nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2009‒09‒05
eleven papers chosen by
Erik Thomson
University of Manitoba

  1. Either, Or. Exploration of an Emerging Decision Theory. By Fioretti, Guido
  2. Participation in Organisations: Economic Approaches By Almudena Cañibano; David Marsden
  3. A small victorious war: political institutions and international conflict By Libman, Alexander
  4. The Economics Major Post-Meltdown: Time for Reform? By King Banaian
  5. Virtual vs. Standard Strike: An Experiment By Alessandro Innocenti; Antonio Nicita
  6. Social choice with approximate interpersonal comparisons of well-being By Pivato, Marcus
  7. Ethnic diversity and attitudes towards redistribution: a review of the literature By Stichnoth, Holger; Straeten, Karine Van der
  8. Fully Aggregative Games By Richard Cornes; Roger Hartley
  9. A Foundation for Markov Equilibria in Infinite Horizon Perfect Information Games By V. Bhaskar; George J. Mailath; Stephen Morris
  10. Addressing the psychology of financial markets By Tuckett, David
  11. Let them cheat! By Rodrigo Velez; William Thomson

  1. By: Fioretti, Guido
    Abstract: A novel decision theory is emerging out of sparse findings in economics, mathematics and, most importantly, psychology and computational cognitive science. It rejects a fundamental assumption of the theory of rational decision-making, namely, that uncertain belief rests on independent assessment of utility and probability, and includes envisioning possibilities within its scope. Several researchers working with these premises, independently of one another, arrived at the conclusion that decision is made by highlighting the positive features of the alternative that will be chosen while opposing it to a loosing alternative, whose unpleasant aspects have been stressed. This article frames together contributions from different disciplines, often unknown to one another, with the hope of improving the coordination of research efforts. Furthermore, it discusses the status of the novel theory with respect to our current idea of rationality.
    Keywords: Rationality; Shackle; Shafer; Search for Dominant Structure; Differentiation -- Consolidation; Constraint Satisfaction Networks; Construction of Narratives.
    JEL: D89 D80
    Date: 2009–03–09
  2. By: Almudena Cañibano; David Marsden
    Abstract: Under the auspices of the debate about high performance work systems, it has been suggestedthat the evidence of positive results is disappointing and that one reason is that there has beena lack of theory. This paper argues that there is indeed a great deal of theory that could beused to reformulate the basic research questions, much of it coming from labour economicsbroadly understood. It includes a meta-survey of research on the effects of participation onperformance since the landmark survey by Levine and Tyson in 1990 which was verypositive. It finds that the evidence is less clear cut now. It is argued that this is due in part toconsideration of a wider range of performance outcomes, improved data and methods, and tothe wider diffusion of such practices compared with the 1980s. It is also suggested that thedebate needs to be widened to include a broader range of participatory structures.
    Keywords: Labor-management relations, trade unions, collective bargaining, labormanagement, employee participation
    JEL: J5 M54
    Date: 2009–08
  3. By: Libman, Alexander
    Abstract: The paper provides an extremly simple model of the interaction of international and internal conflicts. However, unlike the dominant approach in the literature, which looks at these two types of conflicts as substitutes in terms of investments of agents, this paper analyzes the situation when these investments are complementary. In this case the existence of internal conflict may in fact trigger international war. The discussion is then placed in the context of the democratic peace theory.
    Keywords: Democratic peace; internal conflict; international conflict
    JEL: D74
    Date: 2009
  4. By: King Banaian (Department of Economics, St. Cloud State University)
    Abstract: None. Forthcoming in Academic Questions
    Keywords: economics major; higher education; financial crisis
    JEL: A22 A23
    Date: 2009–07–15
  5. By: Alessandro Innocenti; Antonio Nicita
    Abstract: In this paper we compare - in the laboratory - stoppage and virtual strike. Our experiment confirms that higher wages offered by an employer lead to considerably more costly effort provision. The number of strikes, the level of efforts and average total payoffs are higher under virtual strike than under standard strike. However, when standard strike is associated with reciprocal externalities, it induces higher effort levels, higher payoffs and an extremely reduced number of strikes than virtual strike. It is unclear whether this behavior re?ects reciprocity or other forms of social preferences. However our results might explain why standard strikes rather than virtual ones are generally adopted by workers.
    Keywords: virtual strike, cooperation, reciprocity, fairness, experiments
    JEL: C91 D74 D78 J52 K31 M55
    Date: 2009–06
  6. By: Pivato, Marcus
    Abstract: Some social choice models assume that precise interpersonal comparisons of utility (either ordinal or cardinal) are possible, allowing a rich theory of distributive justice. Other models assume that absolutely no interpersonal comparisons are possible, or even meaningful; hence all Pareto-efficient outcomes are equally socially desirable. We compromise between these two extremes, by developing a model of `approximate' interpersonal comparisons of well-being, in terms of an incomplete preorder on the space of psychophysical states. We then define and characterize `approximate' versions of the classical egalitarian and utilitarian social welfare orderings. We show that even very weak assumptions about interpersonal comparability can yield preorders on the space of social alternatives which, while incomplete, are far more complete than the Pareto preorder (e.g. they select relatively small subsets of the Pareto frontier as being `socially optimal'). Along the way, we give sufficient conditions for an incomplete preorder to be representable using a collection of utility functions. We also develop a variant of Harsanyi's Social Aggregation Theorem.
