nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2015‒06‒20
seventeen papers chosen by
Erik Thomson
University of Manitoba

  1. Decision-making under radical uncertainty: An interpretation of Keynes' Treatise By Marsay, David
  2. Algunas reflexiones acerca del enfoque popperiano sobre la racionalidad y sus implicaciones para las ciencias sociales By Iván H. Ayala; Alfonso Palacio Vera
  3. Piketty misreads Austen and ignores Smith By Carlos Rodríguez Braun
  4. Losing Equilibrium: On the Existence of Abraham Wald’s Fixed-Point Proof of 1935 By Till Dueppe; E. Roy Weintraub
  5. Uncertainty: A diagrammatic treatment By Dow, Sheila
  7. Heavens above: what equilibrium means for economics. With an appendix on temporality, equilibrium, endogeneity and exogeneity, in the inductive sciences and in economics By Freeman, Alan
  8. Polyequilibrium By Igal Milchtaich
  9. Austerity and Repressive Politics: Italian Economists in the Early Years of the Fascist Government By Clara Elisabetta Mattei
  10. The Empirical Economist's Toolkit: From Models to Methods By Matthew T. Panhans; John D. Singleton
  11. Can Recessions be 'Productive'? Schumpeter and the Moderns By Muriel Dal-Pont Legrand; Harald Hagemann
  12. Harmonising Hayek and Posner: revisiting Posner, Hayek & the economic analysis of Law By Ojo, Marianne
  13. Existence and Indeterminacy of Markovian Equilibria in Dynamic Bargaining Games By Vincent Anesi; John Duggan
  14. THE CONCEPT OF SOCIAL CAPITAL IN ECONOMIC THEORY By Slobodan Cvetanovic, Danijela Despotovic, Milorad Filipovic
  15. Assessing Piketty’s laws of capitalism By Jakob B. Madsen; Antonio Minniti; Francesco Venturini
  16. The economics of radical uncertainty By Ormerod, Paul
  17. Values for Cooperative Games over Graphs and Games With Inadmissible Coalitions By Ziv Hellman; Ron Peretz

  1. By: Marsay, David
    Abstract: Keynes' mathematical Treatise addresses what some call 'radical uncertainty', which he thought endemic in world affairs and whose appreciation underpinned much of his later work. In contrast, the mainstream view in economics, as elsewhere, has been that even if radical uncertainty exists, either there is in principle nothing that can ever be done about it, or that even if one could in theory do something about it then the institutions required would be unreliable, and one would be better off without them. Thus the mainstream has worked as if it were realistic to ignore even the possibility of radical uncertainty. But one needs some conceptualisation of radical uncertainty, such as Keynes', before one can make such judgments. This paper presents an interpretation, to inform debate. The viewpoint taken here is mathematical, but this is not to deny the value of other views.
    Keywords: mathematical models,equilibrium conditions,stability conditions,evolutionary games,policy,regulation,crisis management
    JEL: C62 G18 H12
    Date: 2015
  2. By: Iván H. Ayala; Alfonso Palacio Vera (Departamento de Economía Aplicada III (Política Económica). Universidad Complutense de Madrid.)
    Abstract: Existen dos nociones distintas sobre la racionalidad humana en la obra filosófica de Popper: la derivada de la teoría popperiana del conocimiento y el aprendizaje (TPCA) y la noción implícita en su propuesta metodológica para las Ciencias Sociales conocida como "Análisis Situacional" (AS). Este ensayo realiza un análisis crítico detallado de la relación entre estas dos nociones y de sus implicaciones para las ciencias sociales. En concreto, el ensayo aborda: (i) las diferencias entre TPCA y las versiones "objetivista" y "subjetivista" de AS, (ii) la distinción propuesta por Schumpeter entre la "racionalidad del observador y la "racionalidad del observado" y (iii) los argumentos de Hayek sobre la naturaleza de los "hechos" en las Ciencias Sociales.
    Abstract: There are two different notions of human rationality in Popper´s work: the notion that stems from his evolutionary theory of knowledge and learning (PTKL), and the notion embodied in his methodological proposal for the social sciences known as `Situational Analysis´ (SA). This essay provides an in-depth critical analysis of the relation between these two approaches and its implications for the social sciences. In particular, we focus on (i) the difference between PTKL and both the `objectivist´ and `subjectivist´ version of SA, (ii) Schumpeter´s distinction between the `rationality of the observer´ and the `rationality in the observed´, and (iii) Hayek´s arguments about the nature of the `facts´ of the social sciences.
