nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2015‒06‒27
fourteen papers chosen by
Erik Thomson
University of Manitoba

  1. On Game-Theoretic Risk Management (Part One) - Towards a Theory of Games with Payoffs that are Probability-Distributions By Stefan Rass
  2. Eyes wide shut: John Rawls's silence on racial justice By Ai-Thu Dang
  3. Inequality, the Financial Crisis and Stagnation: Competing Stories and Why They Matter By Thomas I. Palley
  4. Review Article of Capital in the Twenty-First Century, Thomas Piketty By Geoffrey C. Harcourt
  5. Post-Keynesian Economics – A User’s Guide By Neil Hart; Peter Kriesler
  6. Harmonisation du Hayek et Posner: Posner, Hayek et l'analyse économique du droit By Ojo, Marianne
  7. Several bases of a game space and an application to the Shapley value By Koji Yokote; Yukihiko Funaki
  8. The Evolution of "Kantian Trait": Inferring from the Dictator Game By Lorenzo Cerda Planas
  9. A bitter choice turned sweet: How acknowledging individuals' concern at having a low relative income serves to align utilitarianism and egalitarianism By Stark, Oded; Jakubek, Marcin; Kobus, Martyna
  10. A Case for Standard Theory? By Christoph Kuzmics; Daniel Rodenburger
  11. Price revelation and existence of financial equilibrium with incomplete markets and private beliefs By Lionel De Boisdeffre
  12. The rise of behavioural economics: A quantitative assessment By Geiger, Niels
  13. A Minskian extension to Kaleckian dynamics By Kemp-Benedict, Eric
  14. Ordoliberalism, pragmatism and the eurozone crisis: How the German tradition shaped economic policy in Europe By Feld, Lars P.; Köhler, Ekkehard A.; Nientiedt, Daniel

  1. By: Stefan Rass
    Abstract: Optimal behavior in (competitive) situation is traditionally determined with the help of utility functions that measure the payoff of different actions. Given an ordering on the space of revenues (payoffs), the classical axiomatic approach of von Neumann and Morgenstern establishes the existence of suitable utility functions, and yields to game-theory as the most prominent materialization of a theory to determine optimal behavior. Although this appears to be a most natural approach to risk management too, applications in critical infrastructures often violate the implicit assumption of actions leading to deterministic consequences. In that sense, the gameplay in a critical infrastructure risk control competition is intrinsically random in the sense of actions having uncertain consequences. Mathematically, this takes us to utility functions that are probability-distribution-valued, in which case we loose the canonic (in fact every possible) ordering on the space of payoffs, and the original techniques of von Neumann and Morgenstern no longer apply. This work introduces a new kind of game in which uncertainty applies to the payoff functions rather than the player's actions (a setting that has been widely studied in the literature, yielding to celebrated notions like the trembling hands equilibrium or the purification theorem). In detail, we show how to fix the non-existence of a (canonic) ordering on the space of probability distributions by only mildly restricting the full set to a subset that can be totally ordered. Our vehicle to define the ordering and establish basic game-theory is non-standard analysis and hyperreal numbers.
    Date: 2015–06
  2. By: Ai-Thu Dang (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS)
    Abstract: John Rawls's remarks on race are sparse in his writings. However, three key moments in his conceptual apparatus wherein racial issues appear explicitly can be be highlighted: (1) the status of race as a feature of the veil of ignorance; (2) racial minorities, the least advantaged, and the difference principle; and (3) the role of arguments made by antebellum abolitionist dissidents and Martin Luther King, Jr., in favor of racial equality in his reformulation of his notion of public reason. I show that the introduction of race poses difficulties for Rawls in his theory of justice. I also propose an explanation of why Rawls does not address issues of racial justice more explicitly and in-depth. However, because Rawls himself explained his relative silence on racial justice, I discuss its relevance. I contend that Rawls's conception of justice as fairness as a form of political liberalism is indebted to a strong principle of equal citizenship for all individuals that is blind to race and ethnicity, so his theoretical apparatus addresses the issue of legal racial discrimination or institutional racism. Nevertheless, it fails to address the problem of systemic racial discrimination.
