nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2016‒07‒23
nineteen papers chosen by
Erik Thomson
University of Manitoba

  1. Reconsideration of Rights to Vote By Eda Karademir; Alper Karademir
  2. Economics and Physics: A Forgotten Discussion By Camilo Andrés Mayorquín
  3. Amartya Sen : un allié pour l’économie de la personne contre la métrique des capabilités. Deux arguments pour une lecture non fonctionnelle de la liberté chez Sen By Muriel Gilardone
  4. Existence of trembling hand equilibrium in revision games with imperfect information By Sofia Moroni
  5. Evolution of Consistent Conjectures in Semi-Aggregative Representation of Games, with Applications to Public Good Games and Contests By Alex Possajennikov
  6. Social surplus determines cooperation rates in the one-shot Prisoner's Dilemma By Luca Rigotti
  7. Work Ethic, Social Ethic, No Ethic: Measuring the Economic Values of Modern Christians By Christopher L. Colvin; Matthew McCracken
  8. Physics and Financial Economics (1776-2014): Puzzles, Ising and Agent-Based Models By Didier SORNETTE
  9. When the State Gives Back: Trust and Trustworthiness after a Land Restitution Program By Francesco Bogliacino; Gianluca Grimalda; Laura Jiménez; Daniel Reyes Galvis; Cristiano Codagnone
  10. A Double Counting Problem in the Theory of Rational Bubbles By Hajime Tomura
  11. Emotion Research in Economics By Klaus Wälde
  12. Liverpool Merchants versus Ohmi Merchants:How and Why They Dealt with Risk and Insurance Differently By Yasuhiro Sakai
  13. Macroeconomic determinants of economic growth in Botswana: The Keynesian approach By Teboho Jeremiah Mosikari; Diteboho Lawrance Xaba; Johannes Tshepiso Tsoku
  14. Evolutionary Behavioural Finance By Igor V. EVSTIGNEEV; Thorsten HENS; Klaus Reiner SCHENK-HOPPÉ
  15. Revising England's Social Tables Once Again By Robert C. Allen
  16. How do biological markets compare to the markets of economics? By Noë, Ronald
  17. Teaching Macroeconomics after the Financial Crisis By Anca Voicu; Somnath Sen
  18. Mis-Judging Merit: The Effects of Adjudication Errors in Contests By Astrid, Gamba; Luca, Stanca;
  19. Utilitarianism with and without expected utility By McCarthy, David; Mikkola, Kalle; Thomas, Teruji

  1. By: Eda Karademir (Erzurum Technical University, Department of Philosophy); Alper Karademir (Aksaray University, Department of Politics and Public Administration)
    Abstract: This paper aims to elucidate how the weight of vote may be allocated in the current democratic systems to properly administrate a society on the basis of justice rather than simple equality that is today well accepted internationally. Towards this objective, the notion of current democracy will be briefly clarified within its historical origin. In this sense, the pros and cons of the current democracy approach will be examined to see its problematic issues. This examination will indicate that today’s democracy is incapable of creating an efficient representation in the political area due to the methodology of voting system that is unjustly one person to one vote. The content of ‘’weighted voting’’ system will be investigated suggested by John Stuart Mill whose claim would be better solution for the problems of today’s democracy. Mill’s ‘’weighted voting’’ looks fairer and more effective in the implementation of proportional equality that includes absolute equality. While the conception of contemporary democracy takes mainly the term of ‘absolute equality’, Mill’s approach accepts the term of ‘proportional equality’ that is the cornerstone to promote justice, which I also concern with the highest priority, both in theory and in practice. Mill’s approach argues for “equality of equal’s†and “inequality of unequal’s†shaped in social life dependent on individuals’ own preferences, since this hierarchical structure is not natural or permanent but temporary and transitional in a community, besides equality of opportunity does exist for every persons without exclusion of anyone. Although it may seem to be against the principles of today’s empirical democracy, in fact his proposal may be considered as progressive. This progressive approach can develop both individuals and society and reveal better administrative. Then, this work will search for moral justification in order to demonstrate its fairness and qualifications to elect the best possible representative. Consequently, this work will end with two conclusions. Firstly, current democratic voting system might create injustice in treating unequal as equal due to equal voting although the main aim is to promote fair representation. The second is a normative one that the best possible democratic system might adopt the principle of multiple votes that treats not only unequal as unequal but also equal as equal. Both phenomenological and analytical manners are utilised as methodology. The coherence of concepts is debated in itself within the necessity of ‘justice’.
