nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2009‒08‒16
twelve papers chosen by
Erik Thomson
University of Manitoba

  1. 09-02 "Economic Writing on the Pressing Problems of the Day: The Roles of Moral Intuition and Methodological Confusion" By Julie A. Nelson
  2. Die Krise der Wirtschaft: Auch eine Krise der Wirtschaftswissenschaften? By Gebhard Kirchgässner
  3. Conversation or Monologue? On Advising Heterodox Economists By Matías Vernengo
  4. Moral Judgments in Social Dilemmas: How Bad is Free Riding? By Robin Cubitt; Michalis Drouvelis; Simon Gachter; Ruslan Kabalin
  5. Theory of Values By Andreas Georgiadis; Alan Manning
  6. Towards Consistency and the Scientific in Economics By Robin Pope
  7. Subjective Well-Being as Welfare Measure: Concepts and Methodology. By Fischer, Justina AV
  8. Nominalist Heuristics and Economic Theory By Robin Pope; Reinhard Selten; Sebastian Kube
  9. Risk Starvation Contributes to Dementias and Depressions: Whiffs of Danger Are the Antidote By Robin Pope
  10. The endogenous nature of social preferences By Smith, John
  11. Self-Deception and Choice By Igor Kopylov; Jawwad Noor
  12. What lessons from the 1930s? By Alcidi, Cinzia; Gros, Daniel

  1. By: Julie A. Nelson
    Abstract: Economists are often called on to help address pressing problems of the day, yet many economists are uncomfortable about disclosing the values that they bring to this work. This essay explores how an inadequate understanding of the role of methodology, as related to ethics and human emotions of concern, underlies this reluctance and compromises the quality of economic advice. The tension between caring about the problems, on the one hand, and writing within the existing culture of the discipline, on the other, are illustrated with examples from U.S. policymaking, behavioral economics, and the economics of climate change and global poverty. Potential steps towards a more responsible, "strongly objective," and policy-useful economics are discussed.
  2. By: Gebhard Kirchgässner
    Abstract: Is the economic and financial crisis also a crisis of Economics? From different perspectives, today there is rather harsh criticism of Economics as a Social Science. In this paper, first, some of the recent failures of Economics are discussed. Then some of the criticisms are taken up that are less convincing, in particular criticisms of the application of the economic model of behaviour, the mathematisation of Economics and the principle of value freedom. The appropriate role of the government as well as of competition is discussed, and also which other consequences should be drawn for Economics as a science but also for economic policy. Finally, we debate whether there is, besides the economic crisis, really as crisis of Economics as well.
    Keywords: Economic Crisis, Financial Crisis, Economic Theory, Role of the Government, Mathematics, Value Freedom, Pension System.
    JEL: A10 H10
    Date: 2009–08
  3. By: Matías Vernengo
    Abstract: This paper suggests that heterodox economists should not think of themselves as economists first, and only secondarily as heterodox, and must emphasize methodological issues, in particular the different assumptions (or axioms) implicit in their theories vis-à-vis the mainstream. The paper argues that the notion of a cutting edge of the mainstream, which is breaking up with orthodoxy, is misleading. The role of the cutting edge is to allow the mainstream to sound reasonable when talking about reality, while orthodoxy provides authority to the cutting edge. The cutting edge is essential for the mainstream and remains firmly based on orthodox grounds.
    Keywords: Methodology, Heterodox Economics
    JEL: B41 B59
    Date: 2009–09
  4. By: Robin Cubitt; Michalis Drouvelis; Simon Gachter; Ruslan Kabalin
    Abstract: In the last thirty years economists and other social scientists investigated people's normative views on principles of distributive justice. Here we study people's normative views in social dilemmas, which underlie many situations of economic and social significance. Using insights from moral philosophy and psychology we provide an analysis of the morality of free riding. We use experimental survey methods to investigate people's moral judgments empirically. We vary others' contributions, the framing ("give-some" vs. "take-some") and whether contributions are simultaneous or sequential. We find that moral judgments depend strongly on others' behaviour; and that failing to give is condemned more strongly than withdrawing all support.