    Abstract: Il n'existe pas de développements systématiques dans les écrits de John Rawls sur la question des inégalités raciales ou fondées sur l'origine ethnique, mais seulement des remarques parcellaires et répétitives sur ce sujet. On peut toutefois repérer trois moments clés dans la construction théorique de Rawls où les questions de justice raciale sont introduites : le statut de la race et le voile d'ignorance ; les minorités raciales, les plus mal lotis de la société et le principe de différence ; le rôle des arguments religieux avancés par les abolitionnistes américains et par Martin Luther King en faveur de l'égalité raciale dans la reformulation par Rawls de sa conception de la raison publique. Je montre que l'introduction des questions de justice raciale déstabilise le cadre théorique de Rawls et soulève des questions dont il est lui-même conscient. Je discute de l'explication donnée par Rawls pour justifier son relatif silence et je montre que ses principes de justice permettent de lutter contre la discrimination directe mais ne permettent pas de répondre au défi de la discrimination systémique.
    Date: 2015–04
  3. By: Thomas I. Palley
    Abstract: This paper examines several mainstream explanations of the financial crisis and stagnation and the role they attribute to income inequality. Those explanations are contrasted with a structural Keynesian explanation. The role of income inequality differs substantially, giving rise to different policy recommendations. That highlights the critical importance of economic theory. Theory shapes the way we understand the world, thereby shaping how we respond to it. The theoretical narrative we adopt therefore implicitly shapes policy. That observation applies forcefully to the issue of income inequality, the financial crisis and stagnation, making it critical we get the story right.
    Keywords: Income inequality, financial crisis, stagnation, economic theory.
    JEL: E00 E02 E10 E20 E24
    Date: 2015
  4. By: Geoffrey C. Harcourt (School of Economics, UNSW Business School, UNSW)
    Date: 2015–06
  5. By: Neil Hart (Industrial Relations Research Centre, UNSW); Peter Kriesler (School of Economics, UNSW Business School, UNSW)
    Abstract: This paper provides a brief introduction to post-Keynesian economics. Post-Keynesians are sceptical of the usefulness of the equilibrium method, and favour an approach based on path-determined models with, due to the influence of uncertainty on economic decisions, an important role assigned to money, institutions and rules of thumb. As there are no forces within capitalist economies which can guarantee full employment, government intervention is important. While monetary policy is seen as a rather blunt instrument, fiscal policy is perceived to be much more potent than it is in the mainstream. However, there are inherent limits to the achievement of sustained full employment in capitalist economies.
    Keywords: Keynes, post-Keynesians, methodology, path dependency, economic policy
    JEL: B2 B41 B5 D4 D5 E6
    Date: 2015–06
  6. 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 decentralization of information within the judicial process, this paper aims to address why decentralization 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. Ce document vise à mettre en évidence le consensus Posner et Hayek sur l'importance de la décentralisation, ainsi que l'importance de l'intégration des acteurs non juridiques comme des outils pour faciliter l'allocation efficace des ressources dans le droit commun. En plus de souligner le consensus sur les points de vue des Posner et Hayek, en ce qui concerne de centralisation de l'information dans le processus judiciaire, ce document vise à expliquer pourquoi de la centralisation sert comme un outil essentiel dans la facilitation de l'objectif du droit commun comme une répartition de l'efficacité mécanisme. Alors il est soutenu que juges des tribunaux inférieurs peuvent pas et ne doivent pas être administrés tels flexibilité pour faire et défaire la loi, les principes et les décisions des lords juristes agissant en qualité de législateur, ont également illustré conduisant dans plusieurs cas que la flexibilité voulue par Le Parlement peut être mal interprété et mal appliqué dans les cas futurs. Cela a également entraîné dans la critique des aides extrinsèques à l'interprétation des lois. Ce document analyse et élargit ces observations.
