nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2017‒11‒05
fourteen papers chosen by
Erik Thomson
University of Manitoba

  1. Does Clower’s Dual-Decision Hypothesis lead to the change in saving conclusion in Keynes’s General Theory? By Wu, Cheng
  2. Stagflation and the crossroad in macroeconomics: the struggle between structural and New Classical macroeconometrics By Aurélien Goutsmedt
  3. Reacting to the Lucas Critique: The Keynesians' Pragmatic Replies By Aurélien Goutsmedt; Erich Pinzon-Fuchs; Matthieu Renault; Francesco Sergi
  4. The Importance of Peers for Compliance with Norms of Fair Sharing By Simon Gaechter; Leonie Gerhards; Daniele Nosenzo
  5. (Un-)Stable Preferences, Beliefs, and the Predictability of Behaviour By Wolff, Irenaeus
  6. Trusting versus Monitoring: An Institutional Choice Experiment By Andrej Angelovski; Daniela Di Cagno; Werner Güth; Daniela Grieco
  7. The bet on a bald By Vorobyev, Oleg Yu.
  8. Do Classics Exist in Megaproject Management? By Bent Flyvbjerg; J. Rodney Turner
  9. Consultative Democracy & Trust By Bogliacino, Francesco; Grimalda, Gianluca; Jimenez, Laura
  10. Sion's minimax theorem and Nash equilibrium of symmetric multi-person zero-sum game By Satoh, Atsuhiro; Tanaka, Yasuhito
  11. Is inequality increasing in r-g? Piketty’s principle of capitalist economics and the dynamics of inequality in Britain, 1210-2013 By Jakob B Madsen
  12. Rent Seeking: The Social Cost of Contestable Benefits By Arye L. Hillman; Ngo Van Long
  13. Democracy by mistake By Daniel Treisman
  14. A War of Attrition with Experimenting Players By Chia-Hui Chen; Junichiro Ishida

  1. By: Wu, Cheng
    Abstract: Keynes’ General Theory (1936) is probably the most challenging economics book ever written, with an abundance of hypotheses, concepts and theories. Twenty five years after its publication, Clower proposed an insightful explanation on Keynes, the Dual-Decision Hypothesis (DDH). Hall (1978) and Flavin (1981) seemingly reached the conclusion that, under certain conditions, consumption was independent of income. In contrast, Wu (2016) has shown that, change in saving has to be a function of income growth. In fact, applying Wu’s corrected consumption for period t+1, it is possible to show DDH equations leading to Keynes’ change in saving (and disequilibrium) conclusion.
    Keywords: consumption; martingale; savings; growth; income; trade; Clower; dual decision hypothesis; keynes
    JEL: A10 B22 C2 E2 E6 F0 J0 N1
    Date: 2017–10–22
  2. By: Aurélien Goutsmedt (Centre d'Economie de la Sorbonne, Chaire Energie et Prospérité)
    Abstract: The article studies the 1978 macroeconomics conference titled “After the Phillips Curve”, where Lucas and Sargent presented their fierce attack against structural macroeconometric models, “After Keynesian Macroeconomics”. The article aims at enlarging the comprehension of changes in macroeconomics in the 1970s. It shows: 1) that Lucas and Sargent dit not tackle directly the issue of the explanation of stagflation; 2) but that the struggle between different methodological stances in the conference cannot be separated from the way macroeconomists interpreted stagflation; 3) that it was not an opposition between being in favor or against microfounded models, but rather on the way we build microfoundations; 4) finally that the study of the 1978 conference opens the doors for scrutinizing the evolution of institution macroeconometric models of the 1970s which were not totally overthrown by Lucas and Sargent's arguments
    Keywords: History of macroeconomics; Keynesian economics; Microfoundations; Structural Macroeconometric Models
    JEL: B22 B41 E60
    Date: 2017–10
  3. By: Aurélien Goutsmedt (Centre d'Economie de la Sorbonne, Chaire Energie et Prospérité); Erich Pinzon-Fuchs (Los Andes University); Matthieu Renault (Centre d'Economie de la Sorbonne); Francesco Sergi (University of Bristol)
    Abstract: We illustrate how the Lucas Critique was called into question by Keynesian macroeconomists during the 1970s and 1980s. Our claim is that Keynesians' reactions were carried out from a pragmatic approach, which addressed the empirical and practical relevance of the Critique. Keynesians rejected the Critique as a general principle with no relevance for concrete macroeconometric practice; their rejection relied on econometric investigations and contextual analysis of the U.S. 1970s stagflation and its aftermath. Keynesians argued that the parameters of their models remained stable across this period, and that simpler ways to account for stagflation (such as the introduction of supply shocks into their models) provided better alternatives to improve policy evaluation
    Keywords: History of macroeconomics; Lucas Critique; Keynesian macroeconometrics; Stagflation
    JEL: B22 B41 E60 E12
    Date: 2017–10
  4. By: Simon Gaechter; Leonie Gerhards; Daniele Nosenzo
    Abstract: A burgeoning literature in economics has started examining the role of social norms in explaining economic behavior. Surprisingly, the vast majority of this literature has studied social norms in asocial decision settings, where individuals are observed to act in isolation from each other. In this paper we use a large-scale dictator game experiment (N = 850) to show that “peers†can have a profound influence on individuals’ perceptions of norms of fair sharing, which we elicit in an incentive compatible way. However, in contrast to these strong peer effects in social norms of fair sharing, we find limited evidence of the influence of norms and peers on actual sharing behavior. We discuss how these results can be explained by heterogeneity in normative views as well as in willingness to comply with norms.