    Keywords: Democracy, Political participation, ‘’the principle of multiple votes’’, Mill’s political philosophy
  2. By: Camilo Andrés Mayorquín
    Abstract: This paper has the objective of reviewing some of the key aspects that involve the association between physics and economics. It also invites to considerate the history behind the neoclassical model and how its physical origin is not well known. It is curious to see the close relation between these two sciences, but it is also curious how this could lead to misinterpretations and beliefs of economics being dependent on physics, which clearly is not the case.
    Keywords: economics, physics, history, neoclassical, misinterpretation
    JEL: B16 B23 B49
    Date: 2016–07–06
  3. By: Muriel Gilardone (Normandie Université, UNICAEN, CREM UMR CNRS 6211, France)
    Abstract: Dans cet article, nous voulons montrer que l’usage du concept de capabilité comme une simple « métrique » du développement humain est une vision réductrice de la proposition intellectuelle de Sen. Contrairement à certaines idées reçues, Sen partage l’idée des tenants d’une économie de la personne (Ballet et al 2014) selon laquelle une théorie de la justice en termes de droits à certaines capabilités resterait prisonnière d’une vision purement fonctionnelle de la liberté. Notre démonstration passe par deux types d’arguments : 1) en reprenant l’hypothèse standard et originelle de la capabilité comme ensemble de vecteurs de fonctionnements accessibles (e.g., Sen 1987), nous mettons en évidence quatre implications théoriques de l’approche de Sen que la perspective standard en termes de « welfarisme formel » (D’Aspremont 2011, Baujard 2016) ne permet pas de saisir ; 2) nous confortons cette lecture en examinant l’hypothèse – passée inaperçue jusque là – de la capabilité comme « pouvoir effectif » d’agir dans le sens de résultats que l’on valorise (Sen 2008, 2010 [2009]). Dans les deux cas, il s’agit de montrer que la capabilité pour Sen est bien autre chose qu’une « métrique » de l’avantage personnel. De surcroît, la seconde hypothèse amène à intégrer d’emblée la question de l’obligation morale dans le concept de capabilité. Dès lors, la capabilité non seulement n’est pas une métrique de l’avantage personnel, mais elle n’est même plus une représentation de l’avantage personnel. C’est ici qu’apparaît la véritable révolution conceptuelle de Sen qui, contrairement à ce que Ricœur (2004) avait cru lire, ne se trouve pas dans le couple droit-capabilité, mais dans le couple responsabilité-capabilité nous obligeant à repenser le cadre standard des théories de la justice.
    JEL: A13 B31 B41 D63 I31
    Date: 2016–07
  4. By: Sofia Moroni
    Abstract: In revision games a group of players can move at stochastic opportunities before adeadline. Their payoffs are determined by the sequence of actions taken before the endof the game. In this paper I define trembling hand equilibrium in a large class of revisiongames that may feature incomplete and imperfect information, and show that tremblinghand equilibria exist. Since trembling hand perfect equilibria are also Nash, existence ofa Nash equilibrium follows.
    Date: 2015–01
  5. By: Alex Possajennikov (School of Economics, University of Nottingham)
    Abstract: In a semi-aggregative representation of a game, the payoff of a player depends on a player's own strategy and on a personalized aggregate of all players' strategies. Suppose that each player has a conjecture about the reaction of the personalized aggregate to a change in the player's own strategy. The players play an equilibrium given their conjectures, and evolution selects conjectures that lead to a higher payoff in such an equilibrium. Considering one player role, I show that for any conjectures of the other players, only conjectures that are consistent can be evolutionarily stable, where consistency means that the conjecture is, to a first approximation, correct at equilibrium. I illustrate this result in public good games and contests.
