nep-hpe New Economics Papers
on History and Philosophy of Economics
Issue of 2018‒11‒12
fourteen papers chosen by
Erik Thomson
University of Manitoba

  1. Wesley Clair Mitchell and the “Illiberal Reformers”: A Documentary Note By Luca fiorito; Massimiliano Vatiero
  2. James M. Buchanan: Neoclassical, Austrian, Neither, or Both? By Durnin, Brian
  3. Paradise lost? A brief history of DSGE macroeconomics By Gulan, Adam
  4. The Economics of African American Slavery: The Cliometrics Debate By Richard C. Sutch
  5. From Prosperity into the Crisis and Back. On the Role of Economic Theories in the Long Cycle By Stephan Schulmeister
  6. Beyond behavioral economics: who is the economic man By Obregón, Carlos
  7. “The laws of economics.” Economic devices, economics, economists, and the making of the economy By Olivier Godechot
  8. Conclusion: What finance manufactures By Olivier Godechot
  9. Decision Under Normative Uncertainty By Franz Dietrich; Brian Jabarian
  10. How to Play Out of Equilibrium: Beating the Average By Schlag, Karl
  11. A Broomean model of rationality and reasoning By Franz Dietrich; Antonios Staras; Robert Sugden
  12. Deviant or Wrong? The Effects of Norm Information on the Efficacy of Punishment By Cristina Bicchieri; Eugen Dimant; Erte Xiao;
  13. Transitional Justice, Recognition, and Authoritative Power By Oettler, Anika
  14. It\'s not my Fault! Self-Confidence and Experimentation By Hestermann, Nina; Le Yaouanq, Yves

  1. By: Luca fiorito; Massimiliano Vatiero
    Abstract: The aim of this note is to assess whether Wesley Clair Mitchell as a reformer ever expressed concern over the biological quality of individuals and whether he did somehow share the Progressive Era faith in eugenics as an instrument for improving American society’s health, welfare, and morals. Using both published and unpublished evidence, we argue that, as an institutionalist, Mitchell was free from the paternalistic and antidemocratic bent of the progressives described by Leonard and was ready to accept the new faith in the plasticity of human nature that sustained interwar reformism. At the same time, as someone who had been exposed to the Progressive Era cultural milieu, he could not completely divorce himself from the earlier decades preoccupations over the biological quality of individuals.
    Keywords: American Progressive Era; Mitchell, Wesley Clair; Immigration; Race; Eugenics
    JEL: B1 B15
    Date: 2018–09
  2. By: Durnin, Brian
    Abstract: James McGill Buchanan (1919-2013) received the Nobel Memorial Prize in 1986 for his work in public choice theory, set out in his The Calculus of Consent (1962), co-authored with Gordon Tullock. The Virginia School of Political Economy can be seen as a product of the work of Buchanan and Tullock, along with Ronald Coase, who published his ground-breaking paper on “The Problem of Social Cost” in 1960 while he was at the University of Virginia. This school of thought is generally thought to be in some ill-defined sense allied to the Austrian school of economics, mainly perhaps because of a shared pro-market policy stance. On the other hand, links between Buchanan and neoclassical economists such as Friedman and Stigler are frequently drawn, again probably with the pro-market policy recommendations of each in mind. It is notable that Buchanan, Hayek, and Friedman were all at various times presidents of the Mont Pelerin Society. Yet the differences between neoclassical and Austrian perspectives are profound. It has often been said that the one can be characterized as “equilibrium always” and the other as “equilibrium never”. The case of Buchanan and the Virginia School is therefore extremely interesting for the historian of economic thought. Significant questions are raised about the scope for reconciliation between schools of thought at the most profound levels of methodology and social philosophy. I posit that, allowing for a slight amount of breathing room, James Buchanan’s economic writings are more Austrian than anything else. From his earliest writings to his last publications, Buchanan clearly had an Austrian-leaning approach. Additionally, many of the criticisms he laid out about the economics profession were directed toward the more neoclassical minded among his peers. While the act of criticizing neoclassical economists does not indicate that Buchanan was an Austrian, it does seem to lay to rest any conclusions that he was a neoclassical economist himself.
    Keywords: James M. Buchanan; Virginia School of Political Economy; Austrian school of economics; neoclassical economics; public choice; history of economic thought;
    JEL: B30 B53 P16
    Date: 2017–09–28
  3. By: Gulan, Adam
    Abstract: Since the Global Financial Crisis, academic economists and policymakers have had to deal with uncomfortable questions about the quality of their models and the state of macroeconomics as a profession. This note offers a summary of this discussion, focusing on the Dynamic Stochastic General Equilibrium (DSGE) framework and its underpinnings. This class of models reflects both theoretical advances and perennial modeling challenges. While DSGE modeling developed in times of scarce micro data and limited computational resources, it has much room for improvement given progress along these dimensions and advances in other branches of economics. Key tasks on the to-do-list for model improvement include the modeling on the financial sector, departures from the representative agent and rationality, as well as clarification of the empirical relevance of the Lucas critique. The framework is likely to remain a major research and policy tool, although its limitations call for greater robustness, validation and open recognition of uncertainty in drawing real-life quantitative conclusions.
