Getting high quality data in a well structured form.Some of the big challenges of " Real Life Examples of Optimization in Economics" are The reason is that in order to "optimize" something you usually need to learn about the thing. (In a sense this is also an optimization problem that involves minimizing the sum of least squares or some similar indicator.) Then they study the parameters of the model (or pass it on to others who will study it) and try to see if there is anything policymakers (government agencies, CEOs, etc.) can learn from it are there bottlenecks in a process somewhere, are there areas that require more attention, and so on.Ībove I tried to show that while it is present to some degree, mathematical difficulty is not the main issue that applied economists focus on. What applied mathematical economists (usually) do is they choose a model that fits the available data best. Interestingly, while economists frequently rely on the assumption that optimization occurs in their models, in my experience they rarely face difficult "real-life" optimization problems themselves.* Difficult optimization problems are handled by algorithms and people who specialize in these difficult algorithms tend to be computer scientists. It is unlikely that any example will meet all of the above conditions. and it should be simple enough that you can explain it in a relatively short amount of time to non-experts.it should be detailed enough to be considered real-life,.it cannot be too simple mathematically,. Unfortunately any example will have to 'thread the needle': In case you want a though one, have a look at the paper Economics and computer science of a radio spectrum reallocation, it has an entire section on "Feasibility Checking." Some of the problems you mention do not seem that simple to me, e.g., " farmers choosing between different crops to grow based on expected harvest and market price" can be mathematically quite difficult depending on the distribution. It would be ideal if the references for these problems could be provided as well that fully explain the environment and context in which these optimization problems appear. I am trying to look for some examples of optimization problems in economics in more realistic situations such as in banks, investment firms, resource allocation in national budgets, etc.Ĭan someone please suggest some more realistic and complex examples of optimization problems within an economics context? Perhaps some real life examples involving allocation of resources in markets, investment risks, non-convex objective functions with many complicated constraints, etc. I posted an example of one of these problems below:Īlthough these types of problems are great examples to familiarize one's self with economics and optimization, the context of these problems generally appear as "too simple", and instantly one begins to think that these are big oversimplifications of real world economics problems - and such oversimplified problems likely have little relevance in the real world. Generally, these problems I come across can be solved using algebraic manipulation or through linear programming. Sometimes, there might be some constraints that need to be taken into consideration. So far, most of the examples that I come across are from introductory economics textbooks involving some basic example about farmers choosing between different crops to grow based on expected harvest and market price or some similar example of a factory in which two different machines manufacture different types of items at different speeds, and again based on expected consumer demand, the manager at the factory is expected to decide how much of each machine's workload should be assigned to which type of item. I am trying to find some real life ("non trivial") examples of optimization related to economics.
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