    Keywords: semi-aggregative games, conjectural variations, evolutionary stability, public good games, contests
    Date: 2016–08
  6. By: Luca Rigotti
    Abstract: We provide evidence on how cooperation rates vary across payoff parameters in the Prisoner’s Dilemma (PD), using four one-shot games that differ only in the payoffs from mutual cooperation. In our experiment, participants play only the PD game, and play the game once and only once, so there are no potential confounds or methodological issues. Our results show that higher monetary payoffs from cooperation are associated with substantially higher cooperation rates, which increase monotonically from 23% to 60%. Participants’ beliefs about cooperation rates track closely actual cooperation rates: higher cooperation is expected from others when mutual cooperation payoffs are higher. This is true also for participants who, in a follow-up experiment, only make guesses about the choices of others.
    Date: 2016–01
  7. By: Christopher L. Colvin; Matthew McCracken
    Abstract: Benito Arruñada finds evidence of a distinct Protestant social ethic in the ISSP’s 1998 Religion II Survey (Economic Journal 2010; 120: 890-918). We replicate Arruñada’s results using his broad definition of Protestantism and our new narrow definition, which includes only those ascetic denominations that Max Weber singled out for possessing a strong capitalist work ethic. We then extend this analysis to the ISSP’s 2008 Religion III Survey, the most recent comparable international questionnaire on religious attitudes and religious change. We find no evidence of a Calvinist work ethic, and suggest that Arruñada’s Protestant social ethic continues into the twenty-first century.
    Keywords: Work Ethic; Social Ethic; International Social Survey Programme; Replication
    JEL: J24 Z12
    Date: 2016–07
  8. By: Didier SORNETTE (ETH Zurich and Swiss Finance Institute)
    Abstract: This short review presents a selected history of the mutual fertilization between physics and economics, from Isaac Newton and Adam Smith to the present. The fundamentally different perspectives embraced in theories developed in financial economics compared with physics are dissected with the examples of the volatility smile and of the excess volatility puzzle. The role of the Ising model of phase transitions to model social and financial systems is reviewed, with the concepts of random utilities and the logit model as the analog of the Boltzmann factor in statistic physics. Recent extensions in term of quantum decision theory are also covered. A wealth of models are discussed briefly that build on the Ising model and generalize it to account for the many stylized facts of financial markets. A summary of the relevance of the Ising model and its extensions is provided to account for financial bubbles and crashes. The review would be incomplete if it would not cover the dynamical field of agent based models (ABMs), also known as computational economic models, of which the Ising-type models are just special ABM implementations. We formulate the "Emerging Market Intelligence hypothesis" to reconcile the pervasive presence of "noise traders" with the near efficiency of financial markets. Finally, we note that evolutionary biology, more than physics, is now playing a growing role to inspire models of financial markets.
    Keywords: order book, Brownian particle, fluctuation-dissipation, dollar-yen OR from paper: Finance, physics, econophysics, Ising model, phase transitions, excess volatility puzzle, logit model, Boltzmann factor, bubbles, crashes, adaptive markets, ecologies
    JEL: A12 B41 C00 C44 C60 C73 D70 G01
  9. By: Francesco Bogliacino; Gianluca Grimalda; Laura Jiménez; Daniel Reyes Galvis; Cristiano Codagnone
    Abstract: Recent research in Economics has sought to understand the effects of exposure to violence on individual preferences, including pro-social behavior. Here, we assess the impact on pro-social behaviour of a governmental program to compensate victims of forced displacement. All our subjects have been officially recognized as victims of a conflict, and, as such, are eligible to apply for restitution of their land within the "Victims’ Law" (Ley de Víctimas, Bill 1448/2011). The key independent variable of our analysis is whether a subject has obtained land back within this or similar programs. Our dependent variables are a subject's trust and trustworthiness in unknown persons, as measured in a modified version of a Trust Game. We focus on inter-personal trust and trustworthiness because of their well-documented positive effect on economic development. Our design includes a treatment in which subjects vote on their most preferred outcomes to understand whether forms of consultative democracy can engender higher mutual trust. We find that land restitution significantly raises trustworthiness, while there is no effect on trust. This confirms previous insights that trust and trustworthiness tap into different aspects of pro-sociality. Voting does not improve either trust or trustworthiness. The results are robust to controlling for socio-economic status within regression analysis and to the omitted variable bias.
