nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2014‒06‒14
nineteen papers chosen by
Erik Thomson
University of Manitoba

  1. Two disputes of methods, three constructivisms, and three liberalisms By Yefimov, Vladimir
  2. A hybrid game with conditional and unconditional veto power By Werner Güth; M. Vittoria Levati; Natalia Montinari; Chiara Nardi
  3. The Comparison of Information Structures in Games: Bayes Correlated Equilibrium and Individual Sufficiency By Dirk Bergemann; Stephen Morris
  4. Human Pro-Social Motivation and the Maintenance of Social Order By Simon Gächter
  5. Reshaping Standard Microeconomics for Political Action: Kenneth J. Arrow and Thomas C. Schelling’s Rand Corporation Projects on Racial Issues By Cléo Chassonnery-Zaigouche; Lauren Larrouy
  6. Schumpeter and Georgescu-Roegen on the foundations of an evolutionary analysis By Christoph HEINZEL
  7. The Nature of Corruption - An Interdisciplinary Perspective By Eugen Dimant
  8. Economic Models of Law By Thomas J. Miceli
  9. The values of ex-ante and ex-post communication in dictator games By Pascal Langenbach
  10. Cognitive Ability, Character Skills, and Learning to Play Equilibrium: A Level-k Analysis By Gill, David; Prowse, Victoria L.
  11. Other-regarding behavior under collective action By Sherstyuk, Katerina; Tarui, Nori; Wengrin, Melinda Podor; Viloria, Jay; Saijo, Tatsuyoshi
  12. Weak moral motivation leads to the decline of voluntary contributions By Charles Figuieres; David Masclet; Marc Willinger
  13. The plan vs. market controversy in the Marxist tradition By Stavros Mavroudeas
  14. Complex Financial Networks and Systemic Risk: A Review By Spiros Bougheas; Alan Kirman
  15. On Market Economies: How Controllable Constructs Become Complex By Dominique, C-Rene
  16. The idea of a social cycle By Callahan, Gene; Hoffmann, Andreas
  17. On the core and bargaining set of a veto game By Eric Bahel
  18. Was the Gibson Paradox for real? a wicksellian study of the relationship between interest rates and prices By Jagjit S. Chadha; Morris Perlman
  19. A trust game in loss domain. By Kvaløy, Ola; Luzuriaga, Miguel

  1. By: Yefimov, Vladimir
    Abstract: The paper proposes to reconsider radically the methodology and history of economics, whether present day mainstream or heterodox versions of it. The profession of economists must definitely abandon Cartesian dualism and adopt Vygotskian constructivism. In fact constructivist economics already existed in the past and was cognitively very successful and socially very useful. It was the economics of Gustav Schmoller’s historico-ethical school and the institutionalist economics of John R. Commons, traditions of which are totally ignored by the contemporary community of economists. The former tradition was based on Dilthey’s hermeneutics and the latter on Peirce’s pragmatism. It is worth to underline that hermeneutics and pragmatism are both predecessors of Vygotskian constructivism. During the last two decades a lot was written by economists on pragmatist, constructivist and discursive approaches to the methodology and history of economics, but those who wrote on these topics viewed them from the dualistic point of view. My paper is an appeal to economists to reconsider Methodenstreit. The dispute of methods between Schmoller and Menger can be considered as a repetition of a similar dispute taking place more than two hundred years earlier between Robert Boyle and Thomas Hobbes. Schmoller-Menger dispute started soon after the beginning of the institutionalisation of experimentally-oriented economics which happened with the creation in 1873 of the Verein für Sozialpolitik. Boyle-Hobbes dispute started in 1660, when the Royal Society of London had been founded, the cradle of the institution of science. Schmoller was one of the creators of the Verein and Boyle was one of the founders of the Royal Society. The activities of both societies were similar in several respects: they represented efforts to collect data, working out of detailed reports and collective evaluation of obtained results. For Hobbes, as for Menger, the model of ‘science’ was geometry. Boyle and Schmoller privileged collecting and analysing data. Boyle did win the dispute, Schmoller did loose. It happened because of different attitudes of powerful groups in societies towards natural scientific experimental research and experimental social research. They were interested in the former and they saw much more danger than benefit for them in the latter. On the contrary they were interested in abstract theoretical constructions justifying the market vision of society and laissez-faire. This kind of constructions corresponded to deeply enrooted scholastic traditions of European universities to teach theology and linked with it philosophy. In the framework of these traditions mathematics was considered as a summit of the scientific approach. On the one hand the adoption of constructivism by economists would turn their discipline into a science functionally close to natural sciences. On the other hand the Vygotskian constructivism, as a social and political philosophy, once accepted by economists, may lead them to become preachers of the communitarian liberalism with its emphasis on social responsibility, deliberative democracy, and discourse ethics.
