nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2010‒02‒13
nine papers chosen by
Erik Thomson
University of Manitoba

  1. What is the Source of Profit and Interest? A Classical Conundrum Reconsidered By Tomasson, Gunnar; Bezemer, Dirk J
  2. Youth Employment in Europe: Institutions and Social Capital Explain Better than Mainstream Economics By Contini, Bruno
  3. Should economists adopt methods from physics? By Austin Gerig
  4. Objective Confirmation of Subjective Measures of Human Well-being: Evidence from the USA By Oswald, Andrew J.; Wu, Stephen
  5. Punishment, Cooperation, and Cheater Detection in "Noisy" Social Exchange By Gary Bornstein; Ori Weisel
  6. Money and Sustainability By Othman, Jamal
  7. Behavioral economics as applied to firms: a primer By Armstrong, Mark; Huck, Steffen
  8. Social Norms and Behavior in the Local Commons Through the Lens of Field Experiments By Juan Camilo Cárdenas
  9. How Prevalent is Post-Decision Dissonance? Some Doubts and New Evidence By Holden, Steinar

  1. By: Tomasson, Gunnar; Bezemer, Dirk J
    Abstract: Classical political economy was underpinned by a shared view of the economy as a circular flow. This begged the question of how the value of produce can exceed the value of factor inputs: the ‘Profit Puzzle’. In this paper we advocate an understanding of the Profit Puzzle as a monetary paradox arising from Say’s Law. We trace how Classical, Keynesian and Neoclassical economists addressed the Puzzle. We suggest a solution based on the work of Bentham.
    Keywords: Circular Flow, Say's Law, Profit, Credit, Marx, Schumpeter, Keynes
    JEL: B12 E44
    Date: 2010–01–29
  2. By: Contini, Bruno (LABORatorio R. Revelli)
    Abstract: Why did employment growth – high in the last decade – take place at the expense of young workers in the countries of Central and Southern Europe? This is the question addressed in this paper. Youth unemployment has approached or exceeded 20% despite a variety of factors, common to most EU countries. According to neo-classical economics all would be expected to exert a positive impact on its evolution: population ageing and the demographic decline, low labor cost of young workers, flexibility of working arrangements, higher educational attainment, low unionization of young workers, early retirement practices of workers 50+. But neither seems to provide a convincing explanation. Historically based institutions and political tradition, cultural values, social capital – factors that go beyond the standard explanation of economic theory – provide a more satisfying interpretation.
    Keywords: youth employment, unemployment, social capital, institutions
    JEL: J0 J1 J6
    Date: 2010–01
  3. By: Austin Gerig
    Abstract: This is a short essay I wrote for an online publication affiliated with the business school at the University of Technology, Sydney. I discuss how the methods used in physics can apply to economics in general and financial markets specifically.
    Date: 2010–02
  4. By: Oswald, Andrew J. (University of Warwick); Wu, Stephen (Hamilton College)
    Abstract: A huge research literature, across the behavioral and social sciences, uses information on individuals' subjective well-being. These are responses to questions – asked by survey interviewers or medical personnel – such as "how happy do you feel on a scale from 1 to 4?" Yet there is little scientific evidence that such data are meaningful. This study examines a 2005-2008 Behavioral Risk Factor Surveillance System random sample of 1.3 million United States citizens. Life-satisfaction in each U.S. state is measured. Across America, people's answers trace out the same pattern of quality of life as previously estimated, using solely non-subjective data, in a literature from economics (so-called 'compensating differentials' neoclassical theory due originally to Adam Smith). There is a state-by-state match (r = 0.6, p < 0.001) between subjective and objective well-being. This result has some potential to help to unify disciplines.
    Keywords: compensating differentials, well-being, happiness, spatial equilibrium
    JEL: I31
    Date: 2010–01
  5. By: Gary Bornstein; Ori Weisel
    Abstract: Explaining human cooperation in large groups of non-kin is a major challenge to both rational choice theory and the theory of evolution. Recent research suggests that group cooperation can be explained assuming that cooperators can punish non-cooperators or cheaters. The experimental evidence comes from economic games in which group members are informed about the behavior of all others and cheating occurs in full view. We demonstrate that under more realistic information conditions, where cheating is less obvious, punishment is ineffective in enforcing cooperation. Evidently, the explanatory power of punishment is constrained by the visibility of cheating.