    JEL: B22 E13
    Date: 2018–11–07
  4. By: Richard C. Sutch
    Abstract: This working paper explores the significant contributions to the history of African-American slavery made by the application of the tools of cliometrics. As used here “cliometrics” is defined as a method of scientific analysis marked by the explicit use of economic theory and quantitative methods. American slavery of the late antebellum period [1840-1860] was one of the earliest topics that cliometricians focused on and, arguably, the topic upon which they made the largest impact.
    JEL: J0 J43 J61 J81 N11 N21 N31 N51 N92 P10 Q12
    Date: 2018–10
  5. By: Stephan Schulmeister
    Abstract: This essay reconsiders the interaction between the development of economic theories and economic reality since the 1920ies. I begin with the systemic cause of the financial crisis, the coincidence of three "bear markets" (stocks, real estate, commodities) which followed three parallel "bull markets". I then sketch the macroeconomic effects of the "manic-depressive" fluctuations of asset prices and show how they paved the road into the present crisis. As next step, I explain how "bulls" and "bears" are brought about. Then I sketch how the treatment of financial markets in economic theory and policy has shaped the long cycle from the financial boom of the 1920ies, the Great Depression, the post-war prosperity under "realcapitalistic" framework conditions to the "finance-capitalistic" regime since the 1970ies. The paper concludes with proposals how Europe could find roads to new prosperity. After the upcoming financial crisis there will be a window of opportunity to implement these proposals.
    Keywords: Asset price dynamics
    Date: 2018–11–02
  6. By: Obregón, Carlos
    Abstract: There are two reasons to go beyond Behavioral Economics. The first reason is that humans, as presented by this school, do not explain many critical economic problems. Behavioral Economics is not an alternative paradigm to traditional economics. It is only one of the New Schools of thought, that has risen due to the failure of the contemporary Neoclassical School to show that markets have a unique maximum welfare full employment equilibrium. Therefore, in order to delimit Behavioral Economics ́ contributions we need to look at the whole paradigm in economics, which today includes: the contemporary neoclassical paradigm plus all the New Schools of thought. The second reason is that humans, as described by Behavioral Economics, are not a good representation of mans ́ evolutionary characteristics. For Behavioral Economics, humans are emotional beings which often do not know what is best for them, and need the help of the government to make the choices which are truly convenient; and they display altruistic and social cooperative behavior, even in monetary transactions. But evolutionarily we are neither design to be emotional or rational, nor to be selfish or altruistic and socially cooperative. We are design to be flexible for survival purposes, and to display a wide range of behaviors.
    Keywords: Behavioral Economics
    JEL: A1 A12 A13 B0 D0 D00 D1 D10 D11 G1 G10
    Date: 2018–10–22
  7. By: Olivier Godechot (Observatoire sociologique du changement)
    Abstract: Twenty years ago, Michel Callon edited The Laws of the Markets, a groundbreaking volume that substantially redefined economic sociology by resetting the relationship between sociology and economics (Callon 1998). Many articles in economic sociology at that time started (and still do today) with sharp criticism of neoclassical economics. The latter was censured for being overly simplistic and complex, overly reductionist and irrelevant. [First lines]
    Keywords: Laws of economics; Economic devices; Economics; Economists; Making of the economy
    Date: 2018–03
  8. By: Olivier Godechot (Observatoire sociologique du changement)
    Abstract: Why should we approach the study of finance in an alternative way when other disciplines – such as economics and financial theory – which are older, more legitimate and endowed with more substantial backing, have already been tackling this subject for over fifty years? Admirably, despite any misgivings, the rapid and varied development of a collection of studies on finance has nonetheless originated over the last fifteen years from a variety of disciplines (sociology, anthropology, political science, history, management sciences, geography). This has resulted from the dynamic academic practice of diversifying and reviving research subjects, though also because of a dissatisfaction with the inadequacy of standard approaches. But that is not all, as it has equally stemmed from a desire to understand a much deeper phenomenon: the sudden emergence of finance in social life. [First paragraph]
    Keywords: Study of finance; Social life; Finance; Research subjects
    Date: 2019
  9. By: Franz Dietrich (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Brian Jabarian (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics)
    Abstract: How should we evaluate options when we are uncertain about the correct standard of evaluation, for instance due to conflicting normative intuitions? Such ‘normative' uncertainty differs from ordinary ‘empirical' uncertainty about an unknown state, and raises new challenges for decision theory and ethics. The most widely discussed proposal is to form the expected value of options, relative to correctness probabilities of competing valuations. We show that the expected-value theory is just one of four natural expectation-based theories. These theories differ in the attitudes to normative risk and to empirical risk. The ordinary expected-value theory imposes neutrality to normative risk, whereas its attitude to empirical risk is impartial, i.e., determined by the risk attitudes of the competing valuations deemed possible. The three other theories are, respectively, neutral to both types of risk; impartial to both types of risk; or neutral to empirical but impartial to normative risk. We conditionally defend the theory which is impartial to all risk - the impartial value theory - on the grounds that it respects risk-attitudinal beliefs rather than imposing an ad-hoc-risk attitude. Meanwhile, our analysis shows how one can address empirical and normative uncertainty within a unified formal framework, and rigorously define risk attitudes of theories.
