Speaker 0: Hi, everyone, my name's Andrew Hawkins.
Speaker 0: I'm a lecturer at the Department of Economics at Warwick,
Speaker 0: and I teach many of you for first year macro.
Speaker 0: And today I'm going to say a little bit about
Speaker 0: univariate optimisation and why it's so important in economics, why
Speaker 0: you need to know it and why.
Speaker 0: Really, you should all learn to master it.
Speaker 0: So I want to go through a couple of slides
Speaker 0: and explain some motivation for univariate optimisation.
Speaker 0: So firstly, why do we need it?
Speaker 0: Well, I'll answer that question with another question.
Speaker 0: And that is what is economics all about?
Speaker 0: Now, some of you may have asked that question several
Speaker 0: months ago to yourselves when you decided to apply to
Speaker 0: work to study economics and depending on who you ask.
Speaker 0: The answers will vary, but most economists, I think, would
Speaker 0: agree that economics is all about choices.
Speaker 0: So as economists were interested in the kinds of choices
Speaker 0: people make, for example, consumption choices or the decision to
Speaker 0: get vaccinated or not, or how many years to spend
Speaker 0: in education, these are all the kinds of choices that
Speaker 0: economists might care about and.
Speaker 0: Given we're interested in those kinds of choices, the question
Speaker 0: which then comes to mind is do people make these
Speaker 0: choices sort of randomly or is there may be some
Speaker 0: purpose to the choices they make?
Speaker 0: Do they maybe have goals or objectives in mind?
Speaker 0: Are there actions shaped by some incentives they might have
Speaker 0: which pushed them towards making one choice or another one?
Speaker 0: These are the kinds of fundamental questions that academic economists,
Speaker 0: particularly in microeconomics, are really interested in.
Speaker 0: And the way that we study many of these questions
Speaker 0: is to.
Speaker 0: Build mathematical models, and that gives us a way to
Speaker 0: think about the question if it remains in our minds.
Speaker 0: So in our mathematical models will learn this.
Speaker 0: I mean, you're a bit of micro in time one.
Speaker 0: We tend to use something called a utility function, and
Speaker 0: this is really have to worry about the details of
Speaker 0: it now.
Speaker 0: But it's a function that's present in all of the
Speaker 0: mathematical models we're going to use in micro, basically all
Speaker 0: of them.
Speaker 0: And the assumption which we make in the models is
Speaker 0: that people tend to make choices that maximise their utility
Speaker 0: function.
Speaker 0: And that's where the univariate optimisation comes in.
Speaker 0: It's going to be important for you to know how
Speaker 0: to maximise a utility function.
Speaker 0: If you want to know in a particular model how
Speaker 0: many units of this good is somebody going to buy?
Speaker 0: Well, to answer that kind of question, the way we
Speaker 0: go about it is to maximise their utility function.
Speaker 0: So that's why we really need to have a lot
Speaker 0: of practise doing univariate optimisation because you'll see this a
Speaker 0: lot in year one year two and of course, year
Speaker 0: three.
Speaker 0: So that's why we need to know as economists something
Speaker 0: a fair bit about univariate optimisation.
Speaker 0: So next thing to talk about is where it's used,
Speaker 0: so I've talked a little bit about micro economics, and
Speaker 0: you're going to see in year one univariate optimisation pop
Speaker 0: up in consumer theory, that's the theory about why consumers
Speaker 0: by certain goods, how prices relate to this and so
Speaker 0: on.
Speaker 0: You'll see it also in produce a theory that's looking
Speaker 0: at the supply side of the economy.
Speaker 0: How do firms make their decisions about which inputs to
Speaker 0: buy?
Speaker 0: How much of a good to produce that also is
Speaker 0: going to involve some maximisation?
Speaker 0: You're also going to see it in game theory, so
Speaker 0: we went into game theory now, but another aspect of
Speaker 0: this is going to pop up in game theory.
Speaker 0: Of course, I can't just talk about micro.
Speaker 0: It will also show up in macro.
Speaker 0: So there'll be plenty of models you will see in
Speaker 0: macro, for example, ones based on dynamic optimisation.
Speaker 0: That's somebody going through time and making a decision of
Speaker 0: maybe how much money to save the day versus how
Speaker 0: much to spend.
Speaker 0: That would involve some optimisation univariate optimisation.
Speaker 0: Lastly, we could also talk about econometrics, so any econometrics
Speaker 0: you're, I think, likely to see in second year something
Speaker 0: called maximum likelihood estimation, which is all about again, the
Speaker 0: clue there is in the name maximum likelihood estimation.
Speaker 0: So that would also probably involve some multivariate optimisation, too.
Speaker 0: So they're just a handful of examples.
Speaker 0: There are many, many, many more.
Speaker 0: So I'll leave it at that.
Speaker 0: Thanks very much.