nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2016‒10‒16
fourteen papers chosen by
Erik Thomson
University of Manitoba

  1. On Performativity: Option Theory and the Resistance of Financial Phenomena By Nicolas Brisset
  2. Games on concept lattices: Shapley value and core By Ulrich Faigle; Michel Grabisch; Andres Jiménez-Losada; Manuel Ordóñez
  3. Antonio De Viti de Marco, political competition, and the principle of minimum means By Amedeo Fossati; Marcello Montefiori
  4. Prudent Equilibria and Strategic Uncertainty in Discontinuous Games By Philippe Bich
  5. What understanding of capital for tomorrow? By Gaël Giraud
  6. Criticizing the Lucas Critique: Macroeconometricians’ Response to Robert Lucas By Aurélien Goutsmedt; Erich Pinzon-Fuchs; Matthieu Renault; Francesco Sergi
  7. Inspired and inspiring: Hervé Moulin and the discovery of the beauty contest game By Rosemarie Nagel; Christoph Bühren; Björn Frank
  8. Institutions as Emergent Phenomena: Redefining Downward Causation By Nicolas Brisset
  9. The evolution of taking roles By Herold, Florian; Kuzmics, Christoph
  10. Birth and Death By Dasgupta, P.
  11. Le patrimoine au XXIè siècle By Guillaume Allegre; Xavier Timbeau
  12. Trust, Economic Growth and Importance of the Institution By Heekyung SON
  13. What are production, work and consumption? Trans-historical re-conceptualisations By Edvinsson, Rodney
  14. Economic cycles, central banks and crisis concepts. By Nizar Fassi

  1. By: Nicolas Brisset (Université Côte d'Azur, France; GREDEG CNRS)
    Abstract: The issue of performativity concerns the claim that economics shape rather than merely describing the social world. This idea took hold following a paper by Donald MacKenzie and Yuval Millo entitled “Constructing a Market, Performing Theory: The Historical Sociology of a Financial Derivatives Exchange” (2003). This paper constitutes an important contribution to the history of economic thought since it provides an original way to focus on the scientific construction of the real economy. The authors discuss the empirical success of the Black-Scholes-Merton (BSM) model on the Chicago Board Options Exchange (CBOE) during the period 1973-1987. They explain this success in part as instead of discovering pre-existing price regularities, it was used by traders to anticipate options’ prices in their arbitrages. As a result, options’ prices came to correspond to the theoretical prices derived from the BSM model. In the present article I show that this is not a completely correct conclusion since the BSM model never became a self-fulfilling model. I would claim that the October 1987 stock market crash is empirical proof that the financial world never fitted with the economic theory underpinning the BSM.
    Keywords: Performativity, Black-Scholes-Merton, Self-fulfillment
    JEL: B23 B41 G12
    Date: 2016–10
  2. By: Ulrich Faigle (Universität zu Köln - Mathematisches Institut); Michel Grabisch (PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Andres Jiménez-Losada (Escuela Superior de Ingenieros); Manuel Ordóñez (Escuela Superior de Ingenieros)
    Abstract: We introduce cooperative TU-games on concept lattices, where a concept is a pair (S,S' ) with S being a subset of players or objects, and S' a subset of attributes. Any such game induces a game on the set of players/objects, which appears to be a TU-game whose collection of feasible coalitions is a lattice closed under intersection, and a game on the set of attributes. We propose a Shapley value for each type of game, axiomatize it, and investigate the geometrical properties of the core (nonemptiness, boundedness, pointedness, extremal rays).
    Abstract: Nous introduisons la notion de jeu coopératif sur les treillis de concepts, où un concept est une paire (S,S' ) avec S un sous-ensemble de joueurs et S' un sous-ensemble d'attributs. Un tel jeu induit un jeu sur l'ensemble des joueurs/objets, qui s'avère être un jeu TU dont la collection des coalitions réalisables est un treillis fermé sous l'intersection, et un jeu sur l'ensemble des attributs. Nous proposons une valeur de Shapley pour chaque type de jeu, l'axiomatisons et étudions les propriétés géométriques du cœur (conditions pour être non vide, borné et pointé).
