nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2013‒01‒19
fifteen papers chosen by
Erik Thomson
University of Manitoba

  1. Games with Unawareness By Feinberg, Yossi
  2. Bisogni contro utilità: un'interpretazione bioeconomica della crisi By Fabrizio LUCIANI; Stefano ZAMBERLAN
  3. Free economy in a Jewish perspective. By Calance, Madalina
  4. Distributional Comparative Statics By Martin Kaae Jensen
  5. Three-Player Trust Game with Insider Communication By Roman M. Sheremeta; Jingjing Zhang
  6. The Evolution of Altruistic Preferences: Mothers versus Fathers By Alger, Ingela; Cox, Donald
  7. The New Science of Pleasure By Daniel L. McFadden
  8. Evolutionary Exploration of the Finitely Repeated Prisoners' Dilemma--The Effect of Out-of-Equilibrium Play By Lindgren, Kristian; Verendel, Vilhelm
  9. Poverty Where People Live: What do National Poverty Lines Tell us about Global Poverty? By Ugo Gentilini; Andy Sumner
  10. People's Power: The Power of Money By Kees, De KONING
  11. Teoria positiva del beneficio e finanza locale responsabile: il contributo di Sergio Steve By Liberati, Paolo; Paradiso, Massimo
  12. Fairness That Money Can Buy - Procedural Egalitarianism in Practice By Werner Güth; Hartmut Kliemt
  13. Extreme Financial Cycles By Bertrand Candelon; Guillaume Gaulier; Christophe Hurlin
  14. You Can’t Put Old Wine in New Bottles: The Effect of Newcomers on Coordination in Groups By Roman M. Sheremeta; Matthew W. McCarter
  15. Gestion des risques : histoire, définition et critique By Georges Dionne

  1. By: Feinberg, Yossi (Stanford University)
    Abstract: We provide a tool to model and solve strategic situations where players' perceptions are limited, in the sense that they may only be aware of, or model, some of the aspects of the strategic situations at hand, as well as situations where players realize that other players' perceptions may be limited. We define normal, repeated, incomplete information and dynamic (extensive) form games with unawareness using a unified methodology. A game with unawareness is defined as a collection of standard games (of the corresponding form). The collection specifies how each player views the game, how she views the other players' perceptions of the game and so on. The modeler's description of perceptions, the players' description of other players' reasoning, etc. are shown to have consistent representations. We extend solution concepts such as rationalizability and Nash equilibrium to these games and study their properties. It is shown that while unawareness in normal form games can be mapped to incomplete information games, the extended Nash equilibrium solution is not mapped to a known solution concept in the equivalent incomplete information games, implying that games with unawareness generate novel types of behavior.
    JEL: C72 D81 D82
    Date: 2012–08
  2. By: Fabrizio LUCIANI; Stefano ZAMBERLAN
    Abstract: This essay, starting from Georgescu-Roegen’s criticism to the concept of utility and the theory of the behaviour of the consumer, points out not only the shortcomings of the mainstream of economics in representing the economic phenomenon but also the possible responsibilities in the current global crisis. Furthermore, this work stresses the alternative approaches proposed by Georgescu- Roegen, from the directional choice theory to the hierarchy of needs, from the recourse to the law of entropy in the study of the production process and in the formation of the economic value to the theory of production based on the flow-fund model, from the integration of the environment in the economic phenomenon to the identification of the “enjoyment of life” as the ultimate goal of economics. In conclusion, this essay suggests a few considerations on the many current worldwide difficulties, that it is to be hoped the application of the bioeconomics approach.
    Date: 2012–12–01
  3. By: Calance, Madalina
    Abstract: Science and rationality always excluded religion. However, in his last work, The Fatal Conceit, the great economist Friedrich von Hayek stated that religion has been one of the enduring pillars of the free market economy, through a consistent heritage of practices and beliefs. By making some analogies to the liberal point of view, this paper analyses the way Jews embraced free economy. The research goal is to establish connections between Jewish and liberal thought, concerning wealth and liberty. We find out that the principles of Judaism are supporting private charity, limited government and laissez-faire capitalism.
