application of mathematical methods to represent theories and analyze problems in economics
Mathematical economics is the application of mathematical methods to represent theories and analyze problems in economics.
- A wide variety of economic problems lead to differential, difference, and integral equations. Ordinary differential equations appear in models of economic dynamics. Integral equations appear in dynamic programming problems and asset pricing models. Discrete-time dynamic problems lead to difference equations.
- Mathematical modeling is a mixed blessing for economics. Mathematical modeling provides real advantages in terms of precision of thought, in seeing how assumptions are linked to conclusions, in generating and communicating insights, in generalizing propositions, and in exporting knowledge from one context to another. In my opinion, these advantages are monumental, far outweighing the costs. But the costs are not zero. Mathematical modeling limits what can be tackled and what is considered legitimate inquiry. You may decide, with experience, that the sorts of models in this book do not help you understand the economic phenomena that you want to understand.
- David M. Kreps, Microeconomic Foundations I: Choice and Competitive Markets (2013), Preface
- I have not been able to lay my hands on any notes as to Mathematico-economics that would be of any use to you. I have very indistinct memories of what I used to think on the subject. I never read mathematics now: in fact I have even forgotten how to integrate a good many things.
But I know I had a growing feeling in the later years of my work at the subject that a good mathematical theorem dealing with economic hypotheses was very well unlikely to be good economics: and I went more and more on the rules—(1) Use mathematics as a shorthand language, rather than as an engine of inquiry. (2) Keep to them till you have done. (3) Translate into English. (4) Then illustrate by examples that are important in real life. (5) Burn the mathematics. (6) If you can’t succeed in (4), burn (3). This last I do often.