    Keywords: Evolucionista, Conocimiento, Popper, Racionalidad, Análisis situacional.; Evolutionary, Knowledge, Popper, Rationality, Situational analysis.
    JEL: A12 B41 B52 D81
    Date: 2015–03
  3. By: Carlos Rodríguez Braun (Departamento de Historia e Instituciones Económicas I. Universidad Complutense de Madrid.)
    Abstract: El gran éxito editorial de Thomas Piketty, El capital en el siglo XXI, utiliza referencias literarias, y en particular las novelas de Jane Austen, para ilustrar el problema de la desigualdad. Su análisis es insatisfactorio en dos aspectos principales. En primer lugar, presenta una visión distorsionada de los escritos de Austen, quien de hecho reconoció que la sociedad de su tiempo era más dinámica y móvil que lo que sugiere Piketty. En Segundo lugar, Piketty ignora a un pensador tan relevante como Adam Smith, que está presente en las obras de Jane Asten a través de un principio clave de su teoría del comportamiento y del crecimiento económico: los seres humanos no procuran ser iguales, sino mejores.
    Abstract: Thomas Piketty’s best-seller, Capital in the Twenty-First Century, utilizes literary references, and particularly Jane Austen’s novels, to illustrate the problem of inequality. His analysis is unsatisfactory in two major aspects. First, he presents a distorted picture of Austen’s writings. Austen, in fact, recognized that the society of her time was more dynamic and socially mobile than what Piketty suggests. Second, Piketty ignores a thinker as relevant as Adam Smith, which is present in Jane Austen’s works through a key principle of his theory of conduct and of economic growth: human beings do not strive to be equal, but to be better.
    Keywords: Desigualdad; Capitalismo.; Inequality; Capitalism.
    JEL: B12 D63 E24 N13 P10 Z10
    Date: 2015–04
  4. By: Till Dueppe; E. Roy Weintraub
    Abstract: In fall 1935, Abraham Wald presented a fixed-point proof of a general equilibrium model to Karl Menger’s Mathematical Colloquium in Vienna. Due to limited space, the paper could not be printed in the eighth proceedings of the Colloquium (the Ergebnisse) published in spring 1937 but was scheduled for the ninth issue of the series. After the annexation of Austria to Nazi Germany in March 1938 however, Menger’s Colloquium ended and the proof never appeared in print. Nor did Wald, after he fled to the U.S. and launched a career in statistics, pursue the diffusion of his proof. After his sudden death in 1950, only Wald’s preliminary proof of 1934 was translated into English for Econometrica. When thus Arrow, Debreu, and McKenzie in 1954 referred in their own fixed-point proofs only to Wald’s preliminary published version, his 1935 fixed-point proof was forgotten. This did not change when economists and historians of economics, the authors included, reconstructed Wald’s contribution. New evidence, however, proves its existence. This article tells the story of Wald’s lost equilibrium proof.
    Keywords: fixed-point theorem, general equilibrium theory, Vienna Mathematical Colloquium, Karl Menger, Abraham Wald
    JEL: B2 B3 C6
    Date: 2015
  5. By: Dow, Sheila
    Abstract: In spite of superficial similarities, the way in which uncertainty is understood as a feature of the crisis by mainstream economics is very different from Keynesian fundamental uncertainty. The difference stems from the mainstream habit of thinking in terms of a full-information benchmark, where uncertainty arises from ignorance. By treating uncertain knowledge as the norm, Keynesian uncertainty theory allows analysis of differing degrees of uncertainty and the cognitive role of institutions and conventions. The paper offers a simple diagrammatic representation of these differences, and uses this framework to depict different understandings of the crisis, its aftermath and the appropriate policy response.