    Keywords: Jews; private property; government; free market; freedom
    JEL: H19 Z12 N34 F1
    Date: 2012–05–01
  4. By: Martin Kaae Jensen
    Abstract: An important set of questions in economics concern how changes in the distribution of economic parameters (income, wealth, productivity, distortions, information, etc.) impact individual choices and market outcomes. We currently do not have tools to answer such questions. In this paper, I develop a theory of distributional comparative statics that addresses this set of issues. Central to the developments is a new concept called strategic risk-aversion which determines the outcome of the most distributional comparative statics exercises. As illustrations, I analyze the relationship between savings and the inequality, ask how risk influences agents' behavior in Bayesian games, and study con-cavity of policy functions in general stochastic dynamic programming problems.
    Keywords: Comparative statics, strategic risk-aversion, income distribution, inequality, uncertainty, Bayesian games, dynamic stochastic general equilibrium models, concavity, convexity, policy functions, arg max correspondence
    JEL: C61 D80 D90 E20 I30
    Date: 2012–06
  5. By: Roman M. Sheremeta (Argyros School of Business and Economics, Chapman University); Jingjing Zhang (University of Zurich)
    Abstract: We examine behavior in a three-player trust game in which the first player may invest in the second and the second may invest in the third. Any amount sent from one player to the next is tripled. The third player decides the final allocation among three players. The baseline treatment with no communication shows that the first and second players send significant amounts and the third player reciprocates. Allowing insider communication between the second and the third players increases cooperation between these two. Interestingly, there is an external effect of insider communication: the first player who is outside communication sends 54% more and receives 289% more than in the baseline treatment. As a result, insider communication increases efficiency from 44% to 68%.
    Keywords: three-player trust games, experiments, reciprocity, communication
    JEL: C72 C91 D72
    Date: 2013
  6. By: Alger, Ingela (TSE (LERNA, CNRS) Univesité Toulouse 1 Capitole); Cox, Donald (Boston College)
    Abstract: What can evolutionary biology tell us about male-female differences in preferences concerning family matters? Might mothers be more solicitous toward offspring than fathers, for example? The economics literature has documented gender differences—children benefit more from money put in the hands of mothers rather than fathers, for example—and these differences are thought to be partly due to preferences. Yet for good reason family economics is mostly concerned with how prices and incomes affect behavior against a backdrop of exogenous preferences. Evolutionary biology complements this approach by treating preferences as the outcome of natural selection. We mine the well-developed biological literature to make a prima facie case for evolutionary roots of parental preferences. We consider the most rudimentary of traits—sex differences in gamete size and internal fertilization—and explain how they have been thought to generate malefemale differences in altruism toward children and other preferences related to family behavior. The evolutionary approach to the family illuminates connections between issues typically thought distinct in family economics, such as parental care and marriage markets.
    Date: 2012–12–31
  7. By: Daniel L. McFadden
    Abstract: The neoclassical view of consumers as relentless egoistic maximizers is challenged by evidence from cognitive psychology, anthropology, evolutionary biology, and neurology. This paper begins by surveying the development of neoclassical consumer theory and the measurement of welfare, and expansions to encompass preference fields, nonlinear budgets, hedonic goods and household production, and consumption dynamics. Following this, it reviews the newer evidence on consumer behavior, and what this implies for the measurement of consumer beliefs, intentions, preferences, choices, and well-being.
