nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2010‒04‒04
nineteen papers chosen by
Erik Thomson
University of Manitoba

  1. On Non-binary Personal Preferences in Society, Economic Theory and Racial Discrimination By Naqvi, Nadeem
  2. New Monetarist Economics: Methods By Williamson, Stephen D.; Wright, Randall
  3. The Santa Fe Perspective on Economics: emerging patterns in the science of complexity By Fontana Magda
  4. Quantum mechanism helps agents combat Pareto-inefficient social choice rules By Wu, Haoyang
  5. Entrepreneurs, formalisation of social ties and trustbuilding in Europe (14th-20th centuries) By Guido Alfani; Vincent Gourdan
  6. Day of Destruction: Survival and Stewardship in the Haiti Earthquake (PowerPoint) By Bahn, Henry M.
  7. Financial stability, monetary autonomy and fiscal interference: Bulgaria in search of its way, 1879-1913 By Kalina Dimitrova; Luca Fantacci
  8. A reading Hayek on power to tax By Fernando, Estrada
  9. Overconfidence is a Social Signaling Bias By Burks, Stephen V.; Carpenter, Jeffrey P.; Goette, Lorenz; Rustichini, Aldo
  10. The Troubling Economics and Politics of Paying Interest on Bank Reserves: A Critique of the Federal Reserve’s Exit Strategy By Thomas I Palley
  11. Lotta Lemmata: A Sour Harvest By Philip R. P. Coelho; James E. McClure
  12. Redundancy or Mismeasurement? A Reappraisal of Money By Hendrickson, Joshua
  13. The monetary analysis of hyperinflation and the appropriate specification of the demand for money By Sokic, Alexandre
  14. Urban Violence Is not (Necessarily) a Way of Life By Rodgers, Dennis
  15. Econometrics and Decision Making: Effects of Presentation Mode By Robin Hogarth; Emre Soyer
  16. Monetary Policy in a Systemic Crisis By Xavier Freixas
  17. Why do People Punish the Rule Breakers?: The Sustainability of Social Norms By Singh, Indervir
  18. Inconsistency of fairness evaluation in simulated labot market. By Ch'ng , Kean Siang; Loke, Yiing Jia
  19. Let me sleep on it: Delay reduces rejection rates in Ultimatum Games By Grimm Veronika; Mengel Friederike

  1. By: Naqvi, Nadeem
    Abstract: This paper examines some of the consequences for economic theory of the replacement of binary personal preferences by non-binary personal preferences in an Arrow-Debreu society as in Debreu (1959), and reaches the conclusion that there is both much damage to existing theory and greater opportunity for providing formal explanations of such phenomena as discrimination, personal freedoms and power, among others, which are impossible to explain at a formal level on the basis of an economic theory that is founded on a choice theory that is based exclusively on binary relational personal preferences.
    Keywords: Choice theory; decision theory; preference; binary relational logic; non-binary relational logic; utility function; expected utility; game theory; theory of value; discrimination; race; gender
    JEL: E0 D0 B0 C0 J0
    Date: 2010–03–20
  2. By: Williamson, Stephen D.; Wright, Randall
    Abstract: This essay articulates the principles and practices of New Monetarism, our label for a recent body of work on money, banking, payments, and asset markets. We first discuss methodological issues distinguishing our approach from others: it has something in common with Old Monetarism, but there are also some important differences; it has little in common with Old or New Keynesianism. We describe the key principles of these schools and contrast them with our approach. To show how it works in practice, we build a benchmark New Monetarist model, and use it to address frontier issues concerning asset markets and banking.
    Keywords: New Monetarism; Monetary economoics; financial intermediation; New Keynesian
    JEL: E5 E6 E10 E4 G21
    Date: 2010–03–17
  3. By: Fontana Magda
    Date: 2009–12
  4. By: Wu, Haoyang
    Abstract: Quantum strategies have been successfully applied in game theory for years. However, as a reverse problem of game theory, the theory of mechanism design is ignored by physicists. In this paper, we generalize the classical theory of mechanism design to a quantum domain and obtain two results: 1) We find that the mechanism in the proof of Maskin's sufficiency theorem is built on the Prisoners' Dilemma. 2) By virtue of a quantum mechanism, agents who satisfy a certain condition can combat Pareto-inefficient social choice rules instead of being restricted by the traditional mechanism design theory.
