blz. 267
2. What is the certainty effect?
‘(…) People overweight outcomes that are considered certain, relative to
outcomes which are merely probable.’ Blz. 265 So although the certain
values might be lower than the probable outcomes, people will tend to go
for that choice, even when calculated by statistics the other outcome
would be higher.
3. What does the isolation effect imply?
‘In order to simplify the choice between alternatives, people often
disregard components that the alternatives share, and focus on the
Klein-Goldberger Model
1. What is the question that this article intents to investigate? Express in your
own words.
The authors try to prove the Klein-Goldberger Model does indeed really
work, without simplifying it. They want to investigate whether the model
really produces/shows the cyclical movements the real economy behaves
in.
2. To investigate this question, a few modifications of the model were
introduced. Why?
‘For this study of the Klein-Goldberger system several changes were
introduced into the most recent Klein-Goldberger model, some for
convenience and some for consistency or logic.’ Blz. 598 This made
calculations (more) possible and left out a few factors not significantly
contributing.
3. Before running the simulation, further modifications were needed. Why?
The authors ‘linearized’ the model to ease the calculations. ‘For this
reason it was decided to "linearize"'2 (18), and then to utilize a successive
approximation procedure to find the solution of the non-linear set to the
desired degree of accuracy.’ Blz. 600
And they reduced the equations of the model to a set of 4 simultaneous
equations, by using substitution.
4. What are the outcomes of the simulations?
The dynamic nature of the model turned out mostly linear; ‘After a brief
"settling-down" period, the system is quite monotonic and essentially
linear. There is no hint whatever of any internally generated business
cycle.’ Blz. 602
The authors also found that the economy/model will (slowly) go back to its
steady state after a big shock. However, when multiple (maybe smaller)
shocks are integrated to the model, it does show cyclical movement, alike
with the actuality.
B. Kahneman and Tversky (1979). Prospect Theory: An Analysis of
Decision Under Risk
1. Describe the authors’ critique of the expected utility theory.
The expected utility theory does not always hold, it is determined from
average calculated utilities, while, as discovered in the paper, people
sometimes make different choices, contrary to the expected utility theory.
‘(…) common attitudes toward risk or chance that cannot be captured by
the expected utility model.’ Blz. 267
2. What is the certainty effect?
‘(…) People overweight outcomes that are considered certain, relative to
outcomes which are merely probable.’ Blz. 265 So although the certain
values might be lower than the probable outcomes, people will tend to go
for that choice, even when calculated by statistics the other outcome
would be higher.
3. What does the isolation effect imply?
‘In order to simplify the choice between alternatives, people often
disregard components that the alternatives share, and focus on the