    Keywords: Methodenstreit; social constructivism; constructivist epistemology and ontology for economics; constructivist history of economics; economic policy and deliberative democracy; economic philosophy and discourse ethics, communitarian liberalism.
    JEL: A1 A11 A13 A14 B0 B4 B41
    Date: 2014–05–15
  2. By: Werner Güth (Max Planck Institute of Economics, Strategic Interaction Group); M. Vittoria Levati (Max Planck Institute of Economics, Jena, and DSE, University of Verona); Natalia Montinari (Economics Department, Lund University); Chiara Nardi (Max Planck Institute of Economics, Jena, and DSE, University of Verona)
    Abstract: In the hybrid game, one proposer confronts two responders with veto power: one responder can condition his decisions on his own offer but the other cannot. We vary what the informed responder knows about the offers as well as the uninformed responder's conflict payoff. Neither variation affects behavior: proposers always favor informed responders, who frequently accept minimal offers.
    Keywords: Ultimatum, Yes/No game
    JEL: C72 C92
    Date: 2014–05–14
  3. By: Dirk Bergemann (Cowles Foundation, Yale University); Stephen Morris (Dept. of Economics, Princeton University)
    Abstract: The set of outcomes that can arise in Bayes Nash equilibria of an incomplete information game where players may have access to additional signals beyond the given information structure is characterized and shown to be equivalent to the set of a version of incomplete information correlated equilibria which we dub Bayes correlated equilibria. A game of incomplete information can be decomposed into a basic game, given by actions sets and payoff functions, and an information structure. We introduce a partial order on many player information structures -- which we call individual sufficiency -- under which more information shrinks the set of Bayes correlated equilibria. We discuss the relation of the solution concept to alternative definitions of correlated equilibrium in incomplete information games and of the partial order on information structures to others, including Blackwell's for the single player case.
    Keywords: Correlated equilibrium, Incomplete information, Robust predictions, Information structure, Sufficiency, Blackwell ordering
    JEL: C72 D82 D83
    Date: 2013–09
  4. By: Simon Gächter (School of Economics, University of Nottingham)
    Abstract: This chapter presents some insights from basic behavioural research on the role of human pro-social motivation to maintain social order. I argue that social order can be conceptualised as a public good game. Past attempts to explain social order typically relied on the assumption of selfish and rational agents ("homo economicus"). The last twenty years of research in behavioural and experimental economics have challenged this view. After presenting the most important findings of recent research on human pro-sociality I discuss the evidence on three pillars of the maintenance of social order. The first pillar is internalised norms of cooperation, sustained by emotions such as guilt and shame. The second pillar is the behaviour of other people who typically are "conditional cooperators" willing to cooperate if others do so as well. This motivation can sustain cooperation if enough people cooperate but can jeopardise social order if many others follow selfish inclinations. The third pillar are sanctions meted out to anyone who does not cooperate; ideally punishment can work as a mere threat without being executed much. The chapter also presents some evidence on the cross-cultural variability of some findings, in particular with regard to punishment behaviour. The chapter concludes with remarks on future research.
