nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2012‒02‒01
fourteen papers chosen by
Erik Thomson
University of Manitoba

  1. Rationality, hermeneutics, and communicational processes: On L. Lachmann's approach of hermeneutical economics By Priddat, Birger P.
  2. Bourbaki's Destructive Influence on the Mathematization of Economics By K. Vela Velupillai
  3. New Developments in the Measurement of Welfare and Well-being By Bernard M.S. van Praag; Erik J.S. Plug
  4. The economics and philosophy of globalization By Yazdani, Naveed; Mamoon, Dawood
  5. Pasinetti on Ricardo By Enrico Bellino
  6. Bluffing as a Mixed Strategy By Thomas W.L. Norman
  7. Reasons for (prior) belief in bayesian epistemology By Dietrich, Franz; List, Christian
  8. Once Beaten, Never Again: Imitation in Two-Player Potential Games By Duersch, Peter; Oechssler, Jorg; Schipper, Burkhard C.
  9. Bounded Rationality in Principal‐Agent Relationships By Mathias Erlei; Heike Schenk-Mathes
  10. Getting up to Speed on the Financial Crisis: A One-Weekend-Reader's Guide By Gary B. Gorton; Andrew Metrick
  11. Complexity and Endogenous Instability By Sami Al-Suwailem
  12. A simple axiomatics of dynamic play in repeated games By Mathevet, Laurent
  13. An Uninterpreted Spatial Version of the Trust Game: Evidence of Reciprocity without Suggestive Words, Evidence of Iterated Dominance Self-Taught By Talbot Page; Louis Putterman
  14. The evolution of Alexandre Lamfalussy's thought on the international and European monetary system (1961-1993) By Ivo Maes

  1. By: Priddat, Birger P.
    Abstract: Only a few economists knew about hermeneutical economics. But my request is to confirm hermeneutical economics only for the reason to make it criticable. Without any doubt, hermeneutical economics is worth to be criticized; but it is an incomplete approach. The first part presents Ludwig M. Lachmann's version of hermeneutical economics. Lachmann is picked up from the scenario of hermeneutical economists (i.e. Ebeling, Berger, Lavoie, some authors of Kirzner 1986, etc.), because he is the most prominent one of this small group. His approach is more typical than original, but a profound basement for our handling with the rationality-problem in economics. The second part analyzes some critical issues of this approach, touches some methodological problems, and ends with some helpful reasoning on the relation of hermeneutics and economics. --
    Date: 2012
  2. By: K. Vela Velupillai
    Abstract: The first appearance of a reference to a Bourbaki mathematical result was the spoof by D.D. Kosambi, published in the first volume of the Bulletin of the Academy of Sciences of the United Provinces of Agra and Oudh, eighty years ago, although it was not the first reference to Bourbaki in a mathematical context. In mathematical economics there seems to be an increasing identification of Debreu’s mathematization of economics with Bourbakism, although the Post WW II mathematics of general equilibrium theory can be shown to be consistent also with the contributions of the Polish School of Mathematics in the interwar period. In this paper an attempt is made to summarise the story of the emergence of Bourbakism, originating in India, and its recent demise as well as how it played a destructive role in mathematising economics in one, uncompromisingly nonconstructive, mode.
    Keywords: Bourbakism, Polish School of Mathematics, Hilbert’s Dogma, Debreu, Mathematical Economics.
    JEL: B23 C02 C69 D50
    Date: 2012
  3. By: Bernard M.S. van Praag (University of Amsterdam); Erik J.S. Plug (University of Amsterdam)
    Abstract: This paper is dating from 1995, when it has been presented at the Ragnar Frisch Centennial Memorial Conference in Oslo. It has never been published before. In this paper for the first time the Cantril ladder question data have been employed in the way which later has become known as happiness economics. After two introductory sections 1and 2, Section 3 explains the Leyden School methodology to estimate financial satisfaction or in traditional terms a (cardinal) welfare function of money. In Section 4 the Cantril ladder question is employed to estimate a function of satisfaction with life as a whole. It is found that well-being is quadratic in the number of children, leading to an optimum number of children, given income and given the fact of a one-breadwinner- or two- breadwinners-family. In Section 5 the effects of children on financial satisfaction and on satisfaction with life as a whole are compared. With respect to financial satisfaction it is found that the more children there are the smaller financial satisfaction. Comparison of the two effects makes it possible to distinguish between the monetary cost associated with having children and the non-monetary benefits caused by having children. Part of this paper is based on Plug and Van Praag (1995).