    Keywords: Shapley value,core,cooperative game,restricted cooperation,concept lattice,jeu coopératif,valeur de Shapley,coopération restreinte,coeur,treillis de concept
    Date: 2014–10
  3. By: Amedeo Fossati (Università di Genova); Marcello Montefiori (Università di Genova)
    Abstract: De Viti de Marco is generally regarded as one of the most eminent scholars of the early Italian public finance tradition. This paper presents a new interpretation of his thought with respect to the prevailing literature. In particular, an original perspective is provided for three main themes. The first is the consistency of De Viti’s theory of the state, that is presented as a coherent but naïf structure founded on the principle of minimum means and on political competition. The second suggests that his reflections on concrete problems are clearly independent from his theoretical framework, which still presents some features that may have application in modern democratic states. Finally, it is argued that, even if De Viti’s role in spreading the marginal analysis in Italy remains unquestioned, he seldom employed marginal tools in his analysis, and that he was more closely related with classical economics, rather than with the real approach of marginal analysis.
    Keywords: Italian tradition in public finance, De Viti de Marco, economic theory of state intervention
    JEL: B13 B2 B31 B41 H1 H2
    Date: 2016–10
  4. By: Philippe Bich (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)
    Abstract: We introduce the new concept of prudent equilibrium to model strategic uncertainty, and prove it exists in large classes of discontinuous games. When the game is better-reply secure, we show that prudent equilibrium refines Nash equilibrium. In contrast with the current literature, we don't use probabilities to model players' strategies and beliefs about other players' strategies. We provide examples (first-price auctions, location game, Nash demand game, etc.) where the prudent equilibrium is the intuitive solution of the game.
    Keywords: prudent equilibrium,Nash equilibrium,refinement,strategic uncertainty,better-reply secure
    Date: 2016–06–24
  5. By: Gaël Giraud (PSE - Paris School of Economics, CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: This paper discusses the thesis put forward by Piketty (2014a) stressing the risk of an explosion of wealth inequality because capital accumulates faster than labor income in several countries, especially in the U.US. Although the overall empirical conclusion on the rise of inequalities is indisputable, I point out that the economic modeling underlying this approach exhibits several important shortcomings. Moreover, there are more effective policy recommendations to fight against inequality than the one highlighted in the book —namely, a world-wide global tax on capital.
    Abstract: Ce papier examine la thèse avancée par Piketty (2014a) selon laquelle l'accumulation du capital plus rapide que celle des revenus du travail dans différents pays, en particulier aux Etats-Unis, pourrait provoquer une explosion des inégalités de patrimoine. Bien que la conclusion empirique globale sur la croissance des inégalités soit indiscutable, je montre que la modélisation économique sous-jacente à cette approche présente d'importantes lacunes. En outre, il existe des recommandations politiques bien plus efficace pour lutter contre les inégalités que celle qui conclut l'ouvrage, à savoir une taxe mondiale sur le capital.