    Keywords: social norms, norm compliance, peer effects, fair sharing, dictator game, framing, experiments
    JEL: A13 C92 D03
    Date: 2017
  5. By: Wolff, Irenaeus
    Abstract: I show that whether participants generally believe in others’ preference stability is a crucial determinant of behaviour. Whether a participant’s behaviour can be predicted by her best-response or a Nash-equilibrium in a context where she can observe others' elicited preferences depends heavily both on the participant having stable preferences and on her generally believing in others’ preference stability. The latter is true because such a belief is associated with less dispersed beliefs.
    JEL: C72
    Date: 2017
  6. By: Andrej Angelovski (LUISS Guido Carli, Rome); Daniela Di Cagno (LUISS Guido Carli, Rome); Werner Güth (Luiss Guido Carli, Rome; Frankfurt School of Finance and Management, Frankfurt; Max Planck Institute on Collective Goods, Bonn); Daniela Grieco (Università Bocconi)
    Abstract: To shed light on the choice between trusting a partner versus monitoring her, we let one party decide between two stylized game paradigms—namely, the Ultimatum Game and the Yes–No Game. While in Ultimatum Games responders monitor the allocation proposal, in Yes–No Games, responders react without monitoring. Since monitoring can be costly, we allow the shared amount in Yes–No Games to be larger than that in Ultimatum Games. Experimental conditions can vary the monitoring cost, who decides between trusting and monitoring (i.e., proposer or responder), and whether the responder’s conflict payoff will be negative or positive. The latter brings about Yes–No Game (i.e., trusting) social dilemma situations. We question whether some responders opt for trusting and predominantly accept an unknown offer, especially when justified by efficiency concerns, and whether some proposers, due to behavioral concerns, are more inclined to suggest monitoring.
    Keywords: Trust, Monitoring, Institutional Choice, Ultimatum Game, Yes No Game
    JEL: C91 C72 C73
    Date: 2017–08
  7. By: Vorobyev, Oleg Yu.
    Abstract: A fixed company of players observes a person selected from a fixed queue. After each observation, players are asked to bet the dollar secret from others, either on the fact that person is bald or on what is not. A definite formula for the gain is suggested, such that every time after bets the gain of each player from a given company is completely determined by this formula. However, before bets player’s gain is an uncertain value. Is it possible for a given company of players and a given queue of people before bets to build a correct mathematical model of an uncertain gain of each player within the framework of Kolmogorov’s probability theory? If not, what else do you need to add to the foundations of probability theory so that before bets to be able to use this model for decision making? The paper answers these questions within the framework of the new theory of experience and of chance (the certainty theory) [1] that consists of two dual halves: the believability theory and the probability theory, and that is intended for the mathematical description of experienced-random experiments, the uncertainty in outcomes of which is generated by the observer.
    Keywords: Eventology, event, co~event, probability, believability, certainty, theory of experience and of chance, certainty theory, bet on bald.
    JEL: A10 A14 C0 C00 C02 C6 C60 C63 C65 C8 C82 C83 Z1 Z13
    Date: 2016–09–30
  8. By: Bent Flyvbjerg; J. Rodney Turner
    Abstract: This paper asks, "Do classics exist in megaproject management?" We identify three types of classic texts: conventional, Kuhnian, and citation classics. We find that the answer to our question depends on the definition of "classic" employed. First, "citation classics" do exist in megaproject management, and they perform remarkably well when compared to the rest of the management literature. A preliminary Top Ten of citation classics is presented. Second, there is no indication that "conventional classics" exist in megaproject management, i.e., texts recognized as definitive by a majority of experts. Third, there is also no consensus as to whether "Kuhnian classics" exist, i.e., texts with paradigmatic clout. The importance of classics seems to be accepted, however, just as work to develop, discuss, and consolidate classics is seen as essential by megaproject scholars. A set of guidelines is presented for developing classics in megaproject management research.