    Keywords: happiness economics; Leyden School; Cantril Ladder; family equivalence scales; costs and benefits of children
    JEL: B50 D19 J1 D6
    Date: 2012–01–16
  4. By: Yazdani, Naveed; Mamoon, Dawood
    Abstract: The economics and philosophy of Globalization are generally not discussed together. This paper assesses the claims of economic prosperity through economic integration in the backdrop of cultural, political and social value system implications of Globalization. This debate becomes important when we see a major part of developing world still struggling with impoverishment while cheerleaders of Globalization already claim a success story out of increased integration of developed and developing economies post 1980s.
    Keywords: Globalization; Macroeconomic Policy; Economic Integration; Postmodernism
    JEL: F01 P1
    Date: 2012–01–20
  5. By: Enrico Bellino (DISCE,Università Cattolica)
    Keywords: Ricardo, ‘corn’ theory of profit, Sraffa’s Standard commodity
    JEL: B12 B16 B24 B51
    Date: 2012–01
  6. By: Thomas W.L. Norman
    Abstract: In von Neumann and Morgenstern’s sample model of poker, equilibrium has the first player bet with high and low hands, and check with intermediate hands. The second player then calls if his hand is sufficiently high. Betting by the low hands is interpreted as bluffing, and is a pure strategy. Here we show that this equilibrium is nongeneric, in the sense that it ceases to exist if the first player is allowed to choose among many possible bets, rather than just one. Moreover, Newman’s solution for this case - which also has pure-strategy bluffing - is shown not to be a sequential equilibrium. However, a modified solution - where low hands bluff using mixed strategies - is a sequential equilbrium.
    Keywords: Poker, Game theory, Mixed strategies, Perfect Bayesian equilibrum, Sequential equilibrium
    JEL: C73
    Date: 2012
  7. By: Dietrich, Franz; List, Christian
    Abstract: Bayesian epistemology tells us with great precision how we should move from prior to posterior beliefs in light of new evidence or information, but says little about where our prior beliefs come from. It o¤ers few resources to describe some prior beliefs as rational or well-justi…ed, and others as irrational or unreasonable. A di¤erent strand of epistemology takes the central epistemological question to be not how to change ones beliefs in light of new evidence, but what reasons justify a given set of beliefs in the …rst place. We o¤er an account of rational belief formation that closes some of the gap between Bayesianism and its reason-based alternative, formalizing the idea that an agent can have reasons for his or her (prior) beliefs, in addition to evidence or information in the ordinary Bayesian sense. Our analysis of reasons for belief is part of a larger programme of research on the role of reasons in rational agency (Dietrich and List 2012a,b).
    Keywords: Bayesian epistemology; doxastic reasons; prior and posterior beliefs; principle of insu¢ cient reason; belief formation; belief change
    JEL: D0 D03 C0 D8 C7 D01
    Date: 2012–01–08
  8. By: Duersch, Peter (University of Heidelberg); Oechssler, Jorg (University of Heidelberg); Schipper, Burkhard C. (University of CA, Davis)
    Abstract: We show that in symmetric two-player exact potential games, the simple decision rule "imitate-if-better" cannot be beaten by any strategy in a repeated game by more than the maximal payoff difference of the one-period game. Our results apply to many interesting games including examples like 2x2 games, Cournot duopoly, price competition, public goods games, common pool resource games, and minimum effort coordination games.
    JEL: C72 C73 D43
    Date: 2011–12
  9. By: Mathias Erlei; Heike Schenk-Mathes (Abteilung für Volkswirtschaftslehre, Technische Universität Clausthal (Department of Economics, Technical University Clausthal))
    Abstract: We conducted six treatments of a standard moral hazard experiment with hidden action. All treatments had identical Nash equilibria. However, the behavior in all treatments and periods was inconsistent with established agency theory (Nash equilibrium). In the early periods of the experiment, behavior differed significantly between treatments. This difference largely vanished in the final periods. We used logit equilibrium (LE) as a device to grasp boundedly rational behavior and found the following: (1) LE predictions are much closer to subjects’ behavior in the laboratory; (2) LE probabilities of choosing between strategies and experimental behavior show remarkably similar patterns; and (3) profit‐maximizing contract offers according to the LE are close to those derived from regressions.