    Keywords: capitalism,inequality,capital tax,capital,capitalisme,inégalité,Kaldor,Solow,taxe sur le capital
    Date: 2014–12
  6. By: Aurélien Goutsmedt (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Erich Pinzon-Fuchs (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Matthieu Renault (IRIF - Institut de Recherche en Informatique Fondamentale - UP7 - Université Paris Diderot - Paris 7 - CNRS - Centre National de la Recherche Scientifique); Francesco Sergi (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)
    Abstract: The standard history of macroeconomics considers Lucas (1976)– “the Lucas Critique”–as a path-breaking innovation for the discipline. According to this view Lucas’s article dismissed the traditional macroeconometric practice calling for new ways of conceiving the quantitative evaluation of economic policies. The Lucas Critique is considered, nowadays, as a fundamental principle of macroeconomic modeling (Woodford, 2003). The interpretation and the application of the Critique, however, represent still unsolved issues in economics (Chari et al., 2008). Even if the influence of Lucas’s contribution cannot be neglected, something seems to be missing in the narrative: the reactions of the economists that were directly targeted by the Critique. Modeling practices of economic policy evaluation were not overthrown immediately after Lucas (1976), creating a divide between theoretical and applied macroeconomics (Brayton et al., 1997). In the first section we propose a careful account of Lucas’s argument and of some of the previous works anticipating the substantial outline of the Critique (like Frisch’s notion of autonomy). Second, we bring our own interpretation of Lucas (1976). We find two points of view in Lucas's paper: a prescriptive one that tell how to build a good macroeconometric model (it is the standard interpretation of the article); a positive one that relies on the fact that the Lucas critique could be seen as an attempt to explain a real-world phenomenon: stagflation. Third, we classify the reactions of the Keynesian macroeconometricians following this line of interpretation. On the prescriptive side, the Keynesians protested against the New Classical solution to the Lucas critique (the use of the rational expectation hypothesis among other things). Klein, for instance, proposed an alternative microfoundational program to empirically study the formation of expectations. On the positive side, the Keynesians put into question the relevance of the Lucas Critique to explain the rise of both unemployment and inflation in the 1970s. They tried to test the impact of policy regime changes and of shifts in agents' behavior. We argue that the explanation of the stagflation was elsewhere. The purpose of this paper is to study the reactions of the macroeconometricians criticized by Lucas. We focus especially on those macroeconometricians who worked on policy evaluation and who held an expertise position in governmental institutions. We categorize the different reactions to the Critique, in order to enrich the understanding of the evolution of modeling and expertise practices through the analysis of the debates–which have not yet been completely solved.
    Keywords: History of macroeconomics, Keynesian economics, Lu- cas Critique, Macroeconometrics, Rational Expectations.
    Date: 2016–09–12
  7. By: Rosemarie Nagel; Christoph Bühren; Björn Frank
    Abstract: We draw an unusually detailed picture of a discovery, the beauty contest game - with Hervé Moulin as the center of the initial inspiration. Since its inception, the beauty contest game and the descriptive level k model has widely contributed to the growth of experimental and behavioral economics and expanded also to other areas within and outside of economics. We illustrate, in particular, the recent interaction between macro theorists and experimenters, who independently had worked on the puzzles and consequences due to beauty contest features. Furthermore, we introduce a new variety of the two-person beauty contest game with two different payoff structures that leads to different game-theoretic properties unperceived by naïve subjects and game theory experts alike.
    Keywords: Keynes, Beauty Contest Games, History, Level k, Micro-, Macro-, Neuro-Economic Experiments.
    JEL: C9 D84 D87 E12 N1 N80
    Date: 2016–10
  8. By: Nicolas Brisset (Université Côte d'Azur, France; GREDEG CNRS)
    Abstract: The concept of emergence is frequently used in the social sciences in order to characterize social institutions. Nevertheless, philosophy of mind argues that the idea of emergence is problematic because it encompasses the dubious notion of downward causation, i.e. the fact that an entity at a given ontological level might have a causal influence on lower level entities. This work shows that although it is problematic in some fields, emergence is an ontological feature of the social world. In order to justify this point of view and to show how institutions relate to individuals' actions, we define an institution as an exogenous device, which enables us to show that the relationship between institution and individual actions is not only a causal one but also an intersubjective and a constitutive one.