    JEL: D03 D1
    Date: 2013–01
  8. By: Lindgren, Kristian; Verendel, Vilhelm
    Abstract: The finitely repeated Prisoners' Dilemma is a good illustration of the discrepancy between the strategic behaviour suggested by a game-theoretic analysis and the behaviour often observed among human players, where cooperation is maintained through most of the game. A game-theoretic reasoning based on backward induction eliminates strategies step by step until defection from the first round is the only remaining choice, reflecting the Nash equilibrium of the game. We investigate the Nash equilibrium solution for two different sets of strategies in an evolutionary context, using replicator-mutation dynamics. The first set consists of conditional cooperators, up to a certain round, while the second set in addition to these contains two strategy types that react differently on the first round action: The "Convincer" strategies insist with two rounds of initial cooperation, trying to establish more cooperative play in the game, while the "Follower" strategies, although being first round defectors, have the capability to respond to an invite in the first round. For both of these strategy sets, iterated elimination of strategies shows that the only Nash equilibria are given by defection from the first round. We show that the evolutionary dynamics of the first set is always characterised by a stable fixed point, corresponding to the Nash equilibrium, if the mutation rate is sufficiently small (but still positive). The second strategy set is numerically investigated, and we find that there are regions of parameter space where fixed points become unstable and the dynamics exhibits cycles of different strategy compositions. The results indicate that, even in the limit of very small mutation rate, the replicator-mutation dynamics does not necessarily bring the system with Convincers and Followers to the fixed point corresponding to the Nash equilibrium of the game. We also perform a detailed analysis of how the evolutionary behaviour depends on payoffs, game length, and mutation rate.
    Keywords: backward induction; rationality; prisoners' dilemma; evolutionary dynamics
    JEL: C7 C73 C72
    Date: 2013–01–04
  9. By: Ugo Gentilini (World Food Programme); Andy Sumner (Institute of Development Studies, Sussex)
    Abstract: Debate about national and international poverty measurement continued to evolve (see for example, Abu-Ismail et al., 2012). The basic question of how many poor people there are in the world generally assumes that poverty is measured according to international poverty lines (IPLs). Yet, an equally relevant question could be how many poor people there are in the world, based on how poverty is defined where those people live. In short, rather than a comparison based on monetary values, the latter question is germane to estimates based on a concept??poverty??as defined by countries? specific circumstances and institutions. (?)
    Keywords: Poverty Where People Live: What do National Poverty Lines Tell us about Global Poverty?
    Date: 2012–12
  10. By: Kees, De KONING
    Abstract: Money can create jobs and thereby incomes for individual households, but money can equally destroy jobs and income. Added values can be created with the assets which are based on the savings levels -the net worth of individual households- but the "money managers": a government, a central bank, banks and (international) bureaucrats can also create losses to the savings level. This dilemma should be at the heart of economic thinking. For instance in the U.S in 2006 a dollar saved and used for a home mortgage loan only returned 69 cents in home value increase. In 2007 a dollar saved and used in the same way lost 2.5 dollars. Banks moved the goalposts from relying on the income of individual households to wanting their money back out of the assets -the homes-. Individual households were never asked. The effects were that all 132 million home owners were affected rather than the 5.3 million doubtful debtors. This paper sets out the causes of such money destruction. It also explains that money can act in a positive manner to repair the damage done. Banking reforms, quantitative strenghthening as opposed to QE, economic easing and changing the focus of national accounting away from economic growth to Country Profit -the increase/decrease in the net worth of individual households are discussed.
    Keywords: Balance sheet of households; money power; money crisis; jobs and savings; ownership of savings; income lending and asset based lending; securitisation; savings behaviour; Quantitative easing and strengthening; bank reforms; economic easing; country profit
    JEL: E0 E58 E24 E44 E21 E61
    Date: 2013–01–10
  11. By: Liberati, Paolo; Paradiso, Massimo
    Abstract: This paper deals with the contribution of Sergio Steve to the development of an accountable structure of local public finance, with particular attention to the positive application of the benefit theory of taxation.
