nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2016‒08‒21
fourteen papers chosen by
Erik Thomson
University of Manitoba

  1. Continuous time, continuous decision space prisoner’s dilemma: A bridge between game theory and economic GCD-models By Glötzl, Erhard
  2. Walras' law in the context of pre-analytic visions: A note By Heise, Arne
  3. Why economics textbooks must, and how they can, be changed into a real-world and pluralist economics. The example of a fundamentally new complexity-economics micro-textbook By Elsner, Wolfram
  4. To report or not to report: Applying game theory to nursing error reporting By Alex Barrachina; Víctor González-Chordá
  5. Behavioral economics: Economic Man and Evaluation of the Role of State in this Model By Sheresheva Marina; Kostanyan Ani
  6. Do DSGE Models Have a Future? By Olivier Blanchard
  7. Moral Costs and Rational Choice: Theory and Experimental Evidence By Anya Samek; James Cox; John List; Michael Price; Vjollca Sadiraj
  8. Essai d'une théorie générale de la firme By Adama Zerbo
  9. Economic discourse and the European integration of financial infrastructures and financial markets By Krarup, Troels
  10. Common Belief Revisited By Romeo Matthew Balanquit
  11. Monetary economics from econophysics perspective By Victor M. Yakovenko
  12. (In)Equality and (In)Justice By Jasso, Guillermina
  13. Dishonesty: From Parents to Children By Anya Samek; Daniel Houser; Joachim Winter; John List; Marco Piovesan
  14. A Minskyan criticism on the shareholder pressure approach of financialisation By Dögüs, Ilhan

  1. By: Glötzl, Erhard
    Abstract: General Constrained Dynamic models (GCD – models) in economics are inspired by classical mechanics with constraints. Most macroeconomic models can be understood as special cases of GCD – models. Moreover, in this paper it will be shown that not only macroeconomic models but also game theoretic models are strongly related to GCD – models. GCD models are characterized by a system of differential equations in continuous time while most game theoretical models are set up in discrete time. Therefore it is necessary to build a bridge from game theoretical models denominated in discrete time to game theoretical models using continuous time. This bridge is illustrated in the following using the example of a continuous time, continuous decision space prisoner’s dilemma. Furthermore, it is shown that the differential equations which determine other continuous game theoretic models can be understood to a certain extent as special cases of the GCD – differential equations. Well known types of continuous game theoretic models include for instance “Evolutionary Game Theory” with the replicator equation, “Adaptive Dynamics” with the canonical equation, which is nothing else than a replicator – mutator equation, and the so called “Differential Games”, which are strongly related to optimal control theory with two controls and two different objectives (goals). Most of the GCD – models are characterised by 3 key feature: - mutual influence, - Power-factors - Constraints Nowak (2006b) and Taylor & Nowak (2007) show that there are five mechanisms which, under certain conditions, can lead to the evolution of cooperation in an iterated prisoner’s dilemma. Inspired by this, we apply the 3 key features of GCD – models to the standard prisoner’s dilemma in discrete time which yields 3 additional mechanisms which enable the evolution of cooperation. The assumption or axiom of the free market economy is that an individual optimisation strategy will lead to an overall optimum by virtue of Adam Smith’s invisible hand. Without additional conditions this assumption alone is fundamentally wrong. As in prisoner’s dilemma also in economics cooperation is essential to get an overall optimum. The big question of political economy is to analyse which additional measures could guarantee that the individual optimisation strategy characterising a free market economy leads to cooperation as precondition to get an overall optimum. From this point of view the different economic theories could be characterised in terms of which measures they assume to be sufficient to guarantee an overall optimum without abandoning the principle of individual optimisation.
    Keywords: economic models, economic GCD-models, continuous Game Theory, Evolutionary Game Theory , Prisoner’s Dilemma, Cooperation, Political Economy
    JEL: B41 C02 C60 C70 C72 E10 E66 P26
    Date: 2016–03–26
  2. By: Heise, Arne
    Abstract: Walras' law is central to the formation of economic theory. For mainstream economics, it is a device for testing rigorousness and consistency of model-building; for heterodox economists, the refutation of Walras' law is key to understanding Keynes' revolutionary contribution to a new economic paradigm. The purpose of this short research note is to elaborate on the possibility of a refutation of Walras' law and to inquire into its preconditions. It will be argued that this can only be achieved on the basis of an alternative pre-analytic vision of a genuine monetary economy as forshadowed by John Maynard Keynes.