    Date: 2009–12
  6. By: Othman, Jamal
    Abstract: This paper overviews the political-economics of FIAT and asset-based money. The paper further highlights the presumably syariah standpoint of the impartiality character of money as the fundamental factor that differentiates money from her conventional counterpart. The paper argues that while it is ideal for asset-based money to make a comeback in the interest of holistic wellbeing (maslahah) of humankind, it necessarily be complemented by an appropriate financial and regulatory system to safeguard its impartiality, i.e., viz, non-tradable, non-interest bearing, and non-debt financing to avoid the recurring pitfalls which are immanent in conventional financial system. It is hoped this rather concise paper will offer a thought provoking discourse on how syariah principles may present the world a useful ideological construct for a new monetary and financial architecture in light of the global financial crises.
    Keywords: Financial crises; Neutrality of money; FIAT money; Asset based money; Islamic perspectives of money; Financial regulatory system; Money and sustainability
    JEL: E42 Q56 E4
    Date: 2009–08–27
  7. By: Armstrong, Mark; Huck, Steffen
    Abstract: We discuss the literatures on behavioral economics, bounded rationality and experimental economics as they apply to firm behavior in markets. Topics discussed include the impact of imitative and satisficing behavior by firms, outcomes when managers care about their position relative to peers, the benefits of employing managers whose objective diverges from profit-maximization (including managers who are overconfident or base pricing decisions on sunk costs), the impact of social preferences on the ability to collude, and the incentive for profit-maximizing firms to mimic irrational behavior.
    Keywords: Behavioral economics; bounded rationality; experimental economics; oligopoly; antitrust
    JEL: D21 C92 D43
    Date: 2010–01
  8. By: Juan Camilo Cárdenas
    Abstract: Behavior in the local commons is usually embedded in a context of regulations and social norms that the group of users face. Such norms and rules affect how individuals value material and non-material incentives and therefore determine their decision to cooperate or over extract the resources from the common-pool. This paper discusses the importance of social norms in shaping behavior in the commons through the lens of experiments, and in particular experiments conducted in the field with people that usually face these social dilemmas in their daily life. Through a large sample of experimental sessions with around one thousand people between villagers and students, I test some hypothesis about behavior in the commons when regulations and social norms constrain the choices of people. The results suggest that people evaluate several components of the intrinsic and material motivations in their decision to cooperate. While responding in the expected direction to a imperfectly monitored fine on over extraction, the expected cost of the regulation is not a sufficient explanatory factor for the changes in behavior by the participants in the experiments. Even with zero cost of violations, people can respond positively to an external regulator that issues a normative statement about a rule that is aimed at solving the social dilemma.
    Date: 2009–11–22
  9. By: Holden, Steinar (Dept. of Economics, University of Oslo)
    Abstract: Recent research is exploring the case for cognitive or post-decision dissonance using the free-choice paradigm of Brehm (1956). Participants are repeatedly faced with a choice between items that they have given the same rating of liking, two items at a time, and it is found that items not chosen in one choice has a lower tendency of being chosen in a subsequent choice against a different alternative item. This tendency is interpreted as evidence for cognitive or post-decision dissonance. I argue that this interpretation of the evidence is invalid. Furthermore, I report a novel experiment in which participants were specifically asked to compare the items, allowing for a consistent interpretation of the evidence. I find no evidence of post-decision dissonance after a choice between items where one was viewed as more attractive than the other, but potentially some weak evidence of post-decision dissonance after a choice between items viewed as equally attractive.
    Keywords: post-decision dissonance; cognitive dissonance; preferences
    Date: 2009–08–30

This nep-hpe issue is ©2010 by Erik Thomson. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.