    Keywords: trust, trustworthiness, displacement, reparations.
    JEL: C93 I38 Q15
    Date: 2016–07–12
  10. By: Hajime Tomura (Faculty of Political Science and Economics,Waseda University,)
    Abstract: In a standard overlapping generations model, the unique equilibrium price of a Lucas' tree can be decomposed into the present discounted value of dividends and the stationary monetary equilibrium price of fiat money, the latter of which is a rational bubble. Thus, the standard interpretation of a rational bubble as the speculative component in an asset price double-counts the value of pure liquidity that is already part of the fundamental price of an interest-bearing asset.
    Keywords: rational bubbles; liquidity.
    JEL: E3
    Date: 2016–05
  11. By: Klaus Wälde (Johannes Gutenberg-University Mainz)
    Abstract: Emotions were central to the development of economics, especially in utility theory in classical economics. While neoclassical utility theory basically abolished emotions, behavioural economics more recently reintroduced emotions in utility theory. Beyond utility theory, economic theorists use emotions to explain behaviour which otherwise could not be understood or they study emotions out of interest for the emotion itself. While some analyses display a strong overlap between psychological thinking and economic modelling, in most cases there is still a large gap between economic and psychological approaches to emotion research. Ways how to reduce this gap are discussed.
    Keywords: utility theory, ex-ante emotions, immediate emotions, ex-post emotions belief-based emotions, regret, desire, stress, anxiety, guilt
    Date: 2016–06
  12. By: Yasuhiro Sakai (Faculty of Economics, Shiga University)
    Abstract: The purpose of this paper is to intensively discuss and carefully compare the Liverpool Merchants of Britain and the Ohmi merchants of Japan in a historical perspective. The question of much interest is how and why those two merchants dealt with risk and insurance differently. In his later years, J.R. Hicks did a great contribution on the theory of economic history. He paid a special attention to the rise of the market in which the merchant played as the main actor of the history theater. According to the Hicks doctrine, the relation between theory and history should not be one-to-one, but rather flexible to a certain degree. Therefore, it would be quite interesting to compare the Liverpool merchants of Britain and the Ohmi merchants of Japan. It will be seen that they were engaged in their respective triangular trade, producing their respective socioeconomic systems. In short, we have to take a pluralistic view in order to fully understand the concept of risk and insurance from the viewpoint of economic history.
    Keywords: Liverpool merchants, Ohmi merchants, risk, insurance, triangular trade
    JEL: F14
    Date: 2016–07
  13. By: Teboho Jeremiah Mosikari (North West University); Diteboho Lawrance Xaba (North West University); Johannes Tshepiso Tsoku (North West University)
    Abstract: The interest of this study is to examine the macroeconomic determinants of economic growth in Botswana. The paper is motivated by poverty and unemployment figures rampaging the economy of Botswana, therefore, it is necessary to investigate its growth empirics. The study adopted the Keynesian expenditure approach to identify the factors influencing Botswana’s economic growth. The study used the time series data spanning from 1966 to 2014. The paper applied a robust Engle-Granger approach to examine the long run equilibrium between Keynesian macroeconomic factors and economic growth. In an attempt to examine the long run equilibrium, the results of the study reviled that all the variables performed according to Keynesian theory expectation. Furthermore, although imports impact negatively to economic growth according to Keynes theory and it is empirically proven. The study recommends that economic policy makers in Botswana should reconsider the import structure of the economy in such a way that they promote import of capital goods that will impact positively to economic growth in the long run that will translate to eradicate poverty and reduce unemployment.