    Keywords: Walras' law,equilibrium,disequilibrium,heterodoxy,orthodoxy
    JEL: B50 D50 D51 E
    Date: 2016
  3. By: Elsner, Wolfram
    Abstract: We argue that economics must, and can, be taught in fundamentally different ways than the simplistic and ideology-laden “economics of x”. We illustrate this with a fundamentally new textbook, “Microeconomics of Complex Economies” (2015). The mainstream’s ambivalence between some relevant research and its simplistic teaching in terms of “optimum”, “equilibrium”, and “market”, and the resulting textbook structure, incoherent between the static and “optimal” equilibrium and some reference to more recent real-world phenomena, will be characterized. We show how this can be changed by showing the process of getting a “heterodox” complexity textbook published, and by the structure of its content.
    Keywords: microeconomics; textbooks; teaching economics; heterodoxy; complexity economics; evolutionary economics; institutional economics; game theory; computational economics; history of economic thought.
    JEL: A11 A20 B00 C63 C70 D00
    Date: 2016–08–15
  4. By: Alex Barrachina (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain); Víctor González-Chordá (Nursing Department, Universitat Jaume I, Castellón, Spain)
    Abstract: The interaction between nurses and their managers is a very important factor in nurses’ error reporting behaviour, which is crucial to improve patient safety in health care organisations. However, little theoretical work has been undertaken to analyse this interaction. This paper attempts to take a modest step forward in closing this gap in the health economics literature by considering a principal-agent model in which the principal (the nurse manager) asks the agent (the nurse) to perform a task with a certain patient. If the nurse makes a mistake while treating the patient, she has to decide whether to report it to the manager, taking into account that the manager can observe whether the patient suffered an accident. Considering four leadership styles for the manager and four styles of error reporting for the nurse, the paper concludes that a leadership style very close to the transformational one is, in general, the best one for receiving error notifications from nurses, which is coherent with the evidence provided by the nursing management literature.
    Keywords: Nurse error reporting – Patient safety – Asymmetric information – Nurse-manager interaction– Nurse leadership style
    JEL: C72 D82 I12 M12
    Date: 2016
  5. By: Sheresheva Marina (Department of Economics, Lomonosov Moscow State University); Kostanyan Ani (Department of Economics, Lomonosov Moscow State University)
    Abstract: The article presents an approach to the assessment of the economic man model in the behavioral economics as the one of the latest trends of economic thought development, and discusses the role of state in this model. The evolution of the economic man model is described on the basis of retrospective analysis (from the mercantilism up to the experimental economics). Specific features of human decision-making process in behavioral economics are revealed. A critical view at the phenomenon of paternalism in this framework is given, and the impact of different paternalism types on the human decision-making process in behavioral economics is described.
    Keywords: economic man, behavioral economics, rationality, economic psychology, paternalism.
    JEL: B1 B2
    Date: 2016–08
  6. By: Olivier Blanchard (Peterson Institute for International Economics)
    Abstract: Dynamic stochastic general equilibrium (DSGE) models have come to play a dominant role in macroeconomic research. Some see them as the sign that macroeconomics has become a mature science, organized around a microfounded common core. Others see them as a dangerous dead end. This Policy Brief argues that the current DSGE models are seriously flawed, but they are eminently improvable and central to the future of macroeconomics. To improve, however, they have to become less insular, by drawing on a much broader body of economic research. They also have to become less imperialistic and accept to share the scene with other types of general equilibrium models.
    Date: 2016–08
  7. By: Anya Samek; James Cox; John List; Michael Price; Vjollca Sadiraj
    Abstract: The literature exploring other regarding behavior sheds important light on interesting social phenomena, yet less attention has been given to how the received results speak to foundational assumptions within economics. Our study synthesizes the empirical evidence, showing that recent work challenges convex preference theory but is largely consistent with rational choice theory. Guided by this understanding, we design a new, more demanding test of a central tenet of economics - the contraction axiom - within a sharing framework. Making use of more than 325 dictators participating in a series of allocation games, we show that sharing choices violate the contraction axiom. We advance a new theory that augments standard models with moral reference points to explain our experimental data. Our theory also organizes the broader sharing patterns in the received literature.
