nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2012‒03‒28
eight papers chosen by
Erik Thomson
University of Manitoba

  1. Economics: The logic & scientific distortion By Hynes, Brian
  2. Subjective Risk, Confidence, and Ambiguity By Traeger, Christian P.
  3. Tommaso Padoa-Schioppa and the origins of the euro By Ivo Maes
  4. Strategic Reasoning in Hide-and-Seek Games: A Note By Timo Heinrich; Irenaeus Wolff
  5. Women's Empowerment and Economic Development By Duflo, Esther
  6. Simple Rules for a Complex World: Is it so? By Pierre Garello
  7. Homo Moralis-Preference evolution under incomplete information and assortative matching By Alger, Ingela; Weibull, Jörgen
  8. An Epistemic Rationale for Order-Independence By Michael Trost

  1. By: Hynes, Brian
    Abstract: How is it that schools of economic factions have created rifts where economists cannot bare to be in the same room as one another. Investigation of this question examines fundamental economic theory and identifies the root cause of the rift is the perplexing disconnect between the scientific method and logical testing. Fundamentally, the prime rift is between economists who use deductive reasoning and those who use positive empirical evidence. To illuminate the effect of this rift, this article will disseminate a couple fundamental economic topics under scrutiny: Defining Growth and Forecasting. The resulting differences and history shows strong support for consideration of deductive reasoning over current methodology. The reality is that legitimate theories should channel central debate on the current “given” modern theory is not debated at all, but instead a mainstream economists insist a “bridge” exists today, known as the Neoclassical Synthesis of the 20th century. This has perverted economic thought to the point where debate will not even come under consideration on the fundamental level. Therefore, the Positive Empiricism Approach (See: “scientific”) has inherited a foundation built upon, ironically, a normative nature. Failure of the scientific approach, empirically and logically, proves that mainstream neo-Keynesian economics promotes externalities in waves that deliver far more impact than simply direct practice. The school's influence and has potential to be more destructive potential than any time in history.
    Keywords: Austrian Economics; Hayek; Von Mises; Comparative theory; keynesian theory; Logical reason; logic; aristotle;
    JEL: B0 A10 A11 A14
    Date: 2011–05
  2. By: Traeger, Christian P.
    Abstract: The paper incorporates qualitative differences of probabilistic beliefs into a rational (or normatively motivated) decision framework. Probabilistic beliefs can range from objective probabilities to pure guesstimates. The decision maker in the present model takes into account his confidence in beliefs when evaluating general uncertain situations. From an axiomatic point of view, the approach stays as close as possible to the widespread von Neumann-Morgenstern framework. The resulting representation uses only basic tools from risk analysis, but employs them recursively. The paper extends the concept of smooth ambiguity aversion to a more general notion of aversion to the subjectivity of belief. As a special case, the framework permits a threefold disentanglement of intertemporal substitutability, Arrow-Pratt risk aversion, and smooth ambiguity aversion. A decision maker’s preferences can nest a variety of widespread decision criteria, which are selected according to his confidence in the uncertainty assessment of a particular setting.
    Keywords: ambiguity, confidence, subjective beliefs, expected utility, intertemporal substitutability, intertemporal risk aversion, recursive utility, uncertainty, climate change, behavior, Agricultural and Resource Economics
    Date: 2011–05–01
  3. By: Ivo Maes (National Bank of Belgium, Research Department; Université catholique de Louvain, Robert Triffin Chair; HUB; ICHEC Brussels Management School)
    Abstract: Tommaso Padoa-Schioppa was one of the great architects of the euro. He is remembered in particular as co-rapporteur for the Delors Committee and as a founding member of the European Central Bank's Executive Board. For Padoa-Schioppa, becoming Director-General of the European Commission's DG II (from 1979 to 1983), was a defining moment in his career and life. This period is the main focus of this paper. At the Commission, Padoa-Schioppa's main priority was the European Monetary System, which was launched in March 1979. He was closely involved in several projects to strengthen the EMS, to improve economic policy convergence and the position of the ECU. The other main objective for Padoa-Schioppa was the strengthening of DG II's analytical capacity, especially its model-building capacity and its links with the academic world. As such, he played a crucial role in the professionalisation of economics at the Commission and in preparing DG II for the important role it would play in the EMU process. At the Commission, Padoa-Schioppa became also immersed in several European networks. Of crucial importance here were his contacts with Jacques Delors. This would be of major importance for his further career, becoming one of the architects of the single currency.
    Keywords: Padoa-Schioppa, Euro, EMS, EMU, Economic governance, European Commission