    Keywords: social order; social dilemma; pro-sociality; strong reciprocity; moral emotions; social norms; conditional cooperation; punishment; rule of law
    Date: 2014–02
  5. By: Cléo Chassonnery-Zaigouche (CES; University Paris 1 Panthéon-Sorbonne); Lauren Larrouy (University of Nice Sophia Antipolis, France; GREDEG CNRS)
    Abstract: The paper focuses on Arrow statistical discrimination theories and Schelling’s models of segregation, and how their work can be considered as an illustration of “the introduction of the same policy tools [as war game theory] into domestic politics in Lyndon B. Johnson’s Great Society Program” (Amadae, 2003: 10). In both contributions, abstract and formal theory serves as “a public policy tool” (Amadae, 2003: 9). We underline how (i) certain methods employed within RAND Corp. during the Cold War like its “interdisciplinary approach” or its “system analysis” are applied in Arrow and Schelling’s work on discrimination, and (ii) how certain tools which became the core of neoclassical economics are at the same time pervasive and challenged in Arrow and Schelling’s respective work. In that sense, our analysis is slightly different from Amadae’s one (2003) who sees in their work the illustration of the domination of rational choice theory in neoclassical economics. In our opinion, the two contributions have in common to be embedded in a neoclassical framework and illustrate a movement to amend this general framework for policy purpose. The paper discusses the epistemological status of Arrow and Schelling works, i.e. how they shape a new trend of scientific knowledge, by their specific methodologies, and how their works stress the usual dichotomy between economics as a normative or a positive science. Methods have consequences on political actions and Policy recommendations. The tiny threshold between prediction and explanation in Arrow and Schelling’s works imply a reflection on their epistemological status, especially because their respective amendments to standard theory are driven by the necessity of policy recommendations.
    JEL: A11 A12 B21 B41 D01
    Date: 2014–06
  6. By: Christoph HEINZEL (Structures et Marchés Agricoles, Ressources et Territoires)
    Abstract: Qualitative change is widely recognised as a defining feature of evolution. Schumpeter and Georgescu-Roegen put it at the centre of their methodological reasoning. I revisit important contributions of these two authors, paying attention to the immediate relationship of the major traits and treated issues between their works. With reference to qualitative change, their joint approach provides answers as to (i) why an evolutionary analysis has to necessarily apply a varied less formal set of methods as compared with modern static and dynamic analysis, (ii) why an evolutionary analysis is a necessary component of economic analysis and (iii) how it can be seen as complementary to modern statics and dynamics. They argued for methodological pluralism, where the choice of methods shall derive from close observation of the subject matter under scrutiny. Georgescu-Roegen’s reasoning shows the necessity of interdisciplinary contributions and the interrelation of economic activity and environmental impact and constraints, putting environmental issues immediately on the evolutionary economics agenda. The paper provides a new ground for evaluating Georgescu-Roegen’s own and their joint contribution to modern research.
    Keywords: Schumpeter, Georgescu-Roegen, Qualitative change, Evolution, Evolutionary methodology, changement qualitatif, économie évolutionnisteenvironnement, activité économique
    Date: 2013
  7. By: Eugen Dimant (University of Paderborn)
    Abstract: Republished as CIE Working Paper 2014-06
    Keywords: Bribery, Corruption, Development, Interdisciplinarity, Public Economics, Survey
    JEL: D73 H1 O17 K42
    Date: 2013–10
  8. By: Thomas J. Miceli (University of Connecticut)
    Abstract: This essay discusses the use of economic models for understanding law. It begins by describing the nature of economic models in general, and then turns to the specific application of economic models to law. The discussion distinguishes between “economic analysis of law”— which concerns the use of economic theory for describing the incentive effects of legal rules (positive analysis) and for prescribing better rules (normative analysis); and “law and economics”—which concerns the relationship between law and markets as alternative institutions for organizing economic activity. The essay concludes with some comments on the actual process of building economic models of law.
    Keywords: Economic models, economic analysis of law, law and economics
    JEL: K00
    Date: 2014–05
  9. By: Pascal Langenbach (Max Planck Institute for Research on Collective Goods, Bonn)
    Abstract: In the dictator game, the recipient’s opportunity to send a message to the dictator increases giving. The effect is equally strong if the message is written before or after the dictator has decided (experiment 1). Recipients have a stronger willingness to pay for ex-ante communication, however (experiment 2).
