Why Models are Wrong and still Useful!

Reflections from the Q&A session at INSEE conference presentation on system dynamics and on occasion of completion of 1 year of system dynamics work at TERI.

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We always use models. Sometime we know that we are using them while most of the time we are not aware about it. Here is an example. When you go to buy something for a friend or family member how do you make a decision on what to buy? Suppose I go to a shop to buy a shirt for my father, I create a mental image of him in my mind. It is a model. I use it to see if the shirt will suit him. I am now creating simulations. Based on the results of my mental simulations I take a decision of either to buy the product or not. Is my mental model right? No. It is a reflection of reality. My image of my father is a partial reflection about him. But it is still useful. I cannot do away with it. Does that effect my decision? Yes. At times when I am not sure about how the shirt will look on my father, I ask the shop keeper if he would exchange it. On other days, I would shortlist the shirt and say I will come back with my father. What is happening here? I don’t have enough confidence on my mental model. But I am still using it to make a decision. It all depends on what model we have the highest confidence upon. We use them all the time. Even better, I would prefer to have my sister, mother or wife with me to make the decision of buying the shirt. I would consult them. I would want them to use their Mental Model and share their simulation findings with me. I am testing and validating my model. Does this make my model right? No. But it helps improve my understanding of my model. It helps me to make an informed decision. I use my mental model and other’s models to arrive at a conclusion. At times it works, at times it does not. My father may not like the shirt, or he may like it or we may not like it as much as we thought we would. But does that mean that we don’t use our mental model and simulation for making a decision? No. We all use models all the time, Knowingly or unknowingly.

The real question to be asked is whether we are aware of the fact that we do so. Do we have easy access to the assumptions which go in creation of our mental models? Do we communicate them well to others while making a decision or a policy? What tools can help us elicit our assumptions and create a schema of our mental model so that we can share it with others and so do they?

I believe the answer to the above questions is the use of system dynamics. It is a tool which can help us improve our understanding of our mental models and open it up for others to review and improve. This in turn improves our understanding of the system we are dealing with for effective decision making and policy planning.

Does this mean that we shall find solution to all the problems? No. Does this mean that our model shall be right? No.

But it would allow us to test our assumptions and improve our decision making process. Simulations also give us the power to understand the unintended consequences of our actions. At the end it can improve our confidence levels on the model which we shall use to make decisions.

Further reading on Models and System Dynamics:

http://web.mit.edu/jsterman/www/All_Models_Are_Wrong_(SDR).pdf

http://www.systemdynamics.org/

http://mitsloan.mit.edu/group/system-dynamics/

http://xmile.systemdynamics.org/

Low Carbon Pathways are not enough…. Consumption Cuts a Must!

The article, which we published recently, argues that:

  • Economic growth based on consumption is dependent on the exploitation of natural resources
  • Sustainable development demands lifestyle changes as much as technology and innovation
  • De-growth of the wealthiest economies rather than clean technology is the need of the hour

Aricle Link: http://www.scidev.net/south-asia/sdgs/opinion/sustainable-development-and-de-growth.html

Activists demand labeling of GM mosquitos!

Reposted from: http://ashishkothari51.blogspot.in/2015/10/demand-for-labeling-gm-mosquitos.html

Activists from across India have demanded that if the government agrees to release genetically modified (GM) mosquitos, they should be labeled as such. This follows the news (http://indianexpress.com/article/india/india-others/fighting-mosquito-with-mosquito-a-gm-size-bite-against-dengue/) that India may allow the GM bzzzers in a bid to contain normal mosquitos, for if the two mate, the offspring will die before reaching maturity, thereby eventually wiping out the population entirely. Since however no-one knows the timing of the ‘eventually’, both GM and normal mosquitos will continue to bite, hence the demand for labeling.

Industry and government sources have said, under conditions of anonymity, that this demand by activists was, like most demands by activists (this part was especially why they requested anonymity), untenable. Labeling each of the  modified insects would be costly and time-consuming. Given that health budgets had also been Modified by the government, and in view of strictures from the very top to expedite all projects and schemes, neither adequate money nor sufficient time was available. There would, however, be an attempt to introduce some physical feature in the GM biters, so that bitees could identify them and take evasive action (or not). One such possibility was an extra gleam in the eyes, or a zzzzzzbing rather than a bzzzzzing sound. An industry scientist with a sense of humour even said they could try to make the sound pleasantly lullabyish; for the first time in history mosquitos may actually help people go to sleep. He added, with an extra gleam in his eye, that this sleep-inducing feature may be especially targeted at activists.

