nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2017‒12‒11
nineteen papers chosen by
Erik Thomson
University of Manitoba

  1. New starting point(s) : Marx, technological revolutions and changes in the centre-periphery divide By João Antonio de Paula; Leonardo Gomes de Deus; Hugo Eduardo da Gama Cerqueira; Eduardo da Motta e Albuquerque
  2. Keynes’s Trading on Wall Street: Did He Follow the Same Behavior When Investing for Himself and for King’s? By Eleonora Sanfilippo
  3. Three comments on ”Gordon Tullock and the rational choice commitment” By Kurrild-Klitgaard, Peter
  4. Homo Economicus, AIs, humans and rats: decision-making and economic welfare By Diane Coyle
  5. Social-scienciation of Economics and its Consequences: On a Relative Convergence between Economics and Sociology By Dieter Bögenhold
  6. Bringing Institutions into Economics when Teaching Economics as a Minor Subject By Martin Kniepert
  7. An evolutionary analysis of bidding behaviour in fair division games By Werner Güth; Paul Pezanis-Christou
  8. The Role of Agents’ Propensity toward Conformity and Independence in the Process of Institutional Change By Angela Ambrosino
  9. A Pure Hedonic Theory of Utility and Status: Unhappy but Efficient Invidious Comparisons By Courty, Pascal; Engineer, Merwan
  10. "Framing Game Theory" By Hitoshi Matsushima
  11. Price Stability and the Origins and Early Impact of the Phillips Curve: Contextual Analysis and New Evidence from the British Archives By Carlo Cristiano; Paolo Paesani
  12. Failure of the Becker-Degroot-Marschak Mechanism in Inexperienced Subjects: New Tests of the Game Form Misconception Hypothesis By Bull, Charlie; Courty, Pascal; Doyon, Maurice; Rondeau, Daniel
  13. Poverty's Deconstruction: Beyond the Visible By Sumon Kumar Bhaumik; Ira N. Gang; Myeong-Su Yun
  14. The problem of aggregating experts?' opinions to select the winner of a competition By Pablo Amorós
  15. Commitment to norms and the formation of institutions By Pietro Guarnieri
  16. The rule of law and the emergence of market exchange: A new institutional economic perspective By Haucap, Justus
  17. Was the Deflation of the Depression Anticipated? An Inference Using Real-time Data By Gabriel Mathy; Herman O. Stekler
  18. On the Value of Persuasion by Experts By Alonso, Ricardo; Câmara, Odilon
  19. Asset Prices and Macroeconomic Outcomes: A Survey By Stijn Claessens; M. Ayhan Kose

  1. By: João Antonio de Paula (Department of Economics and Cedeplar at the Universidade Federal de Minas Gerais); Leonardo Gomes de Deus (Department of Economics and Cedeplar at the Universidade Federal de Minas Gerais); Hugo Eduardo da Gama Cerqueira (Department of Economics and Cedeplar at the Universidade Federal de Minas Gerais); Eduardo da Motta e Albuquerque (Department of Economics and Cedeplar at the Universidade Federal de Minas Gerais)
    Abstract: This paper investigates Marx's understanding of the connections between technological revolutions and the centre-periphery divide. Marx's initial elaboration on those topics may be helpful for a contemporary agenda to investigate how global capitalism has been shaped and reshaped by movements in this structural divide between a dynamic centre and a changing periphery. Technological revolutions have been shaping the structure of that divide, its nature and structure. Therefore, Marx's elaboration may be fruitful for both the understanding of the origin and the dynamics of technological revolutions and their impact upon the divide centre-periphery.
    Keywords: technological revolutions, centre-periphery, metamorphoses of capitalism, Marx
    JEL: B14 B31
    Date: 2017–11
  2. By: Eleonora Sanfilippo
    Abstract: In the last few years Keynes’s activity as an investor has attracted attention in the specialized literature. Very recently his investments at Wall Street, in particular – both on his own account (Cristiano, Marcuzzo, Sanfilippo 2017) and on behalf of King’s College (Chambers and Kabiri 2016) – have been analyzed, and the evident connection with his theoretical analysis of the functioning of the financial markets contained in Chapter 12 of the General Theory has been duly stressed. The aim of this paper is to make detailed comparison of Keynes’s investment choices and strategies in the US stock market when he traded for himself and for King’s. As might be expected, there are similarities but also significant differences, well worth investigating. As far as the differences are concerned, one of the most striking is to be seen in his attitude when, after a period of bull market in 1936, he had to face the 1937 burst of the speculative bubble and subsequent recession. Detailed analysis of his behavior reveals that this event took him by surprise but his reaction differed with regard to his personal investments and the King’s investments. The prevalence of a ‘buy and hold’ strategy which, according to Chambers and Kabiri (2016), seemed to characterize his behavior in general when investing for King’s, was not always the typical choice when the investments were undertaken on his own account.
