nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2013‒09‒28
fourteen papers chosen by
Erik Thomson
University of Manitoba

  1. The Evolution of 'Theory of Mind': Theory and Experiments By Erik O. Kimbrough; Nikolaus Robalino; Arthur J. Robson
  2. Alfred Marshall's Cardinal Theory of Value: The Strong Law of Demand By Donald Brown; Caterina Calsamiglia
  3. "Not Only Defended But Also Applied" : The Perceived Absurdity of Bayesian Inference.. By Robert, Christian P.; Gelman, Andrew
  4. Keynesian Dominance in Crisis Therapy By Kristina Spantig
  5. Happiness, Behavioral Economics, and Public Policy By Arik Levinson
  6. Sezession: Ein gefährliches Spiel By Krueger, Malte
  7. Economic Democracy By Murray, Michael
  8. Contracting With Synergies By Edmans, Alex; Goldstein, Itay; Zhu, John
  9. Survey of Literature on Portfolio Theory By Cantillo , Andres
  10. The Federal Reserve and Financial Regulation: The First Hundred Years By Gary B. Gorton; Andrew Metrick
  11. A review of the certainty effect and influence of information processing By Ramirez, Patrick A.; Levine, Daniel S.
  12. News Driven Business Cycles: Insights and Challenges By Paul Beaudry; Franck Portier
  13. L’économie de la fonctionnalité : perspective historique et illustration empirique By Sophie BOUTILLIER; Blandine LAPERCHE; Fabienne PICARD
  14. L'articulation économie, droit et politique dans la pensée ordolibérale By Marc Deschamps

  1. By: Erik O. Kimbrough; Nikolaus Robalino; Arthur J. Robson
    Date: 2013–09–19
  2. By: Donald Brown; Caterina Calsamiglia
    Date: 2013–09–19
  3. By: Robert, Christian P.; Gelman, Andrew
    Abstract: The missionary zeal of many Bayesians of old has been matched, in the other direction, by an attitude among some theoreticians that Bayesian methods were absurd—not merely misguided but obviously wrong in principle. We consider several examples, beginning with Feller's classic text on probability theory and continuing with more recent cases such as the perceived Bayesian nature of the so-called doomsday argument. We analyze in this note the intellectual background behind various misconceptions about Bayesian statistics, without aiming at a complete historical coverage of the reasons for this dismissal.
    Keywords: Laplace law of succession; Frequentist; Foundations; Doomsdsay argument;
    JEL: C11
    Date: 2013
  4. By: Kristina Spantig (Graduate Programme "Global Financial Markets")
    Abstract: This paper scrutinizes the debate of Keynes and Hayek concerning the adequate re- sponse to economic crises from a historical perspective. In a first step the develop- ment of the Keynesian economic theory, its ascent during the Great Depression and its use during financially sound times is analyzed. In a second step the Hayekian cri- tique to discretionary government intervention and its long run consequences is scru- tinized. In the last step it is analyzed why, in the wake of a crisis, short-run oriented Keynesian therapy dominates long-run Hayekian therapy as in the most recent crisis.
    Keywords: Keynes, discretionary fiscal policy, monetary policy
    JEL: B20 E12 E52 E62
    Date: 2013–08–22
  5. By: Arik Levinson
    Abstract: The economics of "happiness" shares a feature with behavioral economics that raises questions about its usefulness in public policy analysis. What happiness economists call "habituation" refers to the fact that people's reported well-being reverts to a base level, even after major life events such as a disabling injury or winning the lottery. What behavioral economists call "projection bias" refers to the fact that people systematically mistake current circumstances for permanence, buying too much food if shopping while hungry for example. Habituation means happiness does not react to long-term changes, and projection bias means happiness over-reacts to temporary changes. I demonstrate this outcome by combining responses to happiness questions with information about air quality and weather on the day and in the place where those questions were asked. The current day's air quality affects happiness while the local annual average does not. Interpreted literally, either the value of air quality is not measurable using the happiness approach or air quality has no value. Interpreted more generously, projection bias saves happiness economics from habituation, enabling its use in public policy.