Animal rights activists have meanwhile decried the GM experiments on mosquitos. They (and some cultural rights folks) are especially upset about the zzzzzzbing thing, saying that mosquitos have been bzzzzzzzing for millennia, and it was cruel to force them into reversing this ancient chant. Anti-abortionists and pro-lifers have also joined in, denouncing the ‘offspring won’t live till adulthood’ feature.

Some activists are also worried about the gender dimension, stating that since women have sweeter blood, they may be affected more. However this was decried by some feminists as ‘essentialising’ women.

Though this is not yet confirmed, the first of the GM mosquitos to be released may be called Bzz Aldrin; sources denied any connection to the astronaut, or to the pesticide, they said it ‘just sounded groovy’.

(Reported, on the basis of extensive talks with industry insiders and bzzybody activists, by Ashish Kothari)

P.S. What is a Minister of State’s visit to Quito called? MoSQuito!

Many Policies, One Reality – Overshoot and Fall!

Is there a way to sustain growth? Many people would say yes, let’s go green… lets become more efficient, improve technology… Well, read the paper and we can have a discussion on it!

http://www.teriin.org/policybrief/files/aug15/

In this paper we test three key policies which are very popular in the global agenda for sustaining our economic growth. 1) Green Growth, 2) Resource Efficiency, 3) Technology Advancements and expanding resources.

The paper presents the outcomes of these policies by modeling their impacts on renewable resources and economic growth using system dynamics modeling. Very importantly it shows that even with resources which are renewable, there are limits to growth. The WORLD2, WORLD3   models of Limits to Growth showed it 45 years ago but using only non renewable resources.

I hope you enjoy reading the paper (the text is not long, less than 5000 words).

Come back and we shall together ponder over the following questions:

  1. How do we define, understand, perceive true sustainability of resources?
  2. What conditions (social, economical, physical) would enable sustainability?
  3. How much time do we have left to act on them?

Local Exchange Systems – Building Resilience

Local Exchange Systems

Here (above link) is a discussion paper, “Local Exchange Systems – Designing Community Incentives” which pitches localisation as one of the systemic and strategic ways of building adaptive capacity of communities towards climate change and potential risks of economic globalization. This was part of my Climate Change Adaptation work at WOTR (www.wotr.org)

It examines the role of alternative economics to provide incentives in form of coupons, vouchers, tokens, rewards etc. to people for ecosystem regeneration, local production and consumption of goods and services. The objective of the paper is to facilitate a discussion on the potential local economics holds in building adaptive capacities of communities to facilitate adaptation.

Lets create a discussion thread on this!!

Below is the abstract of the paper:

Abstract: Economic Globalization in its current form is a centralizing juggernaut which often causes large-scale resource depletion in remote eco-systems, unpredictable price variations in essential commodities and lead to macroeconomic upheaval. Coupled with this is the potential of widespread impacts of Climate Change which increases the vulnerability of human settlements especially the resource poor within. In context of the dual risks of economic globalization and climate change, Localisation appears to be the most systemic response mechanism. Localisation is the manifestation of a decentralized, democratized economy that allows communities to develop ecosystems based Climate Resilient Economies.

Energy Math and What to Expect

The basic premise of all living beings is that they have surplus Energy all the time. This surplus energy is the net remainder of energy invested against energy received. For humans the energy received is mainly through food we eat against the energy we invest in our daily lives at office, home and otherwise.

The calorie intake minus calorie burned needs to have a positive balance for us to remain alive. Some have a high positive balance and often end up being obese!!! Same principle can be applied to the world we see around. Our world also suffers from obesity, having 7 billion people and plenty of waste around.

All modern activities are funded by energy, mainly fossil fuels. It is quite evident that we have a current surplus of energy and thus are able to feed 7 billion people plus invest heavily in modern technologies and infrastructure expansion. The dense, rich source of fossil energy has provided tremendous leverage to humans to live life king size. However, it is worth estimating how long will the party continue and what indicator seems most promising to tell us when the lights are gonna go dim.

