System Dynamics Models, Optimization of

Glossary Econometrics: a statistical approach to economic modelling in which all the parameters in the structural equations are estimated according to a 'best fit' to historical data. Maximum likelihood: a statistical concept which underpins calibration optimisation and which generates the most likely parameter values; it is equivalent to the parameter set which minimises the chi-square value. Optimisation: the process of improving a model's results in terms of either an aspect of its performance or by calibrating it to fit reported time series data. Payoff: a formula which expresses the objective, say, maximisation of profits, minimisation of costs or minimisation of the differences between a model variable and historical data on that variable. Zero-one parameter: a parameter which is used as a multiplier in a policy equation and serves the effect of bringing in or removing a particular influence in determining the optimal policy.