    Keywords: Quantum games; Mechanism design; Implementation theory; Nash implementation; Maskin monotonicity
    JEL: D71 C72
    Date: 2010–02–18
  5. By: Guido Alfani; Vincent Gourdan
    Abstract: Recent developments in applications of network analysis to history are leading to a new way of thinking about how social and economic actors interacted in the past. Focus on the social tie has resulted in increased interest in relational instruments that have not previously been taken into great consideration. This article analyses some of these instruments, and particularly godparenthood and marriage witnessing, as ways to establish formal and public ties. It shows that formalisation, ritualisation and publicity of ties were used by entrepreneurs to establish trust with their business associates, in situations when information was asymmetric or when institutions were perceived as inefficient in guaranteeing mutual good behaviour. The paper underlines both factors of continuity and factors of change over time, from the Middle Ages to today, paying particular attention to the consequences of Reformation and Counter-Reformation on one hand, and of Industrial Revolution and Modernization on the other. It shows, in the light of the most recent literature, that much of what we think to know about the declining importance, for social and economic activity, of family ties and of weaker ties such as godparenthood, is actually a kind of prejudice originating from a twentieth-century ideology of the market in which ancient practices struggle to find a place but are not abandoned.
    Keywords: godparenthood, spiritual kinship, marriage witnesses, trust, entrepreneurship, Industrial Revolution, Reformation, formalisation of social ties
    Date: 2010–03
  6. By: Bahn, Henry M.
    Abstract: Presented to USDA Economists Group, Washington, DC, March 10, 2010
    Keywords: Haiti, Earthquake, Health Economics and Policy, Institutional and Behavioral Economics,
    Date: 2010–03–10
  7. By: Kalina Dimitrova; Luca Fantacci
    Abstract: The Bulgarian monetary system was established, immediately after independence. Having experienced it already under Ottoman rule, newly independent Bulgaria adopted the bimetallic standard. Without being a member of the Latin Monetary Union, it tried broadly to follow the principles of the convention, yet with some exceptions, the most important of which concerned the limit on silver coinage. The absence of such a clause in Bulgaria turned out to be crucial since the financial needs of the recently established state triggered excessive silver coinage which resulted in a persistent agio - a positive and variable difference between the legal and the commercial value of silver coins. The interference of fiscal authorities obstructed the Bulgarian National Bank's ability to manage money in circulation and to secure the monetary stability required by economic development). The attempts of the Bulgarian monetary authorities to eliminate the agio were unsuccessful until they acquired the right to issue silver-backed banknotes. Soon after that, in 1906, Bulgaria introduced a short-lived typical Gold standard.
    Keywords: financial stability, monetary autonomy, fiscal interference, Bulgaria
    JEL: E42 E51 E63
    Date: 2010–02–01
  8. By: Fernando, Estrada
    Abstract: This article describes the argumentative structure of Hayek on the relationship between power to tax and redistribution. It is observed throughout its work giving special attention to two works: The Constitution of Liberty (1959) and Law, Legislation and Liberty, vol3, The Political Order of Free People, University of Chicago Press, Chicago, 1979.) Hayek describes one of the arguments most complete information bout SFP progressive tax systems (progressive tax). According to the author the history of the tax progressive system, works against such a tax model and deploys a variety of arguments in his favorite spot by critics: liberal democracy.
    Keywords: Hayek; Power to Tax; Redistribution; Government; Progressive Tax; Democracy
    JEL: E62 O23 B13 B2 E6
    Date: 2010–03–21
  9. By: Burks, Stephen V. (University of Minnesota, Morris); Carpenter, Jeffrey P. (Middlebury College); Goette, Lorenz (University of Lausanne); Rustichini, Aldo (University of Minnesota)
    Abstract: Evidence from psychology and economics indicates that many individuals overestimate their ability, both absolutely and relatively. We test three different theories about observed relative overconfidence. The first theory notes that simple statistical comparisons (for example, whether the fraction of individuals rating own skill above the median value is larger than half) are compatible (Benoît and Dubra, 2007) with a Bayesian model of updating from a common prior and truthful statements. We show that such model imposes testable restrictions on relative ability judgments, and we test the restrictions. Data on 1,016 individuals' relative ability judgments about two cognitive tests rejects the Bayesian model. The second theory suggests that self-image concerns asymmetrically affect the choice to get new information about one’s abilities, and this asymmetry produces overconfidence (Kőszegi, 2006; Weinberg, 2006). We test an important specific prediction of these models: individuals with a higher belief will be less likely to search for further information about their skill, because this information might make this belief worse. Our data also reject this prediction. The third theory is that overconfidence is induced by the desire to send positive signals to others about one’s own skill; this suggests either a bias in judgment, strategic lying, or both. We provide evidence that personality traits strongly affect relative ability judgments in a pattern that is consistent with this third theory. Our results together suggest that overconfidence in statements is most likely to be induced by social concerns than by either of the other two factors.