    Date: 2017–09
  9. By: Bogliacino, Francesco; Grimalda, Gianluca; Jimenez, Laura
    Abstract: We report experimental results from three Colombian villages concerning the impact of a voting mechanism on interpersonal trust and trustworthiness. The vote is purely consultative in that participants are asked to declare in a secret ballot the most “appropriate” plan of action for individuals involved in a “Trust Game”. The plan of action that is most voted is then publicly announced. The mechanism is unbinding, as only the aggregate result of the voting is disclosed and it has no bearing on individual decisions. In spite of the strategic irrelevance of the announcement, we observe an increase in both trust and trustworthiness after the announcement is carried out, in comparison to the baseline condition where no voting takes place.
    Keywords: Experiments, Trust, Voting
    JEL: C9 D7 H4
    Date: 2017–10–21
  10. By: Satoh, Atsuhiro; Tanaka, Yasuhito
    Abstract: We will show that Sion's minimax theorem is equivalent to the existence of Nash equilibrium in a symmetric multi-person zero-sum game. If a zero-sum game is asymmetric, maximin strategies and minimax strategies of players do not correspond to Nash equilibrium strategies. However, if it is symmetric, the maximin strategy and the minimax strategy constitute a Nash equilibrium.
    Keywords: multi-person zero-sum game, Nash equilibrium, Sion's minimax theorem.
    JEL: C72
    Date: 2017–10–24
  11. By: Jakob B Madsen
    Abstract: In his 2014 book, Thomas Piketty argues that wealth inequality is sharply increasing in r-g and refers to r>g as ‘the central contradiction of capitalist economics’, where r is asset returns and g is real income growth. To assess whether inequality is increasing in the (r-g)-gap this paper: 1) constructs unique annual data on asset returns for a balanced portfolio and several other variables for Britain over the period 1210-2013, and 2) examines whether the dynamics in the wealth-income ratio, W-Y, and capital’s income share, SW, are governed by (r-g). It is shown that r and g are robust and significant determinants of wealth and income inequality and that they have been the major forces behind the large inequality waves over the past eight centuries.
    Keywords: Inequality and the (r-g)-gap; dynamics of inequality; inequality in Britain, 1210-2013
    JEL: E1 E2 O4 N1 N30 P1
    Date: 2017–10
  12. By: Arye L. Hillman; Ngo Van Long
    Abstract: A major contribution of the public-choice school is the recognition by Gordon Tullock that contestable rents give rise to social losses because of unproductive resource use. Contestable rents usually are politically assigned privileges. Contestable rents can also be found outside of government decisions. We describe the example of rents in academia in different cultures. The primary empirical question regarding rent seeking concerns the magnitude of the social loss from the contesting of rents. Direct measurement is impeded by lack of data and indeed denial that rent seeking took place. Contest models provide guidance regarding social losses. We provide a generalized contest model. Social losses from rent seeking are diminished in high-income democracies because rent seeking usually takes place by groups seeking ‘public good’ benefits. Rents are also less visible in democracies, because political accountability requires that rents be assigned in indirect non-transparent ways. These restraints are not present in autocracies, where rent seeking is also facilitated by corruption and by the need to influence a smaller number of decision makers. Ideology can influence whether rent seeking is recognized to exist.
    Keywords: rent seeking, contests, political discretion, academic merit, ideology, political correctness
    JEL: H00
    Date: 2017
  13. By: Daniel Treisman
    Abstract: How does democracy emerge from authoritarian rule? Influential theories contend that incumbents deliberately choose to share or surrender power. They do so to prevent revolution, motivate citizens to fight wars, incentivize governments to provide public goods, outbid elite rivals, or limit factional violence. Examining the history of all democratizations since 1800, I show that such deliberate choice arguments may help explain up to one third of cases. In about two thirds, democratization occurred not because incumbent elites chose it but because, in trying to prevent it, they made mistakes that weakened their hold on power. Common mistakes include: calling elections or starting military conflicts, only to lose them; ignoring popular unrest and being overthrown; initiating limited reforms that get out of hand; and selecting a covert democrat as leader. These mistakes reflect well-known cognitive biases such as overconfidence and the illusion of control.
    JEL: K00 N20 P16
    Date: 2017–10
  14. By: Chia-Hui Chen; Junichiro Ishida
    Abstract: A standard incomplete-information war of attrition is extended to incorporate experimentation and private learning. We obtain a characterization of all equilibria in this extended setup and use this setup to illuminate a tradeoff between short-run and long-run gains of experimentation. The extension yields qualitative impacts on the strategic nature of the problem. The option value of experimentation serves as a credible commitment device to stay in the game, which is instrumental in inducing the other player to concede earlier. As a direct consequence, there may be an equilibrium in which the strictly less efficient player can get the better end of the deal, implying that slow learning can be a blessing in this type of competition. Our analysis gives insight into why an apparently inferior technology often survives in many standards competitions and more broadly offers implications for technology adoption and industry dynamics. We also show that there is a non-degenerate set of parameters that can support the Pareto-efficient allocation as an equilibrium outcome whereas it is never possible in the standard setup. Creation-Date: 2017-10

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