    Keywords: uncertainty,risk,ambiguity,Keynes
    JEL: B41 B5 E00 G01
    Date: 2015
  6. By: George McMillan (Aegis Defense Services)
    Abstract: This paper introduces the methodology to create a unified theory of the philosophical and social sciences in the behavioral-political-economic-demographic sequence. The two major ideological political-economic philosophies (Hume-Smith and Marx-Engels) are systematized into competing integrated three dimensional behavioral-political-economic models. The paper argues that Hume-Smith’s empathy-sympathy behavioral assumptions are a sufficient starting point to create the integrated causal model sought by Tooby and Cosmides. The author then shows that the prerequisite advances in psychology and demographic studies now exist to generate the universal economic theory sought by von Neumann-Morgenstern and the integrated behavioral-economic method of Gintis—a psychological (i.e., behavioral) socio-economic model. By updating Hume-Smith’s work with a modern understanding of psychology, as presented by Fromm and others, a new integrated societal model as postulated by Harsanyi can be created that intertwines the social and psychological sciences. The author argues that this fundamentally psychology-based model also can serve as a baseline equation for all social sciences as desired by Kant and Mach, as well as the ahistorical (psychological) philosophic model noted by Husserl, Heidegger, Tillich, and Strauss. The author concludes with a discussion of the necessary next steps to generating a detailed model that fuses these disciplines.
    Keywords: Unified theory Model of the Micro and Macro Behavioral Sciences
    JEL: P50 B12 B31
  7. By: Freeman, Alan
    Abstract: This paper presents in formal terms the key notions of the temporalist approach in economics as I have presented it over the years, with an appendix providing a formal definition of such terms as endogenous, exogenous, temporalism, and equilibrium. I thus hope this paper can serve as something of a reference work for these concepts as well as the key terms ‘esoteric’ and ‘exoteric’ which are widely used in my writings. The paper incorporates, but supersedes, the prepublication version of a chapter of the same name originally published in Mosini, V. (ed) 2007. “Equilibrium in Economics: Scope and Limits”, with a previously unpublished appendix. It provides the background to the argument I have made in a number of other pieces, (for example Freeman 2004, most recently Freeman 2015) to the effect that economics plays a religious, not a scientific role, in the social sciences. I argue that the concept of equilibrium in economics plays a special and defining role in this respect which is not adequately recognised either by its defenders, nor by the critics of economics. I term this role esoteric, by which I mean that its primary function is not to explain what we experience or observe, but to justify it. This is a work in progress but summarises, hopefully with as few typographical and mathematical errors as possible, the general arguments that have been developed, or deployed, in my various writings on equilibrium, self-restoration, crisis, and the esoteric function of economics, to this date.
    Keywords: equilibrium, temporalism, TSSI, self-restoration, cycles, crisis, endogenous, exogenous, esoteric, exoteric, religion, science
    JEL: A2 B41 E32 E37
    Date: 2015–06–14
  8. By: Igal Milchtaich (Bar-Ilan University)
    Abstract: Polyequilibrium is a generalization of Nash equilibrium that is applicable to any strategic game, whether finite or otherwise, and to dynamic games, with perfect or imperfect information. It differs from equilibrium in specifying strategies that players do not choose and by requiring an after-the-fact justification for the exclusion of these strategies rather than the retainment of the non-excluded ones. Specifically, for each excluded strategy of each player there must be a non-excluded one that responds to every profile of non-excluded strategies of the other players at least as well as the first strategy does. A polyequilibrium’s description of the outcome of the game may be more or less specific, depending on the number and the identities of the non-excluded strategy profiles. A particular property of the outcome is said to hold in a polyequilibrium if it holds for all non-excluded profiles. Such a property does not necessarily hold in any Nash equilibrium in the game. In this sense, the generalization proposed in this work extends the set of justifiable predictions concerning a game’s results.
    Keywords: Polyequilibrium, Polystrategy, Coarsening of Nash equilibrium, Subgame perfection, Bayesian perfection
    Date: 2015–06
  9. By: Clara Elisabetta Mattei
    Abstract: The historical forerunners of contemporary austerity are still largely unexplored. This essay considers the "liberal phase" of Fascist Italy (1922-1925) as a case study to explain austerity as a full-blown rationality, that is intrinsically, and simultaneously, theory and practice, encompassing the moral, the economic and the political. My explanation moves beyond the interpretation of austerity as the post-1980, neoliberal recipe of price deflation and budget cuts. The Italian case draws attention to a neglected connection: that between austerity and repression. Austerity was the guiding principle of the Fascist economic agenda during the 1920s. It served to extinguish the effects of the democratization process of the post-WWI years. The paper examines the work of four distinguished economists, Maffeo Pantaleoni, Luigi Einaudi, Alberto De Stefani and Umberto Ricci, who - in different roles as professors, journalists, advisors, and policy-makers ó can be considered the source, the guardians and the enforcers of Fascist austerity.
