Sustainability through the use of modern simulation methods-Applied artificial intelligence

Abstract

As the transformative power of AI crosses all economic and social sectors, the use of it as a modern technique for the simulation and/or forecast of various indicators must be viewed as a tool for sustainable development. The present paper reveals the results of research on modeling and simulating the influences of four economic indicators (the production in industry, the intramural research and development expenditure, the turnover and volume of sales and employment) on the evolution of European Economic Sentiment using artificial intelligence. The main goal of the research was to build, train and validate an artificial neural network that is able to forecast the following year's value of economic sentiment using the present values of the other indicators. Research on predicting European Economic Sentiment Indicator (ESI) using artificial neural networks is a starting point, with work on this subject almost inexistent, the reason being mainly that ESI is a composite of five sectoral confidence indicators and is not thought to be an emotional response to the interaction of the entrepreneurial population with different economic indicators. The authors investigated, without involving a direct mathematical interaction among the indicators involved, predicting ESI based on a cognitive response. Considering the aim of the research, the method used was simulation with an artificial neural network and a feedforward network (structure 4-9-6-1) and a backward propagation instruction algorithm was built. The data used are euro area values (for 19 countries only-EA19) recorded between 1999 and 2016, with Eurostat as the European Commission's statistical data website. To validate the results, the authors imposed the following targets: the result of the neural network training error is less than 5% and the prediction verification error is less than 10%. The research outcomes resulted in a training error (after 30,878 iterations) of less than 0.099% and a predictive check error of 2.02%, which resulted in the conclusion of accurate training and an efficient prediction. AI and artificial neural networks, are modeling and simulation methods that can yield results of nonlinear problems that cover, for example, human decisions based on human cognitive processes as a result of previous experiences. ANN copies the structure and functioning of the biological brain, having the advantage through learning and coaching processes (biological cognitive), to copy/predict the results of the thinking process and, thus, the process of choice by the biological brain. The importance of the present paper and its results stems from the authors' desire to use and popularize modern methods of predicting the different macroeconomic indices that influence the behavior of entrepreneurs and therefore the decisions of these entrepreneurs based on cognitive response more than considering linear mathematical functions that cannot correctly understand and anticipate financial crises or economic convulsions. Using methods such as AI, we can anticipate micro- and macroeconomic developments, and therefore react in the direction of diminishing their negative effects for companies as well as the national economy or European economy.