    JEL: D03 H41 Q51
    Date: 2013–08
  6. By: Krueger, Malte
    Abstract: The problem posed by a potential exit from a political union or federation of states is not a new one. In the current crisis the potential exit from a monetary union is particularly relevant. Not long ago, potential exit has been an important topic in Canada. The analyses of the consequences of a potential exit of the province of Quebec can also be applied to the actual crisis of the European Monetary System. The results of the Canadian analyses show that exit involves the risk of major conflicts – even if both sides have strong preferences for a mutual agreement.
    Keywords: European Monetary Union, secession
    JEL: F33 F36
    Date: 2013–07
  7. By: Murray, Michael
    Abstract: This working paper is an encyclopedia entry on Economic Democracy written for: Rowe, Debra ACHIEVING SUSTAINBILITY, Cengage Publishing. The focus of the entry is on steps for advancing economic democracy, such as encouraging local self-reliance, and building up of local economies by supporting workplace cooperatives, non-profits, credit unions, and small businesses.
    Keywords: Economic Democracy, local self-reliance
    JEL: H00 H4 H7 H70
    Date: 2013–09–11
  8. By: Edmans, Alex; Goldstein, Itay; Zhu, John
    Abstract: This paper studies multi-agent optimal contracting with cost synergies. We model synergies as the extent to which effort by one agent reduces his colleague's marginal cost of effort. An agent's pay and effort depend on the synergies he exerts, the synergies his colleagues exert on him and, surprisingly, the synergies his colleagues exert on each other. It may be optimal to "over-work" and "over-incentivize" a synergistic agent, due to the spillover effect on his colleagues. This result can rationalize the high pay differential between CEOs and divisional managers. An increase in the synergy between two particular agents can lead to a third agent being endogenously excluded from the team, even if his own synergy is unchanged. This result has implications for optimal team composition and firm boundaries.
    Keywords: complementarities; contract theory; influence; multiple agents; principal-agent problem; synergies; teams
    JEL: D86 J31 J33
    Date: 2013–07
  9. By: Cantillo , Andres
    Abstract: The logical derivation of the two-factors model (The CAPM) is not empirically testable. This has paved the way for new treatments of asset pricing. However, the deterministic approach taken by most economists has prevented them to create a more useful treatment to the problems of asset pricing and diversification. Hence, the new approach contained in the post Keynesian literature has an opportunity in the formulation of a solution to both problems based on the notion of fundamental uncertainty
    Keywords: Finance, Diversification, Investment Decisions, Portfolio, Asset Price
    JEL: G11 G12
    Date: 2013–08–18
  10. By: Gary B. Gorton; Andrew Metrick
    Abstract: This paper surveys the role of the Federal Reserve within the financial regulatory system, with particular attention to the interaction of the Fed’s role as both a supervisor and a lender-of-last-resort (LOLR). The institutional design of the Federal Reserve System was aimed at preventing banking panics, primarily due to the permanent presence of the discount window. This new system was successful at preventing a panic in the early 1920s, after which the Fed began to discourage the use of the discount window and intentionally create “stigma” for window borrowing – policies that contributed to the panics of the Great Depression. The legislation of the New Deal era centralized Fed power in the Board of Governors, and over the next 75 years the Fed expanded its role as a supervisor of the largest banks. Nevertheless, prior to the recent crisis the Fed had large gaps in its authority as a supervisor and as LOLR, with the latter role weakened further by stigma. The Fed was unable to prevent the recent crisis, during which its LOLR function expanded significantly. As the Fed begins its second century, there are still great challenges to fulfilling its original intention of panic prevention.
