nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2015‒04‒11
eighteen papers chosen by
Erik Thomson
University of Manitoba

  1. The Role of Psychology in Austrian Economics and Game Theory: Subjectivity and Coordination By Richard Arena; Lauren Larrouy
  2. Revisiting Methodological Individualism in Game Theory: The Contributions of Schelling and Bacharach By Lauren Larrouy
  3. Mainstreaming. Reflections on the Origins and Fate of Mainstream Pluralism. By Cedrini, Mario; Fontana, Magda
  4. On Games and Equilibria with Coherent Lower Expectations By Giuseppe De Marco; Maria Romaniello
  5. Market or Government – Is There a Third Way? By Ivars Brivers
  6. The rationality of expectations formation By DAVILA, Julio
  7. Internal vs. core coalitional stability in the environmental externality game: A reconciliation By Tulkens, Henry
  8. Alfred Schutz'S Sociology as a Naive Science By Greg Yudin
  9. Forward Guidance in Extraordinary Times, in Normal Times, and Betwixt the Two By Mester, Loretta J.
  10. Optimal taxation theory and principles of fairness By Fleurbaey, Marc; Maniquet, François
  11. The Making of an Economic Superpower―Unlocking China’s Secret of Rapid Industrialization By Wen, Yi
  12. Equality of opportunity: Theory and evidence By Francisco H. G. Ferreira; Vito Peragine
  13. Crimen Extrajudiciale: Ethics of Plagiarism and Erudite Sociability in J. Thomasius and J. C. Schwartz By Pavel V. Sokolov
  14. Dynamic Games with Almost Perfect Information By He, Wei; Sun, Yeneng
  15. Representations and the Corruption of Goods By Martin K Jones
  16. The Economic Outlook, Monetary Policy, and Communications: Progress on Multiple Journeys By Mester, Loretta J.
  17. On the Economic Relevance of the Principle of Gratuitousness By Sergio Beraldo
  18. The Protestant Fiscal Ethic: Religious Confession and Euro Skepticism in Germany By Adrian Chadi; Matthias Krapf

  1. By: Richard Arena (University of Nice Sophia Antipolis, France; GREDEG CNRS); Lauren Larrouy (University of Nice Sophia Antipolis, France; GREDEG CNRS)
    Abstract: In this contribution we relate the respective works of two important economists, Friedrich von Hayek and Michael Bacharach, namely one of the main intellectual leaders of the Austrian Schools and one of the most original game theorists. Hayek and Bacharach are two authors - few in number – who do not conceive that economic analysis could be built without the help of psychology. They both considered that subjective perceptions of the real world provide the first stage of decision processes and that, within this stage, psychological factors played a fundamental role. Therefore, they both proposed how perceptions, economic rationality and social coordination could be combined. However economists who really accept to take psychology into account often face new difficulties. The incorporation of subjectivity in economic behaviour can make much more complex the analysis of economic and social coordination. To overtake these new difficulties we will see that both Hayek and Bacharach integrate a specific approach to human cognition and resort to an evolutionary explanation of social coordination. This is the main message we deliver in this contribution.
    Keywords: Austrian economic theory, game theory, cognitive psychology, subjectivism, social coordination
    JEL: B21 B40 B53 C72 D01 D11 D50
    Date: 2015–03
  2. By: Lauren Larrouy (University of Nice Sophia Antipolis, France; GREDEG CNRS)
    Abstract: The purpose of this contribution is to illustrate how both Schelling and Bacharach’s methodologies can help scholars bring a new approach to behavioral game theory in which the nature of usual standard methodological individualism is insufficiently questioned. I aim to show that both Schelling and Bacharach question the nature of interactive rationality. They provide original insight concerning (i) the conditions of possibility of the existence of determinate solutions and (ii) the resolution process of games. Furthermore, their questioning of the methodological implications of the well-known trio of standard game theory (common knowledge, the transparency of reasons and the reduction of "strategic uncertainty" to "physical uncertainty") offers some ideas on how to build an alternative theory of games. As forerunners, they open an ongoing research program which can still be a fruitful source of methodological innovation regarding interactive rationality and its collective determinants.