    Keywords: moral judgments, framing effects, public goods experiments, free riding
  5. By: Andreas Georgiadis; Alan Manning
    Abstract: Economists have a well-developed theory of value but the theory of why people hold thevalues they do is rudimentary at best. In spite of the fact that it is common to argue thatvalues are important, most work on values is normative and the positive theory of values isrelatively under- developed. In this paper we propose a simple yet general way to think aboutvalues - they are about how one trades-off one own's utility against that of others - and arguethat we can draw on the large literature on pro-social behavior for hypotheses on how peoplewill choose values. Then, using data from the UK's Citizenship Survey we show howmodels of self-interest, fairness, reciprocity and identity, can explain many of the patternsthat we observe in the data across a wide variety of values.
    Keywords: Values, Pro-Social Behaviour
    JEL: D63 Z13
    Date: 2009–07
  6. By: Robin Pope
    Date: 2009–07
  7. By: Fischer, Justina AV
    Abstract: Happiness research is on the rise, but is confounded by competing definitions of subjective well-being based on co-existing concepts, resulting in differing measures and giving rise to different potential policy applications. This paper motivates the societal necessity for using well-being indicators and gives a short overview of the relation between the concepts ‘subjective well-being’, ‘affect’, ‘life satisfaction’, and ‘happiness’. It describes their measurements and operationalizations in surveys, illustrates their philosophical roots, discusses their validity and reliability, and attempts to shed light on the scope of their policy applicability. Focus of this paper is on practical issues when applying measures of subjective well-being for policy evaluations. Target audiences of this paper are the interested public and laypersons, non-expert economists, and statisticians.
    Keywords: Happiness; Life Satisfaction; Subjective Well-Being; Concepts; Methodology; Measurement; Econometrics; History; Behavioral Economics
    JEL: I31 C33 C13 D31 Z0 C81 B11 D01
    Date: 2009–07
  8. By: Robin Pope; Reinhard Selten; Sebastian Kube
    Abstract: This paper introduces a new theoretic entity, a nominalist heuristic, defined as a focus on prominent numbers, indices or ratios. Abstractions used in the evaluation stage of decision making typically involve nominalist heuristics that are incompatible with expected utility theory which excludes the evaluation stage, and are also incompatible with prospect theory which assumes that, while the evaluation procedure can involve systematic mistakes, the overall decision situation is nevertheless sufficiently simple: 1) for economists and psychologists to identify what is a mistake, and 2) to be compatible with maximisation. But in the typical complex situation giving rise to nominalist heuristics neither 1) nor 2) hold, and therefore what is required is a fundamentally different class of models that allow for the progressive anticipated changes in knowledge ahead faced under risk and uncertainty, namely models under the umbrella of SKAT, the Stages of Knowledge Ahead Theory. A sequel paper. Pope et al 2009b, shows field and laboratory evidence of heuristics in the form of prominent numbers entering exchange rate determination.