    Keywords: Keynes, investment, King’s College, Wall Street, 1937 recession
    JEL: B26 B31 G11 N22
    Date: 2017–11
  3. By: Kurrild-Klitgaard, Peter
    Abstract: Three notes on Gordon Tullock (1922-2014), prepared for Liberty Fund’s on-line conversation on his work and contributions.
    Keywords: Gordon Tullock; public choi
    JEL: B2 B25 B31
    Date: 2017–11
  4. By: Diane Coyle
    Date: 2017
  5. By: Dieter Bögenhold
    Abstract: We are currently in times in which an increased discussion on interdisciplinarity is on the agenda. Economics tends to go into directions of sociology, history, and psychology, taking on topics of their domains. Questions of convergencies and divergencies between the academic subjects are a result. This observation goes parallel with sociological debate on the status of sociology. Major questions remaining are: (1.) Has the field of sociology changed since Emilé Durkheim or Max Weber? (2.) Which domain can sociology claim as being its exclusive ground? Answers to these questions have to identify a broader landscape of academic division: Economics is moving increasingly in the direction of social topics and sociological ground. The “imperialism of economics” (Granovetter) is increasingly approaching traditional academic fields of history, psychology, and sociology. However, at least two psychologists (H. Simon, D. Kahneman) and an economic historian (R. Fogel) have received Nobel prizes in economics. How can sociology map with this trend, how can this challenge be converted into an academic opportunity? The paper will explore observed trends in detail in order to conclude that the public image of sociology may have declined during recent decades, but the strategic use and importance of (economic) sociology has never been greater. Economic sociology seems to have become an upgraded discipline since social networks, communication processes, institutions and culture are increasingly considered as core dimensions. Of course, the conclusion follows exactly the script of earlier instructions provided by Max Weber or Joseph Schumpeter.
    Keywords: Pluralism in economics, Imperialism of economics, institutional economics, old institutional economics, interdisciplinarity, sociology of economics
    JEL: A11 A14 B00 B41 B52
    Date: 2017–10
  6. By: Martin Kniepert (University of Natural Resources and Life Sciences Vienna, Institute of Sustainable Economic Development)
    Abstract: Developments in economic policy since the 1980s have shown a general trend towards a single type of institutional arrangement, following short-term, immediately applicable efficiency criteria. This was supported through the teaching by putting particular weight on the corresponding analytical instruments. The thesis presented here observes a systematic bias in this. It does so by evaluating institutional trends in the various sectors of the economy, and by discussing institutional arrangements of selected areas in detail. Furthermore, it reviews contributions by representatives of New Institutional Economics for a more comprehensive approach. Based on this, institutions themselves are conceptualised as public or club goods. As such they are applied to the policy areas selected. It can thereby be shown that microeconomic theory can find an appropriate place in this extended economic approach, along with concepts like common-pool resource management. In conclusion, this thesis proposes giving considerably more space to institutions in economics curricula, to their evolution and implications for economic outcomes. Particularly for economics as a minor subject, more emphasis should be placed on institutional arrangements.
    Keywords: New Institutional Economics, History of Economic Thought, Agricultural Economics, Teaching of Economics.
    JEL: B25 B20 N54 A22
    Date: 2017–12
  7. By: Werner Güth (Max Planck Institute for Collective Goods (Bonn) and LUISS (Rome)); Paul Pezanis-Christou (School of Economics, University of Adelaide)
    Abstract: We justify risk neutral equilibrium bidding in commonly known fair division games with incomplete information and counterfactual considerations via (i) optimally responding to individual conjectural beliefs concerning other bidders' behavior, what avoids counterfactual bidding, and (ii) determining the evolutionarily stable conjectural beliefs when fitness is measured by expected payoffs, what does not require common knowledge. Compared to auctions, fair division games feature interactive bidding contests in closed groups due to sharing the sales price equally among bidders. We axiomatically justify the game forms of first- and second-price fair division games, the former (latter) being over-bidding (under-bidding) proof, and we provide a condition for evolutionarily stable bidding to coincide with equilibrium bidding irrespectively of the number of bidders.
