Virtual Reality and Economics

["ÁÎ×Ó¹â Henry C.K.Liu ¹ù¤l¥ú" <hliu@xxxxxxxxxxxxxx>]

This morning, Sept. 4, 2000, Labor Day, the NY Times front paged on its
Business Section the following report:

Microsoft's Game Plan


        Xbox to Go Head to Head With Sony  -  By JOHN MARKOFF

          REDMOND, Wash. --     This summer, Microsoft executives have
been coyly popping a videotape into a VCR here and showing visitor the
computer-age equivalent of the blinding power of a race car dragster on
nitro fuel.

The tape reveals a photo-realistically rendered schoolroom where an
invisible hand is poised to drop a table-tennis ball with an X on it. As
it falls, the viewer sees that it is about to land in a sea of 1,024
similar balls, each perched on a hair-trigger mousetrap.

When the ball hits, mayhem ensues; table-tennis balls -- each one
accurately shaded and shadowed -- explode in all directions, bouncing
and ricocheting in concert and then slowly coming to rest.

Rendering such an image in what the digerati call "real time," with all
the computing done as the balls collide so that each collision can be
altered on the fly, is today beyond the ability of all but the most
powerful supercomputers.

Yet if all goes according to plan, Microsoft hopes to begin selling a
game computer with this kind of computing power for around $300 in
October 2001.

The machine, called Xbox, is both a technical tour de force by the
world's largest software publisher and a shot fired across the bow of
the giant Sony Corporation, which now dominates the $20 billion
video-game industry.   (End of Excerpt)

What the Microsoft toy has demonstrated is the graphic simulation of the
theory of eqilibium.
Now that it is reality to buy all that simulation capability with $300,
it does not take a rocket scientist to see the implication to economics
modeling.  Vast pools of computer compatible data are readily available
practically free.  Real time data still charge nominal subscription
fees, but 15 minute delayed data is all free. Prior to the era of
computer data manipulation, economists used to depend heavily on logic
and creative insights to derive general theories, certified by litmus
tests based on crude and dated data.  Human intelligence and creative
insight are irreplacable,  but to fully reap human potential, state of
the art tools are required.  Historically, the development of Western
music was triggered by the invention of mechanical precision time
mearuring devices.  I am an architect by training.  In the design of
structures, computer simulation have brought about a revolutionary brave
new world in structural engineering and design.  Shapes and forms that
appear irrational by conventional intuition ( that would have escape
attention from seasoned designers), turn out to be incredibilty
efficient in the proverbial quest for ever higher weight/strength ratio.
  Computer-aided design has yielded aircrafts aerodynamic shapes that
seem to the conventional eye to be flying backward.  The accelerated
rate of change of data and their relationship to other data has rendered
conventional experiential insights a hinderance more than an advantage.
Often, pattern recognition of new event data offers better prospects of
conceptual breakthroughs.  The DNA double helix required a visual
insight to achieve iots final breakthropugh.  Often, we need to see the
events before we can understand it.  Back testing is now a common
appraoch in testing investing and trading models.  Artificial
intelligence is widely employed to devise self-correcting and learning
models.  Most of these techniques are so far confined to the business
world, and except during a period in the mid-60s, academic economists
seem to have lost interest in computer simulation (I may be speaking out
of ignorance on this point).  But the advance in computer simulation
between the 60's and now is light years apart, and Moore Law will insure
that more and more sophisticated high speed models are possible with
declining cost.  For example, it would be very interesting to back test
Keynes' General Theory, or any number of economics laws that are now
accepted as scientific truth.  It seems to me that the Holy Grail is
available, the question remains if economists will drink from it.

Henry C.K. Liu