    Keywords: experiment, logit equilibrium, moral hazard, hidden action
    JEL: C72 C92 J31 L14
    Date: 2012
  10. By: Gary B. Gorton; Andrew Metrick
    Abstract: All economists should be conversant with “what happened?” during the financial crisis of 2007-2009. We select and summarize 16 documents, including academic papers and reports from regulatory and international agencies. This reading list covers the key facts and mechanisms in the build-up of risk, the panics in short-term-debt markets, the policy reactions, and the real effects of the financial crisis.
    JEL: A0 D0 E0 G0
    Date: 2012–01
  11. By: Sami Al-Suwailem
    Abstract: The global financial crisis proved the critical impact of the gap between individual rationality and group rationality. This gap is not supposed to arise in a Neoclassical world, but it frequently arises in a world as complex as ours. The paper explores how endogenous instability might arise due to such a gap, and what behavioral rules might help to mitigate its impact.
    Keywords: fallacy of composition, empathy, n-person prisoner’s dilemma games, n-person zero-sum games, symmetry, the golden rule.
    JEL: C70 D03 D87 G01
    Date: 2012
  12. By: Mathevet, Laurent
    Abstract: This paper proposes an axiomatic approach to study two-player infinitely repeated games. A solution is a correspondence that maps the set of stage games into the set of infinite sequences of action profiles. We suggest that a solution should satisfy two simple axioms: individual rationality and collective intelligence. The paper has three main results. First, we provide a classification of all repeated games into families, based on the strength of the requirement imposed by the axiom of collective intelligence. Second, we characterize our solution as well as the solution payoffs in all repeated games. We illustrate our characterizations on several games for which we compare our solution payoffs to the equilibrium payoff set of Abreu and Rubinstein (1988). At last, we develop two models of players' behavior that satisfy our axioms. The first model is a refinement of subgame-perfection, known as renegotiation proofness, and the second is an aspiration-based learning model.
    Keywords: Axiomatic approach; repeated games; classification of games; learning; renegotiation
    JEL: C71 C72 C73
    Date: 2012–01–17
  13. By: Talbot Page; Louis Putterman
    Abstract: In this working paper we report on two trust games: a BDM-like game which is interpreted through its use of the possibly suggestive words “show up fee,” “sends,” “tripled,” “send back”; and an uninterpreted spatial game that does not use these words suggestive or not. In the spatial game we found a considerable amount of reciprocity, which implies the words are not necessary for reciprocity. For further comparison we designed the two games to have a correspondence relation (the relation extends to the original BDM trust game). We focused on two “variables” – interpreted or uninterpreted and spatial or word-based. We also designed “constants” which were identical or near identical in the two games. We did this to reduce confounding in statistical comparisons. We found the frequency of reciprocity in the spatial game, without the suggestive words, was about the same as the frequency of reciprocity in the BDM-like game, with the suggestive words. We found iterated dominance in the spatial game was 5.5 times higher than in the BDM-like game. And we found sending the full endowment was significantly more frequent in the BDM-like game than in the spatial game.
    Keywords: #
    Date: 2012
  14. By: Ivo Maes (National Bank of Belgium, Research Department; Université catholique de Louvain, Robert Triffin Chair; HUBrussel; ICHEC Brussels Management School)
    Abstract: The establishment of the European Monetary Institute (EMI), the predecessor of the European Central Bank, on 1 January 1994, was a milestone in the process of European monetary integration. In this paper, we look at the work on the international and European monetary system of Alexandre Lamfalussy, its first president. Lamfalussy pursued a threefold career: as a private banker, a central banker and an academic. Partly under the influence of Robert Triffin, Lamfalussy soon became interested in international monetary issues. This paper analyses his views on the international monetary system and on European monetary integration, including his contributions to the Delors Report, which provided the framework for European monetary union. The paper draws extensively on archival research in the Lamfalussy papers at the Bank for International Settlements and the minutes of the EEC Committee of Governors' meetings. The paper provides not only an analysis of Lamfalussy's thought on European monetary integration, but also offers crucial insight into the Weltanschauung and way of thinking of European central bankers in this period.
    Keywords: Lamfalussy, exchange rates, European monetary integration, Delors Report
    JEL: B31 E42 F36
    Date: 2011–11

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