    Keywords: game theory, interactive rationality, framing, focal point, team reasoning, methodological individualism
    JEL: B21 B41 C72 D03 D79 D81
    Date: 2015–03
  3. By: Cedrini, Mario; Fontana, Magda (University of Turin)
    Abstract: There is considerable discussion on the so-called “mainstream pluralism”, which stems from the growth and coexistence of new research programs in economics that significantly deviate from the neoclassical core. Other disciplines have actively contributed to the birth of such programs, that are carried on by different, often separated communities of researchers. Although “mainstream pluralism” is not the pluralism heterodox economists and students groups have sought for in the recent decades, its persistence over time might provide a possible precondition for the advent of pluralism in economics. While the literature tends to regard mainstream pluralism as a transitory state towards a new, post-neoclassical, mainstream, this paper contributes to the debate by bringing in a different perspective, focusing on economics’ fragmentation and the necessity of specialization. We adopt a “late Kuhnian” framework (derived from Kuhn’s late works on specialization), considering not scientific revolutions but specialization as key engine of progress in science, and interpret mainstream pluralism as the result of economics’ recent growth in size and dive rsity. To account for the necessity of specialization in economics, we employ Ronald Heiner’s work on the competence-difficulty gap, as well as the evidence offered in some recent studies about the impact of the “burden” of previously accumulated knowledge on innovative behaviour. After a bird’s eye view on the recent history of economics in relation to other disciplines (and an analysis of Herbert Gintis’s “unity of behavioral sciences” proposal as possible new mains tream), we discuss the possibility that today’s “mainstream pluralism” might persist over time.
    Date: 2015–02
  4. By: Giuseppe De Marco (Università di Napoli Parthenope and CSEF); Maria Romaniello (Seconda Università di Napoli)
    Abstract: Different solution concepts for strategic form games have been introduced in order to weaken the consistency assumption that players' beliefs - about their opponents strategic choices - are correct in equilibrium. The literature has shown that ambiguous beliefs are an appropriate device to deal with this task. In this note, we introduce an equilibrium concept in which players do not know the opponents' strategies in their entirety but only the coherent lower expectations of some random variables that depend on the actual strategies taken by the others. This equilibrium concept generalizes the already existing concept of equilibrium with partially specified probabilities by extending the set of feasible beliefs and allowing for comparative probability judgements. We study the issue of the existence of the equilibrium points in our framework and find that equilibria exist under rather classical assumptions.
    Date: 2015–04–01
  5. By: Ivars Brivers (BA School of Business and Finance, Latvia)
    Abstract: The paper deals with the discussion on the possible models of economy – market economy, which is usually associated with capitalism, and planned economy, which is usually associated with socialism. The experience of the 20th century has shown that efforts to choose the model of socialism have failed. Is it sufficient to make a conclusion, that capitalism is preferred to socialism not depending on conditions? Even if so, that the events of the 21st century show, that model of capitalism also has faced serious contra versions, and thus should be significantly modified. The great economists from Smith to Keynes have made forecasts about the new model of economy in the future – neither socialism, nor capitalism in a common sense. To solve the global problems, we need to think outside the box, revising critically the conventional wisdoms, thus creating a new model of economy. A possible way in that direction may be the localization of economy in a global scale.
    Keywords: Globalization, localization, market, planned economy
    JEL: A13 B00 P51
    Date: 2015–04
  6. By: DAVILA, Julio (Université catholique de Louvain, CORE, Belgium)
    Abstract: Rational expectations do not require beliefs to be consistent with history and with what agents can conclude from it. Actually, at a rational expectations equilibrium agents may hold beliefs that explain poorly the history they observe, even when restricted to only those rationalizing their choices. This paper shows that if agents hold rationally formed expectations instead —in the sense of following from beliefs that explain history better than any other beliefs justifying their choices— then additional allocations unsupported by rational expectations can be shown to be equilibrium outcomes. By means of this result, it is established too that adding common knowledge of the rationality of the formation of expectations —on top of that of rationality of choices and market clearing— does not suffice either to guarantee rational expectations. Interestingly, the rationally formed expectations equilibria produced in this paper exhibit a sunspot-like volatility that do not rely on an explicit sunspot mechanism.