    Keywords: IQ, field experiment, social signaling, self-image, Bayesian updating, overconfidence, numeracy, personality, MPQ
    JEL: D83 C93
    Date: 2010–03
  10. By: Thomas I Palley
    Abstract: The Federal Reserve has recently activated its newly acquired powers to pay interest on reserves of depository institutions. The Fed maintains its new policy increases economic efficiency and intends it to play a lead role in the exit from quantitative easing. This paper argues it is a bad policy that (1) has a deflationary bias; (2) is costly to taxpayers and that cost will increase as normal conditions return; and (3) establishes institutional lock-in that obstructs desirable changes to regulatory policy. The paper recommends repealing the Fed’s power to pay interest on bank reserves. Second, the Fed should repeal regulation Q that prohibits payment of interest on demand deposits. Third, the Fed should immediately implement an alternative system of asset based reserve requirements (liquidity ratios) that will improve monetary control and can help exit quantitative easing at no cost to the public purse. Now is the optimal time for this change. Lastly, the paper argues the new policy of paying interest on reserves reveals the troubling political economy governing the actions of the Federal Reserve and policy recommendations of the economics profession.
    Keywords: Interest on reserves, asset based reserve requirements, liquidity ratios
    JEL: E40 E42 E43
    Date: 2010
  11. By: Philip R. P. Coelho (Department of Economics, Ball State University); James E. McClure (Department of Economics, Ball State University)
    Abstract: We quantify the increasing use of complex mathematics and show that the increase is unique to economics in the social sciences. Over half a century ago Donald F. Gordon hypothesized that mathematics was most likely to be useful in manipulating long chains of relationships, but these were the cases where the theory was least likely to valid. Time particularly bedevils the long chains because the ceteris paribus assumption requires the stability of all links. We find that the rate of hypothesis testing in articles citing mathematically complex articles is less than two percent, and summarize a variety of tests and other evidence supporting the Gordon hypothesis. We suggest that a major factor in the rise in mathematical complexity may be the decline in comments, replies, and rejoinders debating earlier publications; the decline has been rapid as editors have become increasingly “hostile” toward perspectives other than the ones they had previously published. We conclude by emphasizing that: 1) prominent journals in economics are devoting more space to mathematically complex articles despite their inconsequential operational harvest; 2) both the “appropriate” balance between mathematical complexity and operationalism, and the relative merits of “stylized facts” versus observational reality should be considered as a factor in editorial decision-making; finally 3) the vital importance of academic debate that addresses empirical verification, the appropriateness of model formulation, and the crucial matters of history and circumstance which are the measures of all research in the social sciences.
    Date: 2010–03
  12. By: Hendrickson, Joshua
    Abstract: The emerging consensus in monetary policy and business cycle analysis is that money aggregates are not useful as an intermediate target for monetary policy or as an information variable. The uselessness of money as an intermediate target is driven by empirical research that suggests that money demand is unstable. In addition, the informational quality of money has been called into question by empirical research that fails to identify a relationship between money growth and inflation, nominal income growth, and the output gap. Nevertheless, this research is potentially flawed by the use of simple sum money aggregates, which are not consistent with economic, aggregation, or index number theory. This paper therefore re-examines previous empirical evidence on money demand and the role of money as an information variable using monetary services indexes as monetary aggregates. These aggregates have the advantage of being derived from microtheoretic foundations as well as being consistent with aggregation and index number theory. The results of the re-evaluation suggest that previous empirical work might be driven by mismeasurement.
    Keywords: monetary aggregates; money; business cycles; money demand; cointegrated VAR
    JEL: E32 E31 E42 E41
    Date: 2010–02
  13. By: Sokic, Alexandre
    Abstract: The paper emerges from the failure of the traditional models of hyperinflation with rational expectations or perfect foresight. Using the insights from two standard optimizing monetary settings the paper shows that the possibility of perfect foresight monetary hyperinflation paths depends robustly on the essentiality of money. We show that the popular semilogarithmic form of the demand for money is not appropriate to analyse monetary hyperinflation with perfect foresight. We propose a simple test of money essentiality for the appropriate specification of the demand for money equation in empirical studies of hyperinflation.