    Keywords: Austerity, Repressive Politics, Economists as Consultants, Fascism
    Date: 2015–06–13
  10. By: Matthew T. Panhans; John D. Singleton
    Abstract: While historians of economics have noted the transition toward empirical work in economics since the 1970s, less understood is the shift toward \quasi-experimental" methods in applied microeconomics. Angrist and Pischke (2010) trumpet the wide application of these methods as a \credibility revolution" in econometrics that has nally provided persuasive answers to a diverse set of questions. Particularly in uential in the applied areas of labor, education, public, and health economics, the methods shape the knowledge produced by economists and the expertise they possess. First documenting their growth bibliometrically, this paper aims to illuminate the origins, content, and contexts of quasi-experimental research designs, which seek natural experiments to justify causal inference. To highlight lines of continuity and discontinuity in the transition, the quasi-experimental program is situated in the historical context of the Cowles econometric framework and a case study from the economics of education is used to contrast the practical implementation of the approaches. Finally, signicant historical contexts of the paradigm shift are explored, including the marketability of quasi-experimental methods and the 1980s crisis in econometrics.
    Keywords: econometrics, quasi-experimental methods, natural experiments, applied economics
    JEL: B21 B23 B4 C1
    Date: 2015
  11. By: Muriel Dal-Pont Legrand (GREDEG CNRS; University of Nice Sophia Antipolis); Harald Hagemann (University of Hohenheim, Stuttgart)
    Abstract: Joseph A. Schumpeter never ceased to inspire new generations of economists. One of his major contributions concerns his view of business cycles and economic development as closely interrelated dynamics. Among the different lines of research proposed by Schumpeter in order to allow economists to capture how growth and cycle dynamics intertwine, one can find the analysis of the investment decisions during recessions. Schumpeter considered this process of Creative Destruction as “the essential fact about capitalism” since the Industrial Revolution. According to him, the process of liquidation and reallocation of productive resources taking place in the recession and particularly in the depression phase is not only an essential and unavoidable characteristics of capitalist evolution, but also necessary and, finally, beneficial for long-run development. More recently, one can notice in the literature a revival of interest for these questions. This line of research has been developed again in the 1990s by Aghion and Saint-Paul (1991, 1993, 1998) and Saint-Paul (1994) but also Caballero and Hammour (1994, 1996). They elaborated the so-called “productive recessions” analysis respectively the ‘cleansing effect’ of recessions. Focusing exclusively on neo-Schumpeterian contributions which explicitly analyze the impact recessions can have on growth, our purpose is to examine the mechanisms involved in the modern literature mentioned above and to compare them with Schumpeter’s original writings. The objective of this paper is to question the ‘Schumpeterian character’ of this recent literature and then to investigate the degree of continuity as well as the differences. Some focus will be on potential differences with regard to economic policy.
    Keywords: business cycles, growth, creative destruction, productive recessions, Schumpeter
    JEL: B31 O11 O31 O47
    Date: 2015–06
  12. By: Ojo, Marianne
    Abstract: This paper is aimed at highlighting Posner and Hayek’s consensus on the importance of decentralization, as well as the significance of the incorporation of non-legal actors as tools for facilitating the efficient allocation of resources in common law. In addition to highlighting the consensus on the views of Posner and Hayek, in respect of de centralization of information within the judicial process, this paper aims to address why de centralization serves as a vital tool in facilitating the objective of common law as an efficiency allocation mechanism. Whilst it is argued that lower court judges may not and should not be given such flexibility to make and unmake the law, the principles and decisions of law lords acting in the capacity of legislature, have also illustrated in several leading cases that the flexibility intended by Parliament may be misinterpreted and wrongly applied in future cases. This has also resulted in the criticism of extrinsic aids to statutory interpretation. This paper analyses and expands on these observations.