    Keywords: rationality, expectations, overlapping generations
    JEL: D84 D5 E3
    Date: 2014–11–05
  7. By: Tulkens, Henry (Université catholique de Louvain, CORE, Belgium)
    Abstract: In a game with positive externalities, such as e.g. the standard environmental externality game used in the analysis of international environmental agreements, the solutions having the property of coalitional internal stability, when they exist, are compared in this paper with the solutions with the property of ?-core stability. Key instruments for that comparison are the notions of stable imputations, on the one hand, and on the other, of partial agreement Nash equilibria relative to a coalition as they result from unacceptable, i.e. unstable imputations. The relation between internal and core stable solutions is claimed to be one of compatibility, the former concept complementing the latter in the games where internally stable solutions exist. But this class of games is more restricted than the one for which only ?-core solutions exist. The argument is first presented graphically, then analytically. The relations here exhibited between core and internal forms of stability arouse some concluding thoughts on efficiency, coalitional stability, and on motivations in sharing the surplus generated by cooperation in international environmental issues
    Keywords: environmental externalities, game theory, coalitions, core, internal stability
    JEL: C7 H4 H87 Q5
    Date: 2014–11–30
  8. By: Greg Yudin (National Research University Higher School of Economics)
    Abstract: Alfred Schutz has paid considerable attention to the position of scientist in the world and particularly to that of social scientist. His analyses make extensive use of phenomenological concepts and contain detailed descriptions of scientific cognitive style in its relation to the everyday life. However, Schutz is surprisingly silent on the motives that could justify quitting the ordinary 'world of working' and entering the scientific attitude. This paper discusses whether the Schutz normative justification for science can be deduced from Husserl's philosophy of science. It is argued that despite the fact that Schutz was in fact considerably influenced by Husserl's system of science suggested in 'Ideas II', the two thinkers diverge radically on the cultural mission and methodology of science. While Husserl advocates the critical method of reduction as the sole way to pursue genuine science, Schutz in fact explores the possibility of building a 'naive science'. He accepts relying on ordinary knowledge in social science and ends up by rejecting the methodology of reduction in general. Schutz's opposition to the idea of science contained in Husserl's phenomenology, together with his neglect of normative grounding of science, suggest that he considered the value of science as laying beyond rational philosophical justification
    Keywords: Edmund Husserl, Alfred Schutz, natural attitude, phenomenological reduction, social science, disinterestedness
    JEL: Z
    Date: 2015
  9. By: Mester, Loretta J. (Federal Reserve Bank of Cleveland)
    Abstract: Good evening and thank you very much for the invitation to speak to the Money Marketeers. I understand that a long line of Federal Reserve presidents and governors have addressed your distinguished group and I am very honored to follow in their footsteps. Tonight I will discuss the role of communications in Fed policymaking, focusing on the FOMC’s forward guidance on the future path of policy. Of course, my remarks will reflect my own views and not necessarily those of the Federal Reserve System or my colleagues on the Federal Open Market Committee.
    Date: 2015–03–30
  10. By: Fleurbaey, Marc (Princeton University); Maniquet, François (Université catholique de Louvain, CORE, Belgium)
    Abstract: The achievements and limitations of the classical theory of optimal labor-income taxation based on social welfare functions are now well known, although utilitarianism still dominates public economics. We review the recent interest that has arisen for broadening the normative approach and making room for fairness principles such as desert or responsibility. Fairness principles sometimes provide immediate recommendations about the relative weights to assign to various income ranges, but in general require a careful choice of utility representations embodying the relevant interpersonal comparisons. The main message of this paper is that the traditional tool of welfare economics, the social welfare function framework, is flexible enough to incorporate many approaches, from egalitarianism to libertarianism.
    Keywords: optimal taxation, fair social orderings
    JEL: H21 D63
    Date: 2015–02–19
  11. By: Wen, Yi (Federal Reserve Bank of St. Louis)
    Abstract: The rise of China is no doubt the most important event in world economic history since the Industrial Revolution. The institutional theory of development based on a dichotomy of extractive vs. inclusive political institutions cannot explain China’s rise. This article argues that only a radical reinterpretation of the history of the Industrial Revolution and the rise of the West (as incorrectly portrayed by the institutional theory) can fully explain China’s growth miracle and why the determined rise of China is unstoppable. Conversely, China’s spectacular and rapid transformation from an impoverished agrarian society to a formidable industrial superpower sheds considerable light on the fundamental flaws of neoliberalism and the Washington Consensus and provides more-accurate reevaluations of historical episodes such as Latin America’s lost decade and plagued debt crisis, 19th century Europe’s great escape from the Malthusian trap, and the Industrial Revolution itself.
    Keywords: Industrial Revolution; the Rise of China; the Great Divergence; Market Fundamentalism; Neoliberalism; Big Push; Import Substitution Industrialization; Shock Therapy; Washington Consensus; New Structuralism; New Stage Theory.
    JEL: B00 N00 O1 O2 O3 O4 O5
    Date: 2015–03–01
  12. By: Francisco H. G. Ferreira (World Bank, USA); Vito Peragine (University of Bari, Italy)
    Abstract: Building on earlier work by political philosophers, economists have recently sought to define a concept of equity that accommodates the fairness of reward to individual responsibility and effort, while allowing for the existence of some inequalities which are unfair and should be compensated. This paper provides a critical review of the economic literature on equality and inequality of opportunity. A simple 'canonical model' of equal opportunity is proposed, and used to explore the two fundamental concepts in this (relatively) new theory of social justice: the principles of compensation and reward. Ex-ante and ex-post versions of the compensation principle are presented, and the tensions between them are discussed. Different approaches to the measurement of inequality of opportunity - and empirical applications - are reviewed, and implications for the measurement of poverty and of the rate of economic development are discussed.
    Keywords: Equality of opportunity, inequality of opportunity, compensation, reward.