    Keywords: Emergent Phenomena, Institution, Downward Causation, Convention
    JEL: B52 B41
    Date: 2016–10
  9. By: Herold, Florian; Kuzmics, Christoph
    Abstract: Individuals engage in an ex-ante symmetric situation, in which in addition to a symmetric equilibrium there are also asymmetric equilibria. Individuals can assume one of a finite set of payoff irrelevant publicly observable labels and can condition their action choice on their own assumed label as well as the label of their opponent. We study evolutionary (and neutrally) stable strategies of such games. While the formal analysis is similar to the analysis of cheap talk games with evolutionary equilibrium selection, we are here mostly interested in the social structure that underlies such equilibria. For the class of 2 × 2 games with asymmetric pure strategy equilibria (hawk-dove games) we find a key distinction between two subclasses. While the best-response structure is identical for both subclasses, the evolution is quite different for hawk-dove games in which if you play dove you would prefer the opponent to play hawk (we call these anti-coordination games), and hawk dove games in which you always prefer the opponent to choose dove (we call them conflict games). Two social structures of particular interest are a hierarchical structure and an egalitarian structure. Furthermore, complex social structures composed of simpler substructures can emerge and we characterize their evolutionary stability. We discuss when they are evolutionary stable and the consequences of different structures for welfare.
    Date: 2016
  10. By: Dasgupta, P.
    Abstract: It has long been known that in finite economies Classical Utilitarianism commends policies that encourage large populations. It has been known also that the stronger is the aversion to risk and inequality in the standard of living, the lower is the optimum living standard, and that the latter tends in the limit to Sidgwick's "hedonistic zero". A version of that extreme feature of the theory was subsequently named the Repugnant Conclusion (RC). Most escape routes from RC have invoked the language of "gains" and "losses", which are familiar notions in social cost-benefit analysis. Those notions have been found to lead to paradoxes involving the Non-Identity Problem. In this paper I start with Sidgwick's theory in its pristine form - the criterion for evaluating states of affairs is the sum of personal utilities - but recast it in a contemporary language: the ground of binding reason is taken to be "well-being", not "happiness", nor "agreeable consciousness". Sidgwick erred in his interpretation of the hedonistic zero, which may explain why the seeming pro-natalism inherent in his theory has been found to be repugnant by philosophers. Problems with Sidgwick's Utilitarianism lie elsewhere. An example is presented which invites an additional but relatively mild notion of person-hood into any theory that says that personal well-beings should be the sole basis for ranking states of affairs. A weak version of Agent-Relative theories is drawn from the example, which in the context of population ethics may be called Generation-Relative Utilitarianism. It has however been suggested that the theory is incoherent because it does not yield a binary relation between states of affairs. I show that the incoherence would arise only if states of affair were to be evaluated from nowhere, and that it is an essential feature of Generation-Relative Utilitarianism that the state of affairs from which other states of affairs are viewed, matters. The theory is then put to work in a model economy facing an indefinite future and a finite flow of resources. Empirical studies of Earth's life support system are then used to justify the choice of the model. I make use of contemporary global statistics to get a feel for the theory's implications for both population size and the standard of living. Population size is found to be smaller and the living standard higher than they would be under Sidgwick's Utilitarianism. Population ethics is then used to understand the nature of loss that would be suffered in the face of human extinction. Generation-Relative Utilitarianism is shown to arrive at the view that each generation is a trustee of the capital it inherits from its predecessor.
    Date: 2016–10–07
  11. By: Guillaume Allegre (OFCE - OFCE - Sciences Po); Xavier Timbeau (OFCE - OFCE - Sciences Po)
    Abstract: Le succès mondial du livre de Thomas Piketty a donné lieu à une floraison de commentaires, laudateurs ou plus critiques. La recension des principaux arguments invite à considérer le patrimoine et non le capital comme le véritable objet de cet ouvrage.