    Date: 2016
  8. By: Adama Zerbo (GED, Université de Bordeaux)
    Abstract: La science économique offre une vision éclatée de la firme : (i) la firme « maximisatrice » du profit de l’employeur, (ii) la firme des relations contractuelles et (iii) la firme comme un « nœud de compétences ». De ce fait, l’analyse de la firme dans sa globalité et surtout l’analyse des interactions entre ses différents aspects restent confrontées à l’absence d’une théorie complète. Pour ce faire, ce travail s’est fixé pour objectif de proposer une théorie générale de la firme. Il s’est fondé sur des hypothèses réalistes qui concourent à soutenir l’idée selon laquelle « outre la satisfaction de l’employeur qui est principalement liée au profit, la satisfaction des autres parties prenantes notamment les travailleurs constitue également une préoccupation de la firme ». Ainsi, dans son comportement d’ensemble, la firme cherche à atteindre une situation de compromis qui assure le niveau de satisfaction subjective le plus élevé possible à toutes les parties prenantes, au regard de ses capacités de production et de développement de nouvelles compétences, ainsi que de son environnement juridique, institutionnel, informationnel et économique interne et externe. L’analyse de ce nouveau cadre théorique a permis de dégager plusieurs résultats théoriques qui montrent notamment que : (i) le point de compromis de la firme se caractérise par l’égalité entre les utilités marginales des niveaux respectifs de rémunérations/gains des parties prenantes ; (ii) la demande de travail de la firme est composite (force de travail, compétences) et est fonction du profit réel, du salaire réel et du niveau réel de production ; (iii) toute chose égale par ailleurs, le modèle néoclassique de maximisation du profit sous-estime la demande de travail des firmes et ainsi de l’économie, et surestime le niveau de profit de la firmes. Economics provides an exploded view of the firm: (i) employer’s profit-maximizing firm, (ii) contractual relationships firm and (iii) "competences nexus” firm. Therefore, the analysis of the firm as a whole and the interactions between its various aspects is still facing the lack of a complete theory. So, this work aims to propose a general theory of the firm. It is based on realistic assumptions which contribute to support the idea that "in addition to the satisfaction of the employer that is primarily related to profit, satisfaction of other stakeholders including workers is also a concern to the firm". Thus, in its overall behavior, the firm seeks to reach a compromise position ensuring the level of subjective satisfaction as high as possible to all stakeholders, considering its production and new skills development capacities, as well as its internal and external legal, institutional, informational and economic environment. The analysis of this new theoretical framework led to several theoretical results showing in particular that: (i) the compromise point of the firm is characterized by the equality between marginal utilities of the respective levels of stakeholders earnings ; (ii) the labor demand of the firm is composite (labor force, skills) and depends on actual profits, real wages and real production levels; (iii) all things being equal, the neoclassical model of profit maximization underestimates labor demand of firms and thus of the economy, and overestimates the level of profit of the firm.(Full text in french)
    JEL: D21
    Date: 2016–01
  9. By: Krarup, Troels
    Abstract: European integration of financial markets appears to repeatedly encounter specific kinds of problems about the substance and limits of the notion of "the market" undergoing integration, and about the status and role of money, market infrastructures, and government within it. Moreover, these problems and the controversies around them parallel classical discussions in economic theory such as that between conceptions of the market as a frictionless space and as a process of competition. A "competitive conception of the market" is identified as producing these parallel problems and controversies in European market integration and economic theory because it implies a contradictory "integration of fragmentation". These themes and parallels can be specifically identified in a recent major project to integrate financial market infrastructures: a pan-European settlement platform - "Target2-Securities (T2S)" - to overcome existing fragmentation between the systems that perform the actual delivery of money and securities from financial transactions. Moreover, a close analysis of T2S answers a question that existing sociological and political economy approaches to European integration - focusing primarily on the interests and ideas of powerful players - struggle with: why T2S will become de facto a monopoly for the European Central Bank when early on in the integration process EU institutions emphasized an industry-led integration. Foucault's notion of "discursive formation" is employed to conceptualize these arguments.