    Keywords: economic growth, Keynesian theory, cointegration
    JEL: B41 C01 E20
  14. By: Igor V. EVSTIGNEEV (University of Manchester); Thorsten HENS (University of Zürich and Swiss Finance Institute); Klaus Reiner SCHENK-HOPPÉ (University of Manchester)
    Abstract: The paper reviews a new research field that develops evolutionary and behavioural approaches for the modeling of financial markets. The main objective is to create a plausible alternative to the conventional Walrasian equilibrium theory based on the hypothesis of full rationality of market players. Rather than maximizing typically unobservable individual utility functions, traders/investors are permitted to have a whole variety of patterns of strategic behaviour depending on their individual psychology. The models considered in this field combine elements of evolutionary game theory (solution concepts) and stochastic dynamic games (strategic frameworks).
  15. By: Robert C. Allen (New York University ABU Dhabi, UAE)
    Abstract: In the 1980s, Lindert and Williamson famously revised the social tables of King, Massie, Colquhoun, Smee, and Baxter that traverse the British industrial revolution. This paper extends their work in three directions: Servants are removed from middle and upper class households in the tables of King, Massie, and Colquhoun and tallied separately, estimates are made for the same tables of the number and incomes of women and children employed in the various occupations, income estimates are broken down into rents, profits, and employment income. These extensions to the tables allow variables to be computed that can be checked against independent estimates as a validation exercise. The tables are retabulated in a standard format to highlight the changing social structure of Britain during the industrial revolution. Changes in the social structure, the evolution of incomes by classes, and the pace of structural transformation are revealed.
    JEL: N13 N33 N53
    Date: 2016–07–14
  16. By: Noë, Ronald
    Abstract: After an introduction to biological markets written for non-biologists, I explore whether and to what extent natural markets, i.e. markets on which non-human traders exchange goods and services with members belonging to their own or to other species, can be compared to human ‘economic’ markets, i.e. the markets analysed by economists. Biological Market Theory (BMT) borrows jargon and ideas from economics, but was at least as much inspired by sexual selection theory, a collection of models of ‘mating markets’, including human mating markets. Here I ask two main questions: (1) Is there more than only a superficial resemblance between both types of markets? (2) Can the analysis of one yield insights about the other? First, I consider the different forms of human trading and markets and propose some biological ones to which these can best be compared, e.g. companies trading goods in markets shaped by ‘comparative advantage’ to underground nutrient exchange markets between plants and rhizobial bacteria and mycorrhizal fungi; job and retail markets with pollination, seed dispersal and protection markets between plants and insects; ‘embedded markets’ with grooming markets in non-human primates and so forth. Then I look at some phenomena that are considered to be exclusive to human markets, such as common currencies and binding contracts, and ask whether these are indeed that exclusive. Finally I look at the common ground: negotiations that take place on several types of markets, natural or not; the honesty of advertisements, which is recognised as a major problem for both human and non-human clients; the biological equivalent of the market – firm dichotomy and the importance of the costs of partner choice, which are known to economists as ‘transaction costs’ and to sexual selection theoreticians as ‘search costs’. I conclude that there are several good reasons to have a closer look at those properties that set human and biological markets apart, but certainly also at those features that make them comparable to each other.