    JEL: E5 E6 G21 N0
    Date: 2013–08
  11. By: Ramirez, Patrick A.; Levine, Daniel S.
    Abstract: This review considers two explanations for behavioral decision-making in reference to the certainty and framing effects. The findings from various paradigms such as a single questionnaire, gambles with repetition, and gambles guided by feedback are explained either by prospect theory or by expected utility theory. Finally this review attempts to account for the different findings and offers a possible explanation for the conflicting results by considering the role of experience which in turn can alter how information in processed as described by fuzzy trace theory which is a dual process theory of reasoning. --
    Keywords: expected utility theory,prospect theory,fuzzy trace theory,certainty effect,framing effect
    JEL: A10 Y80
    Date: 2013
  12. By: Paul Beaudry; Franck Portier
    Abstract: There is a widespread belief that changes in expectations may be an important independent driver of economic fluctuations. The news view of business cycles offers a formalization of this perspective. In this paper we discuss mechanisms by which changes in agents' information, due to the arrival of news, can cause business cycle fluctuations driven by expectational change, and we review the empirical evidence aimed at evaluating its relevance. In particular, we highlight how the literature on news and business cycles offers a coherent way of thinking about aggregate fluctuations, while at the same time we emphasize the many challenges that must be addressed before a proper assessment of its role in business cycles can be established.
    JEL: E00 E3
    Date: 2013–09
    Abstract: Cet article étudie les fondements historiques et théoriques de l’économie de la fonctionnalité et analyse au travers d’une enquête qualitative la réalité de sa diffusion dans les entreprises industrielles françaises. L’économie de la fonctionnalité qui repose sur la vente d’un service aux clients plutôt que d’un bien matériel s’inscrit dans la recherche de nouveaux modes d’organisation des activités économiques compatibles avec le développement durable. Mais peut-elle être considérée comme un moteur de croissance économique ? Nous montrons que l’économie de la fonctionnalité se positionne en rupture avec certains des fondements du modèle d’organisation fordiste sur les plans de la production, de la consommation et de la prise en compte de la contrainte environnementale. Les entreprises interrogées s’intègrent peu à peu dans cette logique en développant des systèmes produits-services qui restent cependant basiques, au sens où il s’agit davantage d’une combinaison de produits et de services plutôt que d’une substitution des services aux produits. Les freins restent nombreux pour la généralisation des systèmes produits-services et pour que l’économie de la fonctionnalité soit à l’origine d’une nouvelle phase de croissance. This a rticle examines the historical and theoretical foundations of the functional economy and analyses through a qualitative survey the reality of its dissemination in the French industrial companies. The functional economy, which is based on the sale of a service to a customer rather than a physical product corresponds to the search of new ways of organizing the economic activities, consistent with the promotion of a sustainable development. But can it be regarded as an engine of economic growth? We show that the functional economics breaks out with some of the foundations of the Fordist model in terms of production, consumption and in the way the environmental constraints is taken into account. The companies surveyed are gradually implementing this logic by developing product-service systems which however remain basic in the sense they are more a combination of products and services rather than a substitution of services to products. Some brakes remain for the generalization of product-service systems into companies and so that the functional economy contributes to a new trend of growth.
    Keywords: économie de la fonctionnalité, systèmes produits-services, environnement, entreprises industrielles, functional economy, product-service systems, environment, industrial companies
    JEL: O14 Q56
    Date: 2013
  14. By: Marc Deschamps (GREDEG CNRS; University of Nice-Sophia Antipolis, France; BETA CNRS)
    Abstract: L'objet de cet article est de montrer que l'analyse ordolibérale offre une conception dans laquelle la théorie économique, le droit et la politique sont clairement articulés. Cette pensée, relativement méconnue, à l'exception de la question de l'indépendance de la banque centrale du pouvoir politique, mérite ainsi une grande attention car, d'une part elle offre un cadre d'analyse original et, d'autre part elle représente le fondement intellectuel principal de la politique européenne de concurrence. Le coeur de cette analyse repose sur la distinction entre le système économique (les règles du jeu ou cadres), défini et protégé par une constitution politique et économique, et le processus économique (l'exercice du jeu ou mécanismes).
    Keywords: ordolibéralisme, politiques de concurrence, système/processus économique
    JEL: B25 K21 L40
    Date: 2013–09

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.
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