    Keywords: Commentaires sur la thèse de Thomas Piketty,Patrimoine et héritage
    Date: 2015
  12. By: Heekyung SON (Statistical Research Institute in Statistics Korea)
    Abstract: To keep making economic development continuously these days, there is a newly widespread awareness that it is definitely important to accumulate not only the physical and human capital but also the social capital. Many people have been paying attention to the trust which is one of the most representative factors in the social capital from an economic point of view as there are increasing empirical evidences to demonstrate pretty convincingly that the social capital significantly contributes to the economic growth.In order to analyze how the social capital has an impact on the economic growth and what kind of factors make the level of trust changed, I adopted the Corruption Perception Index(CPI) as the indicator representing the "trust" so as to compare its CPI with those of other countries and analyzed data of the CPI from 34 OECD member countries from 2001 to 2013. As for the analysis of the variable factor for the level of trust, I made use of detailed institutional variables such as the political stability, the level of law and order, whether corruption is controlled or not, economic freedom and so on.As a result, the CPI has a positive correlation with the growth rate of the real GDP per capita in the pooled OLS and random effect panel analysis while it has a negative correlation with them in the fixed effect panel analysis, which means there are a variety of regulations to control corruption and the more members of society put even more efforts to abide by social norms, the more negative the growth rate of the real GDP per capita gets as time goes by. I think that's why almost all of advanced countries already built such enough social norms and standards that they do not play any significant role in economy.
    Keywords: Social capital, GDP, Economic growth, Trust, Institution
    JEL: O43 C23
  13. By: Edvinsson, Rodney (Dept. of Economic History, Stockholm University)
    Abstract: This paper argues for trans-historical reformulations of the basic economic concepts of production, work and consumption. The definition of the production boundary by System of National Accounts (SNA) is inconsistent from a scientific point of view. For example, while some non-market and illegal services are viewed as productive, others are not, and services and goods are treated differently. The definition proposed by feminist economics, the so-called third person criterion, is consistent, but in need for further development; furthermore, it is a definition of work and not of production. The purpose of this study is to investigate whether it is possible to formulate a non-eclectic set of logically consistent definitions that could be considered variations of a common underlying understanding across various theoretical traditions – mainly Classical, Neoclassical, Institutional, Marxist, Feminist and Keynesian Economics – of how humans consciously change external nature in order satisfy human needs. Important issues concern how to deal with violence, double counting of transaction costs, human capital formation, non-market activities and causation of final consumption. Production, work and consumption are defined as relations between events, the subject matter and the agent, and in the main definitions reduced to non-economic sentences. Even the utility concept is avoided. First-order logic is used, complemented with modal operators for some of the sentences. In this study, it is shown that production, work and consumption all share the common feature of intentional physical transformation of the intrinsic properties of the subject matter. The object transformed during the productive activity and work must at some point in time be external to the agent. For work, the purpose of transforming an external object must not lie in the transformation of the agent. A productive activity must potentially be able to cause the satisfaction of human needs, or final consumption, which is not a condition for work or required by the third-person criterion. Final consumption involves the transformation of the subject matter that is a final purpose for the consumer or serves as a purpose for transforming the consumer. Using a criterion applied by the institutional economist Cheung to identify transaction costs, this study defines social reproduction as an activity that would not occur in a Robinson Crusoe economy. Social reproduction occurs under an institutional setting. We can further differentiate between coercive and non-coercive social reproduction. In this study, eight different definitions of production are presented. The definition of agent external production is close to the third person criterion, but the possible causation of future final consumption is included as a condition for a productive activity. It is also related to the basic neoclassical model with its assumptions of no transaction costs. The definition of agent external non-coercive production entails that transformations of persons against their own will, whether legally or illegally performed, are unproductive activities. The definition of agent external non-social production entails that all socially reproductive activities are unproductive, and comes close to the distinction made by Classical and Marxist economists of productive and unproductive work. Humanity external production only includes the transformation of non-persons. The three definitions of time scale invariant production entails that human capital formation could be considered productive activities. Market production comes close to Keynesian theory and the present definition of SNA, with the difference that it excludes non-market goods production. The present study also opens for the possibility of unproductive work, for example failed production or professional murder, and productive final consumption that does not involve any work, for example hobby-hunting, play with children or research activity for own pleasure. Which definition of production is applied greatly affects the modelling and empirical application of growth theory and the analysis of the driving forces in economic history. For example, assume trade causes labour productivity outside of trade to increase four-fold due to specialisation, while the share of GDP in total working time increases from nil to half. With the same value added per productive hour and with total hours worked kept constant, the value added of agent external production then records a four-fold increase, while that of non-social production only a doubling. Similarly, during wars the SNA GDP often increases substantially, while the concept of agent external non-coercive production entails that all war expenses are treated as unproductive. Time frame invariant production grows faster than agent external production during expansions of the education system. Market production could serve important analytical purposes, for example to investigate the relation between money supply and inflation, but should be rid of inconsistencies such as the inclusion of non-market goods production.