    Keywords: cooperation, mutualism, trade, biological markets, mating markets, embedded markets, sexual selection, partner choice, currency, binding contract, negotiation, bargaining, honest advertisement, transaction costs, search costs, market – firm dichotomy
    JEL: B52 Z13
    Date: 2016–07–10
  17. By: Anca Voicu (Rollins College); Somnath Sen (The University of Birmingham)
    Abstract: There is considerable dissatisfaction in the profession regarding the teaching of macroeconomics after the financial crisis. The ‘Great Recession’ highlighted the inadequacy of traditional macroeconomic modelling, based on real business cycle theory and rational expectations, to appropriately explain why the contraction world-wide was so widespread and why it has been so persistent. Textbooks have been slow to respond to these concerns, possibly because it was believed that this recession would be temporary. In addition, new policy measures such as quantitative easing and the possibility of the zero lower bound in interest rates required a re-orientation of macroeconomics pedagogy. The purpose of this paper is three-fold. First, we sketch and highlight how some of these policy issues could be explained within a traditional Keynesian macromodel. However, such formal presentation to students quickly becomes arid, so to sustain interest we need to supplement the core analytical material with innovative pedagogic strategies which needs interactive student participation. The second purpose of the paper is to give examples of such teaching methods that we have used: the use of video material; utilization of websites from news media; film screening and in-class discussion (Inside the Meltdown); flipping the classroom; playing monetary policy games; as well as, organizing a debate between the proponents of Keynesian ideas and neoclassical models in solving the long recession. Our approach is a synthesis of traditional teaching of economic models with blended learning methods. The third purpose of the paper is to evaluate an early presentation of this method and content to students and how they responded to such an approach. Our pedagogic approach is not vastly different from what policy institutions such as Central Banks are thinking. Consider the following quote from a highly rated British macroeconomist, Professor Wilhem Buiter, on the applications of monetary policy by the Bank of England: “The Bank of England in 2007 faced the onset of the credit crunch with too much Robert Lucas, Michael Woodford and Robert Merton in its intellectual cupboard. A drastic but chaotic re-education took place and is continuing. I believe that the Bank has by now shed the conventional wisdom of the typical macroeconomics training of the past few decades. In its place is an intellectual potpourri of factoids, partial theories, empirical regularities without firm theoretical foundations, hunches, intuitions and half-developed insights. It is not much, but knowing that you know nothing is the beginning of wisdom†.
    Keywords: macroeconomics, Great Recession, teaching methods
    JEL: A00 A22
  18. By: Astrid, Gamba; Luca, Stanca;
    Abstract: Adjudication errors in contests have a dual nature: they imply at the same time the unjust exclusion of a meritorious candidate (exclusion error) and the unjust inclusion of a non-meritorious one (inclusion error). We study theoretically and experimentally the effects of adjudication errors on contestants' effort, explicitly disentangling the respective effects of exclusion and inclusion errors. We show how behavioral aspects, such as risk aversion, loss aversion and the framing of the incentive scheme (prize vs. penalty) shape the effects of judgement errors on effort. The experimental findings indicate that mis-judgements negatively affect bids, with exclusion and inclusion er- rors contributing equally to the disincentive effects of adjudication errors. A penalty framing significantly increases bids, relative to a prize framing, both in the absence of judgement errors and in the presence of adjudication errors. On the other hand, no significant interaction is found between the framing of the incentive scheme and the disincentive effects of judgement errors.
    Keywords: adjudication errors, contests, all-pay auction, experiment
    JEL: C72 C91 D44
    Date: 2016–07–14
  19. By: McCarthy, David; Mikkola, Kalle; Thomas, Teruji
    Abstract: We give two social aggregation theorems under conditions of risk, one for constant population cases, the other an extension to variable populations. Intra and interpersonal comparisons are encoded in a single `individual preorder'. The individual preorder then uniquely determines the social preorder. The theorems have features that may be considered characteristic of Harsanyi-style utilitarianism, such as indifference to ex ante and ex post equality. If in addition the individual preorder satisfies expected utility, the social preorder must be represented by expected total utility. In the constant population case, this is the conclusion of the social aggregation theorem of Harsanyi (1955) under anonymity, but contra Harsanyi, it is derived without assuming expected utility at the social level. However, the theorems are also consistent with the rejection of all of the expected utility axioms, at both the individual and social levels. Thus expected utility is inessential to Harsanyi's approach under anonymity. In fact, the variable population theorem imposes only a mild constraint on the individual preorder, while the constant population theorem imposes no constraint at all. We therefore give further results related to additional constraints on the individual preorder. First, stronger utilitarian-friendly assumptions, like Pareto or strong separability, are essentially equivalent to the main expected utility axiom of strong independence. Second, the individual preorder satisfies strong independence if and only if the social preorder has a mixture-preserving total utility representation; here the utility values can be taken as vectors in a preordered vector space, or more concretely as lexicographically ordered matrices of real numbers. Third, if the individual preorder satisfies a `local expected utility' condition popular in nonexpected utility theory, then the social preorder is `locally utilitarian'.
    Keywords: Harsanyi, utilitarianism, expected utility, nonexpected utility, egalitarianism, variable populations.
    JEL: D60 D63 D71 D81
    Date: 2016–07–19

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