    Keywords: legitimate expectations; certainty; flexibility; judicial precedents; statutory interpretation; allocative efficiency; Pepper v Hart; Daubert; common law; regulatory capture; regulation
    JEL: D8 E3 G3 K2 M4
    Date: 2015–06
  13. By: Vincent Anesi (School of Economics, University of Nottingham); John Duggan (Department of Political Science and Department of Economics, University of Rochester)
    Abstract: We show that dynamic bargaining games are characterized by a continuum of stationary Markov perfect equilibria, when the set of alternatives is multidimensional and players are patient. In fact, we show that there is a continuum of equilibria close to any alternative satisfying a simple linear independence condition on the players’ gradients. The approach extends the construction of simple solutions from Anesi and Seidmann (2015) to the spatial setting. The implication is that constructive techniques, which involve an explicit specification of a particular equilibrium and are common in the literature, implicitly rely on a restrictive selection of equilibria.
    Date: 2015–01
  14. By: Slobodan Cvetanovic, Danijela Despotovic, Milorad Filipovic (University of Niš, Faculty of Economics, University of Kragujevac, Faculty of Economics, University of Belgrade, Faculty of Economics)
    Abstract: Economic research at the turn of the century has been explicitly dealing with the social capital, as a special form of capital. It is a relatively new concept, which is why it is not surprising that there is no generally accepted term to denote this phenomenon. The social capital means the economic benefit of the society, which can be reached with the help of communication, cooperation, and trust among the entities in the given socio-economic environment. The social capital is most often regarded as the ability of social structures and attitudes that support them to increase the effectiveness of collective action. The social capital is a connective tissue, a glue that helps people to use available resources for creating mutual benefits. Its existence is a prerequisite for economic growth and development. The components of the social capital are social ties and networks that can be transformed into economic capital.
    Keywords: capital, social capital, physical capital, natural capital, human capital
    JEL: J24
    Date: 2015–03
  15. By: Jakob B. Madsen; Antonio Minniti; Francesco Venturini
    Abstract: This paper tests Piketty's predictions that in the long run (i) the capital-income ratio, K-Y, is driven by the ratio between the rates of saving and income growth, s and g; and that (ii) the capital share of income responds to variations in the s-g ratio, along with the rate of return on capital, r. We assess the two predictions using both Piketty and Zucman's (2014) original data and a new long historical dataset covering 21 OECD countries. Our findings corroborate Piketty’s theory in the very long run (1870-2010), whilst evidence for the latest decades is less robust (1970-2010).
    Date: 2015–05
  16. By: Ormerod, Paul
    Abstract: In situations of what we now describe as radical uncertainty, the core model of agent behaviour, of rational autonomous agents with stable preferences, is not useful. Instead, a different principle, in which the decisions of an agent are based directly on the decisions and strategies of other agents, becomes the relevant core model. Preferences are not stable, but evolve. It is not a special case in such circumstances, but the general one. The author provides empirical evidence to suggest that as a description of behaviour in the modern world, economic rationality is applicable in a declining number of situations. He discusses models drawn from the modern literature on cultural evolution in which imitation of others is the basic strategy, and suggests a heuristic way of classifying situations in which the different models are relevant. The key point is that in situations where radical uncertainty is present, we require theoretical 'null' models of agent behaviour which are different from those of economic rationality. Under uncertainty, fundamentally different behavioural rules are 'rational'. The author gives an example of a very simple pure sentiment model of the business cycle, in which agents use very simple heuristic decision rules. It is nevertheless capable of approximating a number of deep features of output growth over the cycle.
    Keywords: uncertainty,imitation,evolution,agent-based model,sentiment,business cycle
    JEL: D81 E32
    Date: 2015
  17. By: Ziv Hellman (Bar-Ilan University); Ron Peretz (London School of Economics)
    Abstract: We suppose that players in a cooperative game are located within a graph structure, such as a social network or supply route, that limits coalition formation to coalitions along connected subsets within the graph. This in turn leads to a more general study of coalitional games in which there are arbitrary limitations on the collections of coalitions that may be formed. Within this context we define a generalisation of the Shapley value that is studied from an axiomatic perspective. The resulting ‘graph value’ (and ‘S-value’ in the general case) is endogenously asymmetric, with the automorphism group of the graph playing a crucial role in determining the relative values of players.
    Keywords: Shapley value, network games
    JEL: C71 D46 D72
    Date: 2015–04

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