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<v Speaker 0>Hi, everyone, my name's Andrew Hawkins.

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<v Speaker 0>I'm a lecturer at the Department of Economics at Warwick,

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<v Speaker 0>and I teach many of you for first year macro.

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<v Speaker 0>And today I'm going to say a little bit about

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<v Speaker 0>univariate optimisation and why it's so important in economics, why

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<v Speaker 0>you need to know it and why.

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<v Speaker 0>Really, you should all learn to master it.

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<v Speaker 0>So I want to go through a couple of slides

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<v Speaker 0>and explain some motivation for univariate optimisation.

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<v Speaker 0>So firstly, why do we need it?

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<v Speaker 0>Well, I'll answer that question with another question.

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<v Speaker 0>And that is what is economics all about?

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<v Speaker 0>Now, some of you may have asked that question several

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<v Speaker 0>months ago to yourselves when you decided to apply to

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<v Speaker 0>work to study economics and depending on who you ask.

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<v Speaker 0>The answers will vary, but most economists, I think, would

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<v Speaker 0>agree that economics is all about choices.

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<v Speaker 0>So as economists were interested in the kinds of choices

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<v Speaker 0>people make, for example, consumption choices or the decision to

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<v Speaker 0>get vaccinated or not, or how many years to spend

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<v Speaker 0>in education, these are all the kinds of choices that

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<v Speaker 0>economists might care about and.

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<v Speaker 0>Given we're interested in those kinds of choices, the question

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<v Speaker 0>which then comes to mind is do people make these

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<v Speaker 0>choices sort of randomly or is there may be some

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<v Speaker 0>purpose to the choices they make?

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<v Speaker 0>Do they maybe have goals or objectives in mind?

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<v Speaker 0>Are there actions shaped by some incentives they might have

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<v Speaker 0>which pushed them towards making one choice or another one?

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<v Speaker 0>These are the kinds of fundamental questions that academic economists,

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<v Speaker 0>particularly in microeconomics, are really interested in.

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<v Speaker 0>And the way that we study many of these questions

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<v Speaker 0>is to.

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<v Speaker 0>Build mathematical models, and that gives us a way to

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<v Speaker 0>think about the question if it remains in our minds.

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<v Speaker 0>So in our mathematical models will learn this.

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<v Speaker 0>I mean, you're a bit of micro in time one.

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<v Speaker 0>We tend to use something called a utility function, and

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<v Speaker 0>this is really have to worry about the details of

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<v Speaker 0>it now.

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<v Speaker 0>But it's a function that's present in all of the

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<v Speaker 0>mathematical models we're going to use in micro, basically all

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<v Speaker 0>of them.

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<v Speaker 0>And the assumption which we make in the models is

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<v Speaker 0>that people tend to make choices that maximise their utility

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<v Speaker 0>function.

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<v Speaker 0>And that's where the univariate optimisation comes in.

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<v Speaker 0>It's going to be important for you to know how

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<v Speaker 0>to maximise a utility function.

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<v Speaker 0>If you want to know in a particular model how

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<v Speaker 0>many units of this good is somebody going to buy?

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<v Speaker 0>Well, to answer that kind of question, the way we

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<v Speaker 0>go about it is to maximise their utility function.

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<v Speaker 0>So that's why we really need to have a lot

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<v Speaker 0>of practise doing univariate optimisation because you'll see this a

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<v Speaker 0>lot in year one year two and of course, year

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<v Speaker 0>three.

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<v Speaker 0>So that's why we need to know as economists something

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<v Speaker 0>a fair bit about univariate optimisation.

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<v Speaker 0>So next thing to talk about is where it's used,

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<v Speaker 0>so I've talked a little bit about micro economics, and

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<v Speaker 0>you're going to see in year one univariate optimisation pop

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<v Speaker 0>up in consumer theory, that's the theory about why consumers

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<v Speaker 0>by certain goods, how prices relate to this and so

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<v Speaker 0>on.

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<v Speaker 0>You'll see it also in produce a theory that's looking

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<v Speaker 0>at the supply side of the economy.

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<v Speaker 0>How do firms make their decisions about which inputs to

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<v Speaker 0>buy?

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<v Speaker 0>How much of a good to produce that also is

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<v Speaker 0>going to involve some maximisation?

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<v Speaker 0>You're also going to see it in game theory, so

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<v Speaker 0>we went into game theory now, but another aspect of

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<v Speaker 0>this is going to pop up in game theory.

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<v Speaker 0>Of course, I can't just talk about micro.

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<v Speaker 0>It will also show up in macro.

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<v Speaker 0>So there'll be plenty of models you will see in

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<v Speaker 0>macro, for example, ones based on dynamic optimisation.

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<v Speaker 0>That's somebody going through time and making a decision of

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<v Speaker 0>maybe how much money to save the day versus how

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<v Speaker 0>much to spend.

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<v Speaker 0>That would involve some optimisation univariate optimisation.

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<v Speaker 0>Lastly, we could also talk about econometrics, so any econometrics

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<v Speaker 0>you're, I think, likely to see in second year something

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<v Speaker 0>called maximum likelihood estimation, which is all about again, the

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<v Speaker 0>clue there is in the name maximum likelihood estimation.

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<v Speaker 0>So that would also probably involve some multivariate optimisation, too.

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<v Speaker 0>So they're just a handful of examples.

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<v Speaker 0>There are many, many, many more.

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<v Speaker 0>So I'll leave it at that.

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<v Speaker 0>Thanks very much.

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