    Keywords: nominalism, money illusion, heuristic, unpredictability, experiment, SKAT the Stages of Knowledge Ahead Theory, prominent numbers, prominent indices, prominent ratios, equality, historical benchmarks, complexity, decision costs, evaluation
    JEL: D80 D81 F31 F33
    Date: 2009–08
  9. By: Robin Pope
    Abstract: This paper’s objective is to use SKAT, the author’s Stages of Knowledge Ahead Theory of risk, to shed fresh light on the treatment and prevention of mental disorders. SKAT employs a broad definition of risk that allows for nice – not merely nasty – possibilities. SKAT is here shown to solve eight epidemiological puzzles left unexplained by our current theories and associated treatments for the demented and depressed. SKAT does so by enabling a decision model of mental health that puts centre stage why people (and other soft-wired animals) have brains – to make decisions under risk. To make good decisions (be healthy), brains need exercise. Brains get beneficial exercise from what the paper terms “whiffs of danger”, namely sets of risks with the characteristics that the risks are 1) tiny, 2) varied, and 3) frequent. Brains deteriorate when there are shortfalls in such risk exercise. The paper terms such shortfalls “risk starvation”. Those lacking a history of whiffs find normal mishaps too stressful and frequently become depressed. A lot of time with an inadequate amount of whiffs generates the endemic co-morbidity of becoming demented as well as depressed. Socio-economic cultural changes such as the introduction of unemployment benefits and old age pensions and increasing protection of women and children have had the beneficial effects of removing big challenges and big dangers and thus of prolonging physical longevity. But these changes also removed the tiny challenges and tiny dangers formerly faced by those sub-groups in the population identified as more prone to depressions and dementias. Unintentionally, these sub-groups thus were deprived of whiffs of danger, and suffered from risk starvation. In both drug and psychotherapeutic stress research and treatments of the depressed and demented, there should be injections of whiffs of danger to enhance the likelihood of enduring improvements. It is unkind and dangerous for people’s brains to be treated with drugs while maintaining the modern socioeconomic culture of coddling parents and coddling college / university student counsellors, coddling unemployment benefits and coddling old age pensions. These coddles need to be complemented with whiffs of danger, tiny varied chances and challenges. These whiffs of danger need to be introduced in three forms: eliciting social security recipients’ whiffs of danger in the form of little obligations to help the community; educating the poor and other sub-groups that believe closeting females at home endangers their mental health; and educating parents on the damage from overprotection. Overprotection prevents children from becoming inoculated against depression with sensible hope developed over a childhood in which they were allowed to experience numerous failures, not merely numerous successes from parents too closely engineering their environment. Research is required on the likely role of risk starvation in mental disorders other than dementias and depressions and in some physical illnesses.
    Keywords: stress; whiffs of danger; decision; dementia; depression; risk starvation; risk; learning; hope; fear; risk-based emotions
    Date: 2009–07
  10. By: Smith, John
    Abstract: This paper presents evidence which challenges the view that techniques which are designed to measure the social preferences of subjects can always be accomplished in a nonintrusive manner. We find evidence that such measurements can influence the preferences which they are designed to measure. Researchers often measure social preferences by posing a series of dictator game allocation decisions; we use a particular technique, Social Value Orientation (SVO). In our experiment we vary the order of the SVO measurement and a lager stakes dictator game. We find that subjects with prosocial preferences act even more prosocially when the SVO measurement is administered first, whereas those with selfish preferences are unaffected by the order of the measurement. Additionally, we find evidence that this difference is driven by the presence of choices involving the size of surplus.
    Keywords: Other-Regarding Preferences; Social Value Orientation; Dictator Game
    JEL: D64 C91
    Date: 2009–08–04
  11. By: Igor Kopylov; Jawwad Noor
    Date: 2009–08–10
  12. By: Alcidi, Cinzia; Gros, Daniel
    Abstract: This paper explores three areas in which the experience of the Great Depression might be relevant today: monetary policy, fiscal policy and the systemic stability of the banking system. We confirm the consensus on monetary policy: deflation must be avoided. With regard to fiscal policy, the picture is less clear. We cannot confirm a widespread opinion according to which fiscal policy did not work because it was not tried. We find that fiscal policy went to limit of what was possible under the conditions as they existed then. Our investigation of the US banking system shows a surprising resilience of the sector: commercial banking operations (deposit taking and lending) remained profitable even during the worst years. This suggests one policy conclusion: At present the authorities, in both the US and Europe, have little choice but to make up for the losses on ‘legacy’ assets and wait for banks to earn back their capital. But to prevent future crisis of this type one should make sure that losses from the investment banking arms cannot impair commercial banking operations. At least a partial separation of commercial and investment banking seems thus justified by the greater stability of commercial banking operations.
    Keywords: Great depression; Monetary policy; Fiscal policy; Commercial banks
    JEL: B22 E60
    Date: 2009–05

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