    Date: 2017–10
  8. By: Angela Ambrosino
    Abstract: This paper analyses institutional change and Veblen’s work (1907, 1914, 1919) under the perspective of cognitive economics. Particularly it focuses on two interesting issues of Veblen’s theory of economic change: 1. in Veblen’s view habits are both mental habits and behavioral habits and they play a twofold role in economic change because they are particularly relevant both as elements of propensity, and as forces resisting to change. 2 Veblen gives an exhaustive definition of instincts and habits but he does not completely explain the cognitive processes that bring changes and evolution in social habits. He develops an economic theory at the base of which there is an evolutionary view of reality and a deep awareness of the role of the human mind within the decision-making processes of choice. This paper is aimed at analyzing both issues using the interpretive tools offered by psychology and discussing the role of agents psychological propensity toward conformity and independence in explaining institutional change. The central idea is that if we better encompass the theory of conformity and independence developed in psychology (starting from Asch, 1952) in the analysis of economic institutions, we can better explain institutional change. Conformity is the effect of the pressure of social group on agents’ behavior. That concept contributes to explain resistance to change. On the other hand, psychology shows that agents are also subject to mechanisms of independence. These are key elements in explaining behavioral change. The analysis of Veblen’s instinct-habit concept under conformity-independence perspective shows interesting connections between Veblen and Hayek’s ideas of economic change. Hayek’s concept of evolution based on psychological and neurobiological aspect, in fact, is a contribution of great significance both in explaining the dual role of habits in institutional change and in understanding individual mechanisms that bring changes in social habits.
    Keywords: Institutional change, old institutional economics, cognitive economics, Veblen, Hayek
    JEL: B15 B20 B25 B52 B53
    Date: 2017–02
  9. By: Courty, Pascal; Engineer, Merwan
    Abstract: We examine status preferences where agents compare their own utility relative to the utilities of others, in addition to valuing own consumption. The utility functions are, therefore, implicit functions of each other. As long as status utility comparisons are not too intense, they do not affect either the competitive equilibrium or the set of efficient allocations. However, status utility comparison may substantially reduce average utility and dramatically increase utility inequality. Equating utility with happiness operationalizes the theory and provides an explanation to the puzzle of why invidious comparisons can generate so much unhappiness without much inefficiency. Our theory has very different welfare and political economy implications from other status theories, even when reduced form representations appear observationally equivalent.
    Keywords: Conspicuous consumption; Happiness; inequality; rat race; reference group; Status; utility; welfare
    JEL: D10
    Date: 2017–12
  10. By: Hitoshi Matsushima (Faculty of Economics The University of Tokyo)
    Abstract: An economic agent (player) sometimes fails to correct hypothetical (contingent) thinking, which may increase the occurrence of anomalies in various economic situations. This paper demonstrates a method to encourage such a boundedly rational player to practice correct hypothetical thinking in strategic situations with imperfect information. We introduce a concept termed "frame" as a description of a synchronized cognitive procedure, through which a player decides multiple actions in a step-by-step manner, shaping his (or her) strategy selection as a whole. We could regard a frame as a supposedly irrelevant factor from the viewpoint of full rationality. However, this paper theoretically shows that in a multi-unit auction with private values, the ascending proxy auction has a significant advantage over the second-price auction in terms of the boundedly rational players' incentive to practice correct hypothetical thinking, because of the difference, not in physical rule, but in background frame, between these auction formats. By designing frames appropriately, we generally show that any static game that is solvable in iteratively undominated strategies is also solvable even if players cannot practice correct hypothetical thinking without the help of a well-designed frame.