    Keywords: interpersonal comparisons of utility; interpersonal comparisons of well-being; social choice; social welfare; approximate egalitarian; approximate utilitarian; Suppes-Sen; utility representations of partial orders; utility representations of preorders
    JEL: D81 D63 D70
    Date: 2009–09–01
  7. By: Stichnoth, Holger; Straeten, Karine Van der
    Abstract: We review the empirical literature that studies the effect of ethnic diversity on the welfare state and on individual attitudes. The outcome variables that we cover in the survey are on the one hand public spending, and on the other hand individual attitudes and behaviour, including charity spending. We also review the fast-growing literature that uses experiments to study the effects of ethnic diversity. Many of these studies have appeared since the pioneering survey by Alesina and La Ferrara (2005a), and have not been covered by a survey before.
    Keywords: redistribution,social security,welfare state,immigration,ethnic diversity,survey
    JEL: H53 H55 I38 J15 J61
    Date: 2009
  8. By: Richard Cornes; Roger Hartley
    Abstract: A game is fully aggregative if payoffs and marginal payoffs depend only on a player's own strategy and a function of the strategy profile which is common to all players. We characterize the form which this function must take in such a game and show that the game will be strategically equivalent to another game in which the function is the simple sum of strategies.
    JEL: C72
    Date: 2009–08
  9. By: V. Bhaskar (Department of Economics, University College, London); George J. Mailath (Department of Economics, University of Pennsylvania); Stephen Morris (Department of Economics, Princeton University)
    Abstract: We study perfect information games with an infinite horizon played by an arbitrary number of players. This class of games includes infinitely repeated perfect information games, repeated games with asynchronous moves, games with long and short run players, games with overlapping generations of players, and canonical non-cooperative models of bargaining. We consider two restrictions on equilibria. An equilibrium is purifiable if close by behavior is consistent with equilibrium when agents’ payoffs at each node are perturbed additively and independently. An equilibrium has bounded recall if there exists K such that at most one player’s strategy depends on what happened more than K periods earlier. We show that only Markov equilibria have bounded memory and are purifiable. Thus if a game has at most one long-run player, all purifiable equilibria are Markov.
    Keywords: Markov, bounded recall, purification
    JEL: C72 C73
    Date: 2009–08–05
  10. By: Tuckett, David
    Abstract: The author suggests the 2008 financial crisis was the culmination of an accelerating process of financial market evolution that is inherently unstable. From his viewpoint markets are not well organized to manage the power financial assets have to generate emotion and their wider effect on human imagination and judgement, anchored in neurobiology. Judgements and so decisions about risk, reward and the evaluation of success can become systematically compromised because the excitement of potential gain is disconnected from the anxiety of potential consequences; producing groupthink and bubbles. When anxiety breaks through a catastrophic loss of confidence is inevitable. In the aftermath the emotional pain of accepting responsibility prevents lessons being learned. The author´s theoretical framework is influenced by modern psychoanalysis drawing on an interview study of international fund managers in 2007. He suggests underlying psychological conflicts have influenced the way market institutions have evolved to compete by selling the promise of exceptional performance. To cope with the expectations upon them, agents are impelled to base their actions on stories which overvalue opportunities and underestimate risks; creating agency issues and facilitating the very process of disconnecting anxiety from excitement which creates bubble potential. Policy implications go well beyond improving regulation and transparency.
    Keywords: Financial bubbles,financial crises,group functioning,groupthink,market instability,financial regulation,psychoanalysis,psychology
    JEL: G18 G28
    Date: 2009
  11. By: Rodrigo Velez (Texas A&M University); William Thomson (University of Rochester)
    Abstract: We consider the problem of fairly allocating a bundle of infinitely divisible commodities among a group of agents with "classical" preferences. We propose to measure an agent's "sacrifice" at an allocation by the size of the set of feasible bundles that the agent prefers to her consumption. As a solution, we select the allocations at which sacrifices are equal across agents and this common sacrifice is minimal. We then turn to the manipulability of this solution. In the tradition of Hurwicz (1972, Decision and Organization, U. Minnesota Press), we identify the equilibrium allocations of the manipulation game associated with this solution when all commodities are normal: (i) for each preference profile, each equal-division constrained Walrasian allocation is an equilibrium allocation; (ii) conversely, each equilibrium allocation is equal-division constrained Walrasian. (iii) Furthermore, we show that if normality of goods is dropped, then equilibrium allocations may not be efficient.
    Keywords: equal-sacrifice rule, manipulation game, equal-division Walrasian solution.
    Date: 2009–08

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