    Keywords: communication; dictator games; generosity; laboratory experiment
    JEL: D63 D64 C91 D83 D03
    Date: 2014–06
  10. By: Gill, David (University of Oxford); Prowse, Victoria L. (Cornell University)
    Abstract: In this paper we investigate how cognitive ability and character skills influence behavior, success and the evolution of play towards Nash equilibrium in repeated strategic interactions. We study behavior in a p-beauty contest experiment and find striking differences according to cognitive ability: more cognitively able subjects choose numbers closer to equilibrium, converge more frequently to equilibrium play and earn more even as behavior approaches the equilibrium prediction. To understand better how subjects with different cognitive abilities learn differently, we estimate a structural model of learning based on level-k reasoning. We find a systematic positive relationship between cognitive ability and levels; furthermore, the average level of more cognitively able subjects responds positively to the cognitive ability of their opponents, while the average level of less cognitively able subjects does not respond. Finally, we compare the influence of cognitive ability to that of character skills, and find that both cognition and personality affect behavior and learning. More agreeable and emotionally stable subjects perform better and learn faster, although the effect of cognitive ability on behavior is stronger than that of character skills.
    Keywords: cognitive ability, character skills, personality traits, level-k, bounded rationality, learning, convergence, non-equilibrium behavior, beauty contest, repeated games, structural modeling, theory of mind, intelligence, IQ, cognition, Raven test
    JEL: C92 C73 D83
    Date: 2014–06
  11. By: Sherstyuk, Katerina; Tarui, Nori; Wengrin, Melinda Podor; Viloria, Jay; Saijo, Tatsuyoshi
    Abstract: In many collective action settings, such as decisions on public education or climate change mitigation, actions of a group have welfare consequences for themselves as well as their followers. We conduct laboratory experiments with two-stage predecessor-follower prisoners' dilemma and coordination games with dynamic externalities to study whether concerns for the followers' welfare affect the predecessors' behavior. We find that predecessors often give up own payoffs to avoid imposing negative externalities on the followers, but not to generate positive externalities for the followers. A concern for the followers aligned with own group payoff maximization motive helps to resolve social dilemma and coordination problems; yet, a conflict in motives greatly exacerbates both free-riding and coordination on the payoff-inferior equilibrium. We also find strong evidence of social learning: the followers tend to blindly mimic their own predecessor, but act opposite to their match's predecessor, no matter whether these actions are welfare-improving or not.
    Keywords: economic experiments, other-regarding behavior, collective action
    JEL: C90 C73
    Date: 2014–05
  12. By: Charles Figuieres (Laboratoire Montpelliérain d'Economie Théorique et Appliquée, INRA); David Masclet (CREM, Centre de Recherches en Economie et Management, Université de Rennes 1); Marc Willinger (Laboratoire Montpelliérain d'Economie Théorique et Appliquée, INRA; Université Montpellier 1)
    Abstract: This paper provides a general framework that accounts for the decay of the average contribution observed in most experiments on voluntary contributions to a public good. Each player balances her material utility loss from contributing with her psychological utility loss of deviating from her moral ideal. The novel and central idea of our model is that peoples moral motivation is "weak": their judgement about what is the right contribution to a public good can evolve in the course of interactions, depending partly on observed past contributions and partly on an intrinsic "moral ideal". Under the assumption of weakly morally motivated agents, average voluntary contributions can decline with repetition of the game. Our model also explains other regularities observed in experiments, in particular the phenomenon of over-contributions compared to the Nash prediction and the so-called restart effect, and it is compatible with the conditional cooperation hypothesis.
    Date: 2013
  13. By: Stavros Mavroudeas (Department of Economics, University of Macedonia)
    Abstract: This paper surveys the ongoing saga of the relationship between plan and market within the Marxist Political Economy.The first part studies the early soviet controversies on this subject. Two opposing main poles are recognised: the first is represented by Preobrazhensky and the second by Bukharin. Furthermore, the theoretical foundations and the implications for economic policy of these two approaches are being clarified. The second part surveys the socialist calculation debate. The third part analyses the Sweezy-Bettelheim debate on the nature of the Soviet Union and the plan-market contradiction.Finally, the last part describes the latest debates on market socialism and attempts to review the positions taken in all the abovementioned debates with regard to the plan-market relationship.
    Keywords: plan, market socialism, Marxism, soviet economics.