    Keywords: European integration,financial infrastructures,financial markets,money,discourse analysis,Target2-Securities,European Central Bank
    Date: 2016
  10. By: Romeo Matthew Balanquit (School of Economics, University of the Philippines Diliman)
    Abstract: This study presents how selection of equilibrium in a game with many equilibria can be made possible when the common knowledge assumption (CKA) is replaced by the notion of common belief. Essentially, this idea of pinning down an equilibrium by weakening the CKA is the central feature of the global game approach which introduces a natural perturbation on games with complete information. We argue that since common belief is another form of departure from the CKA, it can also obtain the results attained by the global game framework in terms of selecting an equilibrium. We provide here necessary and sufficient conditions. Following the program of weakening the CKA, we weaken the notion of common belief further to provide a less stringent and a more natural way of believing an event. We call this belief process as iterated quasi-common p-belief which is a generalization to many players of a two-person iterated p-belief. It is shown that this converges with the standard notion of common p-belief at a sufficiently large number of players. Moreover, the agreeing to disagree result in the case of beliefs (Monderer & Samet, 1989 and Neeman, 1996a) can also be given a generalized form, parameterized by the number of players.
    Keywords: common p-belief; common knowledge assumption; global games
    JEL: D83 C70
    Date: 2016–08
  11. By: Victor M. Yakovenko
    Abstract: This is an invited article for the Discussion and Debate special issue of The European Physical Journal Special Topics on the subject "Can Economics Be a Physical Science?" The first part of the paper traces the personal path of the author from theoretical physics to economics. It briefly summarizes applications of statistical physics to monetary transactions in an ensemble of economic agents. It shows how a highly unequal probability distribution of money emerges due to irreversible increase of entropy in the system. The second part examines deep conceptual and controversial issues and fallacies in monetary economics from econophysics perspective. These issues include the nature of money, conservation (or not) of money, distinctions between money vs. wealth and money vs. debt, creation of money by the state and debt by the banks, the origins of monetary crises and capitalist profit. Presentation uses plain language understandable to laypeople and may be of interest to both specialists and general public.
    Date: 2016–08
  12. By: Jasso, Guillermina (New York University)
    Abstract: Understanding the exact connection between inequality and justice is important because justice is classically regarded as the first line of defense against self-interest and inequality. Absent a strong and clear link between inequality and justice, the sense of justice would not awaken to exert its moral suasion, no matter how great the inequality or how fast its increase. We obtain exact links between economic inequality and three parameters of the justice evaluation distribution–the mean, median, and variance–across a comprehensive set of inequality measures and a substantial starter set of just reward scenarios. This work shows that there is no general necessary connection between inequality and justice–inequality effects can be nonexistent, or can occur in opposite directions. There is, however, a striking pattern in some justice situations: As economic inequality increases, the average of the justice evaluations moves leftward, deeper into the territory of unjust underreward, and the distribution stretches outward, increasing the gulf between underrewarded and overrewarded and hollowing out the middle class. Further work specifying and strengthening the logical foundation will help guide development of sharp new empirical strategies for deeper understanding of the inequality-justice connection in all its manifestations.
    Keywords: lognormal distribution, fairness, justice, inequality, Pareto distribution, power-function distribution, Gini coefficient, Atkinson inequality, Theil MLD, general inequality parameter, justice evaluation, justice evaluation function, justice evaluation distribution
    JEL: C02 C65 D31 D6 I3
    Date: 2016–08
  13. By: Anya Samek; Daniel Houser; Joachim Winter; John List; Marco Piovesan
    Abstract: Acts of dishonesty permeate life. Understanding their origins, and what mechanisms help to attenuate such acts is an underexplored area of research. This study takes an economics approach to explore the propensity of individuals to act dishonestly across different contexts. We conduct an experiment that includes both parents and their young children as subjects, exploring the roles of moral cost and scrutiny on dishonest behavior. We find that the highest level of dishonesty occurs in settings where the parent acts alone and the dishonest act benefits the child. In this spirit, there is also an interesting, quite different, effect of children on parents' behavior: parents act more honestly under the scrutiny of daughters than under the scrutiny of sons. This finding sheds new light on the origins of the widely documented gender differences in cheating behavior observed among adults, where a typical result is that females are more honest than males.
    Date: 2015
  14. By: Dögüs, Ilhan
    Abstract: In this paper, the Post-Kaleckian approach on financialisation which argues that investment of Nonfinancial Corporations in real capital assets has been restricted by the rising dividend and interest payments due to shareholder pressure will be criticized based on a Minskyan understanding of investment. It will be put forward that, reinvestment of profits in capital assets has decreased because of declined quasi-rent expectations induced by depressed demand.
    Keywords: financialisation,shareholder pressure,Minsky,capital assets,financial assets
    JEL: E12 E22 E44
    Date: 2016

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