Professor's economics students are constructing models for how gasoline prices change. Maria's model has very realistic assumptions and is quite complex. Anna's model is less complicated and less realistic. Maria's model correctly predicts gas price increases 5% of the time. Anna's model predicts correctly 15% of the time. On the basis of usefulness or "goodness," Professor will give which student's model the higher grade and why?
A) Maria's model gets the higher grade because it is more complex.
B) Anna's model gets the higher grade because it is simpler.
C) Maria's model gets the higher grade because it is more realistic.
D) Anna's model gets the higher grade because it predicts accurately more often.

Question

Quizplus · Accepted Answer

The most important factor in evaluating a model is its predictive power. Anna's model has the higher accuracy rate of the two, so it is the more useful model despite being less complex and less realistic.

Professor's Economics Students Are Constructing Models for How Gasoline Prices