    Date: 2014–06
  14. By: Spiros Bougheas; Alan Kirman
    Abstract: In this paper we review recent advances in financial economics in relation to the measurement of systemic risk. We start by reviewing studies that apply traditional measures of risk to financial institutions. However, the main focus of the review is on studies that use network analysis paying special attention to those that apply complex analysis techniques. Applications of these techniques for the analysis and pricing of systemic risk has already provided significant benefits at least at the conceptual level but it also looks very promising from a practical point of view.
    Keywords: Comlex Financial Systems, Networks, Systemic Risk
    Date: 2014
  15. By: Dominique, C-Rene
    Abstract: Since Lėon Walras neoclassical economists hold an inalterable belief in a unique and stable equilibrium for the economic system, which remains to this day unobservable. Yet that belief is the corner stone of other theories such as the ‘Efficient Market Hypothesis’ as well as the philosophy of neo-liberalism, whose outcomes are shown by recent events to be flawed. A modern market economy is indeed a nonlinear controllable construct, but this paper uses the affine nonlinear feedback H-control to show that the ‘data requirement’ precludes all attempts at the empirical verification of the existence of a stable equilibrium. In a complex nonlinear deterministic systems, equilibria, whether multiple or deterministically chaotic, depends on their parameter values and uncertainties. The best approach suggested is to focus on endurable patterns thrown-off by such systems.
    Keywords: Equilibrium, nonlinearity, controllability, nonlinear-feedback, H-control, data requirement, complexity.
    JEL: C0 C02 C6 C61 C67
    Date: 2014–06–09
  16. By: Callahan, Gene; Hoffmann, Andreas
    Abstract: The paper aims to explore what it means for something to be a social cycle, for a theory to be a social cycle theory, and to offer a suggestion for a simple, yet, we believe, fundamentally grounded schema for categorizing them. We show that a broad range of cycle theories can be described within the concept of disruption and adjustments. Further, many important cycle theories are true endogenous social cycle theories in which the theory provides a reason why the cycle should recur. We find that many social cycle theories fit with a two-population disruption and adjustment model similar to the well-known predator-prey model. This implies that a general modeling framework could be established for creating agent-based models of many social cycle theories. --
    Date: 2014
  17. By: Eric Bahel
    Abstract: The notion of veto player was originally introduced in simple games [see Nakamura (1979)], for which every coalition has a value of 0 or 1. In this paper we extend it to monotonic cooperative games with transferable utility: a player has veto power if all coalitions not containing her are worthless. We examine and characterize the core for each one of these "veto games". Moreover, we show the equivalence of the core and the bargaining set. Our work extends the clan games and big-boss games introduced respectively by Potters et al. (1989) and Muto et al. (1988).
    Keywords: TU game, veto power, core, objection, bargaining set.
    Date: 2014
  18. By: Jagjit S. Chadha; Morris Perlman
    Abstract: We examine the relationship between prices and interest rates for seven advanced economies in the period up to 1913, emphasizing the UK. There is a significant long-run positive relationship between prices and interest rates for the core commodity standard countries. Keynes (1930) labelled this positive relationship the Gibson Paradox. A number of theories have been put forward as possible explanations of the Paradox but they do not fit the long-run pattern of the relationship. We find that a formal model in the spirit of Wicksell (1907)and Keynes (1930) offers an explanation for the paradox: where the need to stabilize the banking sector’s reserve ratio, in the presence of an uncertain natural rate, can lead to persistent deviations of the market rate of interest from its natural level and consequently long run swings in the price level.
    Keywords: Gibson’s paradox; Keynes-Wicksell; prices; interest rates
    JEL: J1
    Date: 2014–05
  19. By: Kvaløy, Ola (UiS); Luzuriaga, Miguel (UiS)
    Abstract: In standard trust games, no trust is the default, and trust generates a potential gain. We investigate a reframed trust game in which full trust is default and where no trust generates a loss. We find significantly lower levels of trust and trustworthiness in loss domain when full trust is default than in gain domain when no trust is default. As a consequence, trust is on average profitable in gain domain, but not in loss domain. We also find that subjects respond more positively to higher trust in loss domain than in gain domain.
    Keywords: Trust; Reciprocity; Framing; Defaults; Reference Points; Experiment
    JEL: C72 C91
    Date: 2014–06–10

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