    Keywords: monetary hyperinflation; inflation tax; money essentiality
    JEL: E31 E41
    Date: 2010–03–19
  14. By: Rodgers, Dennis
    Abstract: As the world moves towards its so-called urban ‘tipping point’, urbanization in the global South has increasingly come to be portrayed as the portent of a dystopian future characterized by ever-mounting levels of anarchy and brutality. The association between cities, violence, and disorder is not new, however. In a classic article on ‘Urbanism as a way of life’, Louis Wirth (1938: 23) famously links cities to ‘personal disorganization, mental breakdown, suicide, delinquency, crime, corruption, and disorder’. He does so on the grounds that the urban context constituted a space that naturally generated particular forms of social organization and collective action as a result of three key attributes: population size, density, and heterogeneity. Large numbers lead to a segmentation of human relations, the pre-eminence of secondary over primary social contact, and a utilitarianization of interpersonal relationships. Density produces increased competition, accelerates specialization, and engenders glaring contrasts that accentuate social friction. Heterogeneity induces more ramified and differentiated forms of social stratification, heightened individual mobility, and increased social fluidity. While large numbers, density, and heterogeneity can plausibly be considered universal features of cities, it is much less obvious that they necessarily lead to urban violence. This is a standpoint that is further reinforced by the fact that not all cities around the world – whether rapidly urbanizing or not – are violent, and taking off from Wirth’s characterization of the city, this paper therefore seeks to understand how and why under certain circumstances compact settlements of large numbers of heterogeneous individuals give rise to violence, while in others they don’t, focusing in particular on wider structural factors as seen through the specific lens of urban gang violence.
    Keywords: urbanism, violence, gangs, Chicago School of Sociology, Wirth
    Date: 2010
  15. By: Robin Hogarth; Emre Soyer
    Abstract: Much of empirical economics involves regression analysis. However, does the presentation of results affect economists’ ability to make inferences for decision making purposes? In a survey, 257 academic economists were asked to make probabilistic inferences on the basis of the outputs of a regression analysis presented in a standard format. Questions concerned the distribution of the dependent variable conditional on known values of the independent variable. However, many respondents underestimated uncertainty by failing to take into account the standard deviation of the estimated residuals. The addition of graphs did not substantially improve inferences. On the other hand, when only graphs were provided (i.e., with no statistics), respondents were substantially more accurate. We discuss implications for improving practice in reporting results of regression analyses.
    Keywords: Regression analysis; presentation formats; probabilistic predictions; graphs.
    JEL: C01 C20 C53 Y10
    Date: 2010–02
  16. By: Xavier Freixas
    Abstract: This paper examines the monetary policy followed during the current financial crisis from the perspective of the theory of the lender of last resort. It is argued that standard monetary policy measures would have failed because the channels through which monetary policy is implemented depend upon the well functioning of the interbank market. As the crisis developed, liquidity vanished and the interbank market collapsed, central banks had to inject much more liquidity at low interest rates than predicted by standard monetary policy models. At the same time, as the interbank market did not allow for the redistribution of liquidity among banks, central banks had to design new channels for liquidity injection.
    Date: 2009–11
  17. By: Singh, Indervir
    Abstract: This paper attempts to provide reasons for sustainability of social norms by considering internalization as the basic motivation behind the punishment behavior. A society requires people to implant the social norms in others, and punishing the rule breaker provides a person utility by letting him feel good through fulfilling his responsibility. The responsibility increases with closeness of relationship, therefore relatives and friends tend to punish the rule breaker harder. The breaking of a norm also acts as a 'bad name' for rule breaker's relatives and friends, which, further, prompts them to punish him. Since, punishing the rule breaker also benefits non-punishers, some people may start selling the punishment activity, if the benefited people, due to their internalization of the norm, pay punishers in the form of money, support etc.
    Keywords: social norms; internalization; bad name; power asymmetry
    JEL: D02 Z13
    Date: 2010
  18. By: Ch'ng , Kean Siang; Loke, Yiing Jia
    Abstract: Reciprocal behavior was often explained by perception of fairness derived from either agents’ intention or distributional outcome. In this paper, we demonstrated that fairness perception depended on the evaluability of the partner’s type. We conducted experiments to investigate how workers formed fairness perception on the employers. We found inconsistency in fairness evaluation in the two simulated worker-employer relations; workers derived fairness by comparing own wage with market wage in a one shot interaction, but workers derived fairness based on current and previous wage when interacting with same employer. The reversal of fairness perception suggested the role of evaluability of partners’ attribute in effort decision among workers.
    Keywords: Preference reversal; reciprocity; gift exchange; evaluability hypothesis;experiment.
    JEL: D86 B21 C92
    Date: 2010–01
  19. By: Grimm Veronika; Mengel Friederike (METEOR)
    Abstract: We show that delaying acceptance decisions in the Ultimatum Game drastically increases acceptance rates of low offers. While in standard treatments without delay less than 20% of low offers are accepted, these numbers increase to around 65-75% as we delay the acceptance decisions by around 10 minutes. Our findings provide precise evidence for familiar notions such as ''sleeping on it'' and show that there may be a good reason why public administrations often communicate bad news on Friday afternoons. They shed new light on recent evidence in Neuroscience on brain activation after receiving bad news and raise questions about the extent to which decisions reveal the preferences of a decision-maker.
    Keywords: microeconomics ;
    Date: 2010

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