    Keywords: attentes légitime; de précédents judiciaires; interprétation de la loi; l'efficacité d'allocation; Pepper v Hart; Daubert; Le Domaine d'Edgar A. Berg v Commissaire; le droit commun
    JEL: D8 G3 G38 K2 M4
    Date: 2015–06–22
  7. By: Koji Yokote (Graduate School of Economics, Waseda University); Yukihiko Funaki (Faculty of Political Science and Economics, Waseda University)
    Abstract: We introduce several bases of the set of TU games. Given a coalition T, Yokote et al. (2013) introduced the commander game in which a coalition including 1 player in T obtains payoff. On the other hand, Shapley (1953) introduced the unanimity game in which a coalition including all players in T obtains payoff. We consider the intermediate between the two games. We introduce a game in which a coalition including k players in T obtains payoff, where 1 ≤ k ≤| T |. We show that, if there is a specific relationship between the size of coalition T and k, we can construct a new basis. By using the new basis, we give sufficient conditions under which the Shapley value coincides with the prenucleolus.
    Keywords: basis; Shapley value; prenucleolus; coincidence condition
    JEL: C71
    Date: 2015–01
  8. By: Lorenzo Cerda Planas (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics)
    Abstract: The aim of this paper is twofold. Starting from the population dynamics literature, which usually finds the resulting distribution of a trait in a population, according to some parents' preferences, I answer the inverted question: Which preference function would yield into a given trait distribution? I solve this using a continuous trait, instead of finite types of agents. Using this result, I connect this transmission theory of social traits with the well-known results of Dictator Game (DG) experiments. I use a specific definition of a Kantian trait applied to DG results, and determine the distribution of this trait that is commonly found in these experiments. With these two ingredients, I show that homo-œconomicus parents have a greater' dislike' or disutility of having offspring with different traits from them compared to their Kantian counterparts. This could be a result of myopic empathy being stronger in homo-œconomicus parents, driving this dislike of difference.
    Date: 2015–03
  9. By: Stark, Oded; Jakubek, Marcin; Kobus, Martyna
    Abstract: When individuals' utility is a convex combination of their income and their concern at having a low relative income (the weights attached to income and to the concern at having a low relative income sum up to one), the maximization of aggregate utility yields an equal income distribution. This alignment of utilitarianism and egalitarianism is obtained for any number of individuals, and for general utility functions that are convex combinations of a power function of income and the concern at having a low relative income. The alignment can also hold when the weights sum up to a number different than one.
    Keywords: Utilitarianism,Egalitarianism,Social welfare maximization,Low relative income
    JEL: H0 I0 I30 I31
    Date: 2015
  10. By: Christoph Kuzmics (Center for Mathematical Economics, Bielefeld University); Daniel Rodenburger (University of Jena)
    Abstract: Using data from an experiment by Forsythe, Myerson, Rietz, and Weber (1993), designed for a different purpose, we test the "standard theory" that players have preferences only over their own mentary payoffs and that play will be in (evolutionary stable) equilibrium. In the experiment each subject is recurrently (24 times) randomly matched with ever changing opponents to play a 14 player game. We find that assuming risk-neutrality for all players leads to a predicted evolutionary stable equilibrium that, while it can be rejected at the 5% level of significance, is nevertheless remarkably close to "explaining" the data. Moreover, when we assume that players are risk-averse and we calibrate their risk-aversion in one treatment with a simple game, this theory cannot be rejected at the 5% level of significance for another treatment with a more complicated game, despite the fact that we have close to 400 data points.
    Keywords: opinion polls, elections, voting, testing, Nash equilibrium, attainable equilibrium, symmetries
    JEL: C72 D72
    Date: 2015–06
  11. By: Lionel De Boisdeffre (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS, CATT - UPPA - Université de Pau et des Pays de l'Adour)
    Abstract: We consider a pure exchange financial economy, where rational agents, possibly asymmetrically informed, forecast prices privately with no model of how they are determined. Therefore, agents face both ‘exogenous uncertainty’ on the future state of nature, and ‘endogenous uncertainty’ on the future price. At a sequential equilibrium, all consumers expect the ‘true’ price as a possible outcome and elect optimal strategies at the first period, which clear on all markets ex post. The paper's purpose is twofold. First, it defines no-arbitrage prices, which comprise all equilibrium prices, and displays their revealing properties. Second, it shows under mild conditions, that a sequential equilibrium always exists in this model, whatever agents' prior beliefs or the financial structure. This outcome suggests that standard existence problems, which followed Hart [1975] and Radner [1979], stem from the national expectation and perfect foresight assumptions of the classical model.
