Monte Carlo method

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A method of investigating the behaviour of economic models which are too complicated for analytical solutions to be possible. A system is started off at a large number of initial positions chosen at random, and followed through a numerical simulation to see how it evolves. Monte Carlo methods can be used to check whether a system has an equilibrium, and whether this is stable for any starting point, or for some limited region of possible starting points.

Subjects: Science and Mathematics — Economics.

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