    Keywords: GDP; production; work; consumption; economic philosophy; SNA
    JEL: A10 B13 B14 B40 B50 B51 B52 B54 D10 E00 E21 E23 J00 J24 N00 N01 O00
    Date: 2016–10–09
  14. By: Nizar Fassi (University of Gabes)
    Abstract: Das Buch in Wirtschaft wurde zu Finanzwissenschaftler oder neugierig der Wirtschaft entwickelt. Die Werkzeuge und Informations- und analytische Materialien sind implantiert, um die Wirtschaftszyklen zu identifizieren und sezieren zu helfen. Viele Elemente in der psychologischen Dimension kann die wirtschaftliche Wissen ergänzen und zu verfeinern, andere Winkel zu verstehen, Schiedsverfahren Wirtschaftssubjekten .
    Abstract: The book in Economics was developed to finance scholars or curious of the economy. The tools and informational and analytical materials are implanted to help identify and dissect the economic cycles. Many elements in the psychological dimension, can complement and refine the economic knowledge to understand other angles arbitrations economic agents.
    Abstract: Le livre en science économique a été élaboré pour donner, aux lectorats intéressés ou érudits par la finance, les outils nécessaires et les substances informationnelles et analytiques pour identifier et décortiquer les cycles économiques. De nombreux éléments, à la dimension psychologique, permettent de compléter et d'affiner les connaissances économiques afin de comprendre sous d'autres angles les arbitrages des agents économiques. Extraits du livre : "Un cycle connaît toujours des soubresauts, doux ou violents. Chaque mois, toutes les six semaines plus exactement, une réunion des gouverneurs des banques centrales fait trembler les marchés et secoue les économies. Faisons le tour des propriétaires en fixant les rapports intrinsèques des différentes composantes agissantes dans les crises économiques. Les cycles économiques sont constitués, au cours du temps long, d'une même série d'événements se répétant sans cesse sur une période plus ou moins équivalente : création, hausse, maturité, spéculation, baisse, krach/chute, crise incluant des éléments émotionnels à chaque étape associée du processus comme enthousiasme, désir, confiance, frénésie, lassitude, doute, peur, défiance, panique, garantie, calme puis une répétition en boucle périodique de ces affects avec plus ou moins de régularité/ de précision. Les théories économiques ont convergé pour identifier quatre formes de cycles à des périodes différentes de cyclicité : 1. le cycle économique de 40 à 60 années provenant des travaux de l'économiste Nikolai Kondratiev, 2. le cycle économique de 15 à 25 années fourni par les travaux de l'économiste Simon Kuznets, 3. le cycle économique des affaires de 8 à 10 années provenant des travaux de l'économiste Clément Juglar, 4. le cycle économique court de 3 à 4 années fourni par les études et travaux de l'économiste Joseph Kitchin. Ce modèle de récurrence économique tourne en boucle dans toute l'histoire de l'humanité. Dès 1862, l'économiste Clément Juglar a théorisé ces cycles via une étude détaillée sur plusieurs pays (USA, France, Angleterre) en essayant d'en observer et de démontrer les causes et les conséquences dans un objectif optimiste de prévention, de prospective et de réduction des effets par l'élaboration d'une stratégie adaptée."
    Keywords: cyle, économie, finance, financier, science, analyse, banque, bancaire, courbe, graphique
    Date: 2017–06–10

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