    Abstract: Nous proposons un modèle de marchés financiers incomplets avec asymétrie d'information, dans lequel les agents anticipent les prix de manière privée sans anticipations rationnelles. Ils sont donc confrontés à une double incertitude. La première, exogène, sur l'état de la nature qui prévaudra demain. La seconde, endogène, sur le prix d'équilibre dans chaque état anticipé qui dépend des croyances privées des agents. Un équilibre séquentiel est atteint lorsque les agents ont optimisé leurs stratégies et anticipé les vrais prix de demain et que tous les marchés sont à l'équilibre ex post. L'objet de l'article est double. Définir des prix de non arbitrage d'une part et montrer l'information qu'ils peuvent révéler. Montrer d'autre part que l'équilibre existe toujours dans ce modèle, sous des conditions faibles quelles que soient les croyances initiales des agents et la structure des marchés financiers. Ceci, dès que les agents ont atteint une structure d'information sans arbitrage, ce qui est toujours possible. Ce résultat suggère que les problèmes d'existence qui ont suivi Hart [1975] et Radner [1979] proviennent des hypothèses d'anticipations rationnelles et parfaites des modèles classiques.
    Date: 2015–04
  12. By: Geiger, Niels
    Abstract: This paper is devoted to the question of operationalising the development of behavioural economics, focussing on trends in the academic literature. The main research goal is to provide a quantitative assessment in order to answer the question of whether or not behavioural economics has gained in relative importance in the past few years. After an introduction and a short summary of the history of behavioural economics, several studies are laid out and evaluated. The results generally confirm the story as it is usually told in the literature, and add some notable additional insights.
    Keywords: behavioural economics,bounded rationality,culturomics
    JEL: D03 E61 E65
    Date: 2014–09
  13. By: Kemp-Benedict, Eric
    Abstract: Minsky’s financial instability hypothesis (FIH) has been criticized as suffering from a fallacy of composition that violates a central thesis of Kalecki. Nevertheless, Minsky’s description of borrowing and lending behavior is sufficiently compelling that it continues to drive new research. In this paper we propose a modified Kaleckian model in which a behavioral rule captures Minsky’s microeconomic argument that firms and banks increase the leverage of new loans during booms, but which translates through Kaleckian dynamics into a falling debt-to-capital ratio at a macroeconomic level. The expanding loan-to-capital ratio drives a potential instability, but in utilization, rather than debt.
    Keywords: financial instability hypothesis; Kalecki; Minsky; debt dynamics
    JEL: E12 E32
    Date: 2015–06–22
  14. By: Feld, Lars P.; Köhler, Ekkehard A.; Nientiedt, Daniel
    Abstract: German policy during the Eurozone crisis supposedly follows an ordoliberal tradition. In this paper, we discuss to what extent this contention holds and to what extent Germany pragmatically responded to different crisis phenomena. A proper analysis of ordoliberal thinking reveals that the European Monetary Union can be justified on ordoliberal grounds as an economic constitution for Europe in which several pillars supposedly aim at ensuring sound money in the Eurozone. The policies the German government pushed during the Eurozone crisis have been informed by the ordoliberal tradition. In particular, this tradition may explain why the German government has been hesitant to support the call for Eurobonds and has only reluctantly established the European Stability Mechanism (ESM). However, the decisions on the ESM and the acceptance of unconventional monetary policy in Europe show that German economic policy largely responded pragmatically to the challenges offered by the crisis.
    Keywords: ordoliberalism,Eurozone crisis,constitutional economics,monetary and fiscal policy
    JEL: B13 B26 B31 D78 E61 E63
    Date: 2015

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