    Keywords: Benefit theory; local public finance; accountability
    JEL: H72 H71
    Date: 2012–06–28
  12. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group, Jena); Hartmut Kliemt
    Abstract: We suggest that procedures of monetarized bidding can facilitate co-operation in Elinor Ostrom type common(s) projects without crowding out communitarian faculties of "self-governance". Axioms securing procedurally egalitarian bidding on the basis of declared monetary evaluations are introduced. They guarantee that all realized changes of a status quo are in an "objective" (pecuniary) sense equally advantageous for all members of the community. Some empirical evidence that procedurally fair bidding can promote communitarian co-operation rather than crowding it out, is presented. The practical scope and limits of procedural egalitarianism need further empirical exploration, though.
    Keywords: Fair Procedures, Egalitarian Mechanisms, Unanimity, Constitutional Political Economy, Non-State Communities, Governing the Commons, Crowding out
    JEL: H4 H61 D62 D63 D71
    Date: 2013–01–09
  13. By: Bertrand Candelon (Economics - Maastricht University); Guillaume Gaulier (Centre de recherche de la Banque de France - Banque de France); Christophe Hurlin (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans)
    Abstract: This paper proposes a new approach to date extreme financial cycles. Elaborating on recent methods in extreme value theory, it elaborates an extension of the famous calculus rule to detect extreme peaks and troughs. Applied on United-States stock market since 1871, it leads to a dating of these exceptional events and calls for adequate economic policies in order to tackle them.
    Keywords: Financial extreme cycles; Extreme value theory;
    Date: 2012
  14. By: Roman M. Sheremeta (Argyros School of Business and Economics, Chapman University); Matthew W. McCarter (Argyros School of Business and Economics, Chapman University)
    Abstract: A common finding in social sciences is that member change hinders group functioning and performance. However, questions remain as to why member change negatively affects group performance and what are some ways to alleviate the negative effects of member change on performance? To answer these questions we conduct an experiment in which we investigate the effect of newcomers on a group’s ability to coordinate efficiently. Participants play a coordination game in a four-person group for the first part of the experiment, and then two members of the group are replaced with new participants, and the newly formed group plays the game for the second part of the experiment. Our results show that the arrival of newcomers decreases trust among group members and this decrease in trust negatively affects group performance. Knowing the performance history of the arriving newcomers mitigates the negative effect of their arrival, but only when newcomers also know the oldtimers performance history. Surprisingly, in groups that performed poorly prior to the newcomers’ arrival, the distrust generated by newcomers is mainly between oldtimers about each other rather than about the newcomers.
    Keywords: coordination, group performance, oldtimers, newcomers, trust, experiments
    JEL: C72 C91
    Date: 2013
  15. By: Georges Dionne
    Abstract: L’étude de la gestion des risques a débuté après la Deuxième Guerre mondiale. La gestion des risques a pendant longtemps été associée à l’utilisation de l’assurance de marché pour protéger les individus et les entreprises contre différentes pertes associées à des accidents. Des formes de gestion des risques purs, alternatives à l’assurance de marché, ont pris forme durant les années 1950 lorsque l’assurance de marché a été perçue très coûteuse et incomplète. L’utilisation des produits dérivés, comme instruments de gestion de risques financiers, a débuté durant les années 1970 et s’est développée très rapidement durant les années 1980. C’est aussi durant les années 1980 que les entreprises ont accéléré la gestion financière des risques. La réglementation internationale des risques a débuté durant les années 1990 et les entreprises financières ont développé des modèles de gestion des risques internes et des formules de calcul du capital pour se protéger contre les risques non-anticipés et pour réduire le capital réglementaire. C’est également durant ces années que la gouvernance de la gestion des risques est devenue essentielle, que la gestion des risques intégrée a été introduite et que les premiers postes de gestionnaire des risques ont été créés. Mais toutes ces règlementations, règles de gouvernance et méthodes de gestion des risques n’ont pas été suffisantes pour empêcher la crise financière de 2007.
    Keywords: Gestion des risques, produits dérivés, réglementation, crise financière, marché de l'assurance, autoprotection, autoassurance, gouvernance
    JEL: D81 G21 G22
    Date: 2013

This nep-hpe issue is ©2013 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.