Energy Return on Energy Invested (EROEI)

The current Energy Return on Energy Invested for Crude Oil is in the range of 20 (State of the World 2013, pg 107) implying for every 1 barrel of oil energy invested we get 20 barrels back.  Now if the EROEI starts coming down, which it will because finding new oil is becoming increasingly difficult owing mainly due to geological reasons, the math says that oil prices would continue to go up, stay at high levels and arrest world economy growth. Lets take an example.

The relation between Profitability and EROEI for oil production.

As we write this, the prices of oil (WTI & Brent Crude) are in range from $100-110 per barrel (www.oil-price.net) with global average cost of production (excluding energy cost) being $40 a barrel[i]. For every 1 barrel of energy invested we are getting 20 barrels back, thus a revenue of $2000 (20*$100)  for every 1 barrel of energy input. The other costs for extracting and processing 20 barrels is around $800 ($40*20), add to this the 1 barrel of energy input $100.

So a total investment of $900(800+100) fetches $2000 of revenue, making for a profit margin of around 125 percent. At such prolific rates of return we have close to $50 trillion world economy growing at modest rates of 2-3% annually (Wikipedia).

Now as the easy oil available in the wells is used up what remains is the deep, heavy, viscous oil which requires more energy to extract and process. So we will have a higher energy input, higher operating costs resulting in higher selling prices. Now let’s see what happens to profitability if EROEI falls from 20 to 15, estimating cost of production increases to $50 per barrel keeping the selling price constant.

At EROEI of 15 barrels for every 1 barrel, the revenue would be $1500 (15*$100)  for every 1 barrel of energy input, with other costs of $750 (15*$50) plus $100 of energy cost. So the total investment of $850 would fetch a revenue of $1500, making for a profit margin of around 75 percent.

To sum up, profitability falls by 50 percent with a 25 percent fall in EROEI.

This indicates that a falling EROEI has a high degree of negative impact on profitability which then puts pressure on oil prices to go up. Now in order to maintain the same levels profitability, the prices of oil has to be adjusted upwards. Thus, in the above case, to maintain a desired profitability of 125 percent, the oil prices would have to soar and reach $130 a barrel. With every fall in EROEI the oil prices would keep increasing, further if EROEI falls to 10 then in to maintain a 125% profitability the prices would have to go up to $175 a barrel (estimating cost of production to increase to $60 a barrel).

This implies that oil prices may never be able to come down and the world would have to accept inflating oil prices.

With the more difficult forms of oil produced from tar sand, shale oil etc. coming online for supply, the EROEI would definitely witness declines. Soon Light Sweet Crude will be a thing of the past and the world would have to submit to the heavy, waxy and viscous quality of oil which may not yield the same amount of net energy. This indicates that cheap oil era is coming to an end.

Under such circumstances, maintaining economic growth at current rates seems rather difficult since there is hardly any potential substitute close enough to replace crude oil which currently represents 35 percent of the world’s primary energy source and contributes 90 percent fuel to the world transport industry.[ii]

Relying only on monetary/economic indicators to understand the state of the world may not enable us to take proactive steps to adapt to the decline in energy curve and an uncertain economic future.

 

[i]Oil and Gas, Global Cost Study by BMO Capital Research, Fall 2007 http://energypolitics.org/view.htm

[ii]http://www.oildepletionprotocol.org/getinformed/oilandtransportation

INDIA’S MESSAGE TO THE WEST

India stands for living Humanity as against inert matter; for more equitable distribution of wealth ; for less luxury and more  brotherhood ; for less industrial conflict and more co-operation; for wealth as a means as against wealth as an end; and for finding happiness not in restless self-serving but in the consecration of life to the welfare of Society and Humanity – The Foundations of Indian Economics Pp. 459-61, 465-7- (year 1916)

What an unbelievably short, precise yet holistic narration of what Indian economy is made up of. Nearly 100 years hence, we struggle to save our culture and strive for sustainability by trying to redesign our economy, while the truth is we started from being sustainable, moved towards unsustainable ways in great hurry and exuberance, and now sit in the progress trap. A learning worth preserving so as to create a space from where new thinking should emerge.