    JEL: D63 I32
    Date: 2015–03
  13. By: Pavel V. Sokolov (National Research University Higher School of Economics)
    Abstract: This article deals with the ways of approaching plagiarism in the early modern Europe, mostly in the writings of two Leipzig intellectuals, J. Thomasius and J. C. Schwartz. The phenomenon of plagiarism is treated not only as an instrument of “symbolic violence” and “policing force of knowledge” in the Republic of letters, but primarily as a point of intersection of different discourses of the erudite culture: jurisprudence, moral medicine, Ciceronian rhetoric, hermeneutics and simultaneously – as a touchstone revealing the various dimensions of rival models of scientific knowledge (Protestant Aristotelianism, Barock eruditism, enlightened rationalism)
    Keywords: plagiarism, history of humanities, melancholy, sociability
    JEL: Z
    Date: 2015
  14. By: He, Wei; Sun, Yeneng
    Abstract: This paper aims to solve two fundamental problems on finite or infinite horizon dynamic games with perfect or almost perfect information. Under some mild conditions, we prove (1) the existence of subgame-perfect equilibria in general dynamic games with almost perfect information, and (2) the existence of pure-strategy subgame-perfect equilibria in perfect-information dynamic games with uncertainty. Our results go beyond previous works on continuous dynamic games in the sense that public randomization and the continuity requirement on the state variables are not needed. As an illustrative application, a dynamic stochastic oligopoly market with intertemporally dependent payoffs is considered.
    Keywords: Dynamic games; almost perfect information; perfect information; subgame-perfect equilibirum
    JEL: C62 C73 D0
    Date: 2015
  15. By: Martin K Jones
    Abstract: The traditional view of the economic agent is of an individual who is self-interested, rational and perceives the world “correctly”. However, there is a lot of experimental and other evidence that undermines this view of agents. It is argued that an attempt to model these agents properly requires the cognitive science idea of a mental representation- a mental state with content. It is shown that this idea gives economists resources to discuss critiques of economics by Sandel (2012) and Grant (2012). In particular, it allows us to think clearly about the notion of goods being “corrupted” by a change in context from a non-market to a market situation.
    Date: 2015–03
  16. By: Mester, Loretta J. (Federal Reserve Bank of Cleveland)
    Abstract: It is a real pleasure to be here today and to address the Economic Club of Pittsburgh, the CFA Society Pittsburgh, and the Pittsburgh Society of Investment Professionals. I have been on quite a journey during my first three months on the job as the new president of the Cleveland Fed. Not only have I attended my first two Federal Open Market Committee meetings in Washington as a voting member, but I have been getting to know the Fourth Federal Reserve District, which includes Ohio, western Pennsylvania, the northern panhandle of West Virginia, and eastern Kentucky. One of my first stops was to Pittsburgh, and it is wonderful to be back here today for my first public speech since becoming president in June. The economy and monetary policy have been on journeys of their own. Today, I want to share my views on both. But before I continue, let me note that these are my own views and not necessarily those of the Federal Reserve System or my colleagues on the Federal Open Market Committee.
    Date: 2015–03–30
  17. By: Sergio Beraldo (Università di Napoli Federico II and CSEF)
    Abstract: In this paper the principle of gratuitousness and its relationships with other principles which motivate behaviour, such as those inspired by reciprocity, is analyzed. The basic premise is that gratuitousness is a feature acquired by an action by virtue of the intentions that inspire the action itself. In this respect, the search for gratuitousness may require to discriminate among aestetically equivalent actions on the basis of the psychological disposition of the actor. The main claim of the paper is that in economically relevant situations gratuituousness is to be conceived as a modality of cooperation, emerging as the outcome of a team reasoning perspective and motivating such a perspective without any need for reciprocity. This claim is analyzed with regard to blood donations and, more generally, with regard to the voluntary provision of goods.
    Keywords: Gratuituousness, reciprocity, team reasoning
    JEL: D03 D63 D64
    Date: 2015–04–07
  18. By: Adrian Chadi; Matthias Krapf
    Abstract: During the European sovereign debt crisis, most countries that ran into fiscal trouble had Catholic majorities, whereas countries with Protestant majorities were able to avoid fiscal problems. Survey data show that, within Germany, views on the euro differ between Protestants and Non-Protestants, too. Among Protestants, concerns about the euro have, compared to Non-Protestants, increased during the crisis, and significantly reduce their subjective wellbeing only. We use the timing of survey interviews and news events in 2011 to account for the endogeneity of euro concerns. Emphasis on moral hazard concerns in Protestant theology may, thus, still shape economic preferences.
    Keywords: Protestantism; euro crisis; subjective wellbeing; media coverage
    JEL: E00 I31 L82 Z12
    Date: 2015–03

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