    Date: 2017–11
  11. By: Carlo Cristiano; Paolo Paesani
    Abstract: Moving from conflicting opinions regarding the relevance of A.W. Phillips’ contribution, and of the Phillips curve in particular, this paper provides a contextual analysis in which Phillips (1958) is seen as part of a wider research effort, aimed at exploring how to reconcile price stability with levels of unemployment that were higher than current rates but politically acceptable. We label this proposal ‘reverse trade-off’, to mark its distance from standard textbook accounts, which regard the Phillips curve as justifying inflationary Keynesian policies in the 1960s and 1970s. Moreover, our reconstruction suggests that what really mattered with Phillips (1958) was that it provided a quantitative estimate of the unique (and low) level of the unemployment rate which was compatible with price stability. However, even though the British Treasury and the LSE colleague of Phillips F. Paish conducted independent researches along the lines proposed by Phillips, the curve met with early opposition from some prominent British policy and academic circles. At Cambridge, Kahn and Kaldor in particular attacked the neoclassical underpinnings as well as the policy implications of the curve. Parallel to this, Lipsey (1960), while contributing to popularize the Phillips hypothesis within the broad scientific community, had the opposite effect in the restricted academic and top level policy circles within which Phillips’ curve article was born and moved its first steps. First, Lipsey’s empirical results and rightly cautious attitude weakened the case for bringing the unemployment rate up at the level consistent with price stability. Second, Lipsey (1960) weakened also the belief in the possibility itself of identifying the unique unemployment rate consistent with price stability.
    Keywords: Phillips curve, unemployment, inflation, stabilization
    JEL: B22 E24 E31
    Date: 2017–09
  12. By: Bull, Charlie; Courty, Pascal; Doyon, Maurice; Rondeau, Daniel
    Abstract: Substantial efforts have been devoted to understanding deviations from optimal behavior in games. Cason and Plott (2014, hereafter CP) propose that sub-optimal behavior may be explained by game form misconception (GFM), a failure of game form recognition, rather than by non-standard preferences or framing effects. Following CP's application of the GFM theory to the Becker-DeGroot-Marschak mechanism (Becker et al., 1964, hereafter BDM), this paper explores whether GFM can robustly explain bidding mistakes by inexperienced subjects. We derive two new tests of the GFM hypothesis based on comparing subject behavior in the misconceived task (BDM) and on the task it is misconceived for (a first price auction). While we do replicate Cason and Plot's original results, our additional tests are inconsistent with a first price misconception explaining observed deviations from optimal bidding in the BDM. At a minimum, additional forms of misconception are necessary to explain observed bidding behavior.
    Keywords: Becker-DeGroot-Marschak; game form misconception; Game form recognition; mistake; preference elicitation.
    JEL: C8 C9
    Date: 2017–12
  13. By: Sumon Kumar Bhaumik (Sheffield University,); Ira N. Gang (Rutgers University); Myeong-Su Yun (Inha University)
    Abstract: In contrast to his contribution to other areas, Shubhashis Gangopadhyay's contributions to our understanding of poverty are often thought of as indirect consequences of the main themes of his work. Yet in more than 15 published papers Gangopadhyay directly takes on poverty, including its estimate and understanding its sources. Our contribution honours Gangopadhyay's work in this area by outlining an approach useful in deconstructing the changes and di.erences in the likelihood of poverty incidence. We highlight how far it can take us, and how it still leaves us far short of understanding much of what drives poverty.
    Keywords: poverty incidence, headcount ratio, OLS, probit, decomposition
    JEL: C20 I30
    Date: 2017–11
  14. By: Pablo Amorós (Department of Economics, University of Málaga)
    Abstract: The honest opinions of a group of experts must be aggregated to determine the deserving winner of a competition. The aggregation procedure is majoritarian if, whenever a majority of experts honestly believe that a contestant is the best one, then that contestant is considered the deserving winner. The fact that an expert believes that a contestant is the best one does not necessarily imply that she wants this contestant to win as, for example, she might be biased in favor of some other contestant. Then, we have to design a mechanism that implements the deserving winner. We show that, if the aggregation procedure is majoritarian, such a mechanism exists only if the experts are totally impartial. This impossibility result is very strong as it does not depend on the equilibrium concept considered. Moreover, the result still holds if we replace majoritarianism by anonymity and other reasonable property called respect for the jury. The impossibility result is even stronger if we focus on Nash implementation: no majoritarian aggregation procedure can be Nash implemented even if the experts are totally impartial.