    JEL: A11 B20 E60 F02 N14 P16
    Date: 2012–03
  4. By: Timo Heinrich; Irenaeus Wolff
    Abstract: Aggregate behavior in two-player hide-and-seek games deviates systematically from the mixed-strategy equilibrium prediction of assigning all actions equal probabilities (Rubinstein and Tversky, 1993, Rubinstein et al., 1996, Rubinstein, 1999). As Crawford and Iriberri (2007) point out, this deviation can be explained by strategic level-k reasoning. Here we provide empirical evidence that, indeed, it is non-equilibrium beliefs that lead to the behavior observed in the earlier studies: when a player's opponent is forced to play the equilibrium strategy, the player's choices are uniformly spread over the action space. At the same time, we find robust evidence of an unexpected framing effect.
    Keywords: Salience, level-k reasoning, cognitive hierarchy, hide-and-seek game, framing effect
    Date: 2012
  5. By: Duflo, Esther
    Abstract: Women’s empowerment and economic development are closely related: in one direction, development alone can play a major role in driving down inequality between men and women; in the other direction, empowering women may benefit development. Does this imply that pushing just one of these two levers would set a virtuous circle in motion? This paper reviews the literature on both sides of the empowerment-development nexus, and argues that the inter-relationships are probably too weak to be self-sustaining, and that continuous policy commitment to equality for its own sake may be needed to bring about equality between men and women.
    Keywords: gender equality; women's empowerment
    JEL: D1 O12 O15
    Date: 2012–01
  6. By: Pierre Garello (CERGAM-CAE, Aix-Marseille Université)
    Abstract: Epstein gave to one of his books a title that summarizes the main conclusion of some studies, in particular Hayek's, of emergent orders (also known as spontaneous orders) such as the law and the market: we need, says Epstein, simple rules to cope with a complex world. We offer a critical appraisal of that statement looking in particular to his analysis of liability rule and argue that a rule of negligence, albeit more complex than strict liability, fits better the dynamics of a complex order. We conclude that the nature of the process through which the rule emerges is more important than its simplicity. We close the paper with some general reflections on the challenges presented by new researches in adaptive complex orders.
    JEL: K00 K13 P51 B41
    Date: 2011–04
  7. By: Alger, Ingela; Weibull, Jörgen
    Abstract: What preferences will prevail in a society of rational individuals when preference evolution is driven by their success in terms of resulting payoffs? We show that when individuals’ preferences are their private information, a convex combinations of selfishness and morality stand out as evolutionarily stable. We call individuals with such preferences homo moralis. At one end of the spectrum is homo oeconomicus, who acts so as to maximize his or her material payoff. At the opposite end is homo kantiensis, who does what would be “the right thing to do,” in terms of material payoffs, if all others would do likewise. We show that the stable degree of morality - the weight placed on the moral goal - equals the index of assortativity in the matching process. The motivation of homo moralis is arguably compatible with how people often reason, and the induced behavior agrees with pro-social behaviors observed in many laboratory experiments.
    JEL: C73 D03
    Date: 2012–02
  8. By: Michael Trost (Albert Ludwig University Freiburg, and Max Planck Institute of Economics, Jena)
    Abstract: The issue of the order-dependence of iterative deletion processes is well-known in the game theory community, and meanwhile conditions on the dominance concept underlying these processes have been detected which ensure order-independence (see e.g. the criteria of Gilboa et al., 1990 and Apt, 2011). While this kind of research deals with the technical issue, whether certain iterative deletion processes are order-independent, or not, our focus is on the normative issue, whether there are good reasons for employing order-independent iterative deletion processes on strategic games. We tackle this question from an epistemic perspective and attempt to figure out, whether order-independence contains some specific epistemic meaning. It turns out that, under fairly general preconditions on the choice rules underlying the iterative deletion processes, the order-independence of these deletion processes coincides with the epistemic characterization of their solutions by the common belief of choice-rule following behavior. The presumably most challenging precondition of this coincidence is the property of the independence of irrelevant acts. We also examine the consequences of two weakenings of this property on our epistemic motivation for order-independence. Although the coincidence mentioned above breaks down for both weakenings, still there exist interesting links between the order-independence of iterative deletion processes and the common belief of following the choice rules, on which these processes are based.
    Keywords: Iterative deletion process, order-independence, choice rule, epistemic game theory
    JEL: C72 D83
    Date: 2012–03–20

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