    Keywords: mechanism design; aggregation of experts? opinions; jury
    JEL: C72 D71 D78
    Date: 2017–11
  15. By: Pietro Guarnieri
    Abstract: The paper discusses Searle's description of institutions in terms of deontological constitutive rules and collective recognition. It aims at integrating Searlian conception of commitment with an epistemology of rule-following capable to illustrate processes of formation of institutions. Social ontology per se cannot account for the formation of constitutive rules. Actually, it requires taking as given the object of collective recognition, i.e. the specific content of status functions. The hypothesis of interactive intentionality is introduced to account for the commitment to status functions as the result of an interactive decision-making process concerning alternative constitutive definitions. This interactive process, by acting on the normative interpretation of decision contexts, frames relevance and salience criteria and grounds the formation of institutions. Interactive intentionality hypothesis offers the opportunity to make social-ontological approach based on commitment theoretically commensurable with social-scientific approach based on equilibria and self-enforcement.
    Keywords: institutions, rule-following, conflict, formation
    JEL: B15 B31 B40
    Date: 2017–01–01
  16. By: Haucap, Justus
    Abstract: Markets, where buyers and sellers can exchange goods and services, are key to the division of labor, specialisation, the realisation of economies of scale and scope and, therefore, economic prosperity, growth and development. The better markets work the easier it is to reap the benefits of specialisation and the gains from trade and voluntary exchange. For the emergence of market exchange, in turn, stable and secure property rights are key. These rights should be defined as clearly as possible and be as stable and secure as possible, in order to foster investment and to incentivize the careful and diligent treatment of assets. Hence, the rule of law and secure property rights go hand in hand with the emergence of markets, gains from trade and economic growth and prosperity.
    Date: 2017
  17. By: Gabriel Mathy (American University); Herman O. Stekler (The George Washington University)
    Abstract: Theories that explain the behavior of the economy during the Depression are based on assumptions about agents’ expectations about future price trends. This paper uses an alternative methodological approach which utilizes real-time information from the Depression period to infer whether deflation was anticipated. The information includes the forecasting methodology of that time as well as projections about anticipated output that were obtained from the textual analysis of business statements, converting qualitative to quantitative data. We infer that deflation was not anticipated because agents did not expect economic output to consistently decrease.
    Keywords: decision processes;
    Date: 2017–12
  18. By: Alonso, Ricardo; Câmara, Odilon
    Abstract: We consider a persuasion model in which a sender influences the actions of a receiver by selecting an experiment (public signal) from a set of feasible experiments. We ask: does the sender benefit from becoming an expert - observing a private signal prior to her selection? We provide necessary and sufficient conditions for a sender to never gain by becoming informed. Our key condition (sequential redundancy) shows that the informativeness of public experiments can substitute for the sender's expertise. We then provide conditions for private information to strictly benefit or strictly hurt the sender. Expertise is beneficial when the sender values the ability to change her experimental choice according to her private information. When the sender does not gain from expertise, she is strictly hurt when different types cannot pool on an optimal experiment.
    Keywords: Bayesian persuasion; experts.; information design
    JEL: D83
    Date: 2017–12
  19. By: Stijn Claessens (Monetary and Economic Department, Bank for International Settlements; CEPR); M. Ayhan Kose (Development Prospects Group, World Bank; Brookings Institution; CEPR; CAMA)
    Abstract: This paper surveys the literature on the linkages between asset prices and macroeconomic outcomes. It focuses on three major questions. First, what are the basic theoretical linkages between asset prices and macroeconomic outcomes? Second, what is the empirical evidence supporting these linkages? And third, what are the main challenges to the theoretical and empirical findings? The survey addresses these questions in the context of four major asset price categories: equity prices, house prices, exchange rates and interest rates, with a particular focus on their international dimensions. It also puts into perspective the evolution of the literature on the determinants of asset prices and their linkages with macroeconomic outcomes, and discusses possible future research directions.
    Keywords: Equity prices, exchange rates, house prices, interest rates, credit, output, consumption, investment, real-financial linkages, macro-financial linkages, imperfections, frictions.
    JEL: D53 E21 E32 E44 E51 F36 F44 G01 G10 G12 G14 G15 G21
    Date: 2017–11

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