    Abstract: Comment devons-nous évaluer des options de choix lorsque nous ne savons pas quelle méthode d'évaluation est correcte, par exemple à cause d'intuitions normatives concurrentes ? Ce type d'incertitude, nommée « incertitude normative », diffère de l'incertitude standard portant sur les états empiriques du monde, nommée « incertitude empirique ». L'incertitude normative constitue un nouveau challenge pour les sciences économiques et l'éthique contemporaine. La proposition la plus discutée dans le débat est de former la valeur normative espérée des options relativement aux croyances normatives de l'agent. Nous montrons que la théorie de la valeur normative espérée n'est qu'une des quatre formes de théories basées sur l'espérance. Ces théories diffèrent dans leurs attitudes aux risques normatifs et empiriques. La théorie de la valeur normative espérée impose une attitude neutre face au risque normatif, tandis que son attitude face au risque empirique est impartiale, c'est-à-dire seulement déterminée par les attitudes au risque des différentes méthodes d'évaluation jugées possibles par l'agent. Les trois autres théories sont respectivement : neutre face aux deux types de risque ; impartiale face aux deux types de risque ; neutre face au risque empirique mais impartiale face au risque normatif. Nous défendons la théorie qui est impartiale face aux deux types de risque, la théorie impartiale de la valeur, sur la base que cette théorie respecte entièrement les croyances normatives de l'agent concernant la « bonne » attitude face au risque plutôt que d'imposer de manière ad hoc une attitude particulière face au risque. Notre article montre comment nous pouvons traiter à travers un seul cadre formel unifié l'incertitude empirique et l'incertitude normative et définir de manière rigoureuse les attitudes face au risque de théories évaluatives.
    Keywords: empirical uncertainty,normative uncertainty,risk attitude,expected value,impartial value,incertitude empirique,incertitude normative,attitude face au risque,valeur normative espérée,valeur impartiale
    Date: 2018–09
  10. By: Schlag, Karl
    Abstract: We propose a new concept for how to make choices in games without assuming an equilibrium. To beat the average means to obtain a higher payoff against the others than the others obtain amongst themselves, for any way in which the game might be played. Only Nash equilibrium strategies can beat the average. Beating the average is possible in many symmetric games, including Cournot competition with convex demand. In many other games, including Betrand competition, there are strategies that “almost” beat the average. The methodology is easy to implement and extremely versatile, for instance it can incorporate incomplete information.
    Date: 2018
  11. By: Franz Dietrich (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Antonios Staras (UEA - University of East Anglia [Norwich]); Robert Sugden (UEA - University of East Anglia [Norwich])
    Abstract: John Broome has developed an account of rationality and reasoning which gives philosophical foundations for choice theory and the psychology of rational agents. We formalize his account into a model that differs from ordinary choice-theoretic models through focusing on psychology and the reasoning process. Within that model, we ask Broome's central question of whether reasoning can make us more rational: whether it allows us to acquire transitive preferences, consistent beliefs, non-akratic intentions, and so on. We identify three structural types of rationality requirements: consistency requirements, completeness requirements, and closedness requirements. Many standard rationality requirements fall under this typology. Based on three theorems, we argue that reasoning is successful in achieving closedness requirements, but not in achieving consistency or completeness requirements. We assess how far our negative results reveal gaps in Broone's theory, or deficiencies in choice theory and behavioural economics.
    Abstract: John Broome a développé une théorie de la rationalité et du raisonnement qui donne des fondements philosophiques au choix rationnel et à la psychologie d'acteurs rationnels. Nous formalisons cette théorie en définissant un cadre qui diffère de modèles classiques du choix rationnel, en mettant au centre la psychologie et le raisonnement. A travers notre modèle, nous reposons la question centrale de Broome si le raisonnement nous permet d'augmenter notre rationalité : si le raisonnement nous fait acquérir des préférences transitives, des croyances cohérentes, des intentions conformes à nos buts (" non akratiques ") etc. Nous identifions trois types de conditions de rationalité : des conditions de cohérence, des conditions de complétude et des conditions de clôture. Un grand nombre de conditions de rationalité classiques tombent sous cette taxonomie. En nous appuyant sur trois théorèmes, nous montrons que le raisonnement est utile pour arriver à satisfaire des conditions de clôture, mais pas des conditions de cohérence ou de complétude. Nous évaluons enfin dans quelle mesure nos résultats négatifs révèlent des problèmes dans la théorie Broomeienne ou posent des problèmes à la théorie du choix rationnel et l'économie comportementale.
    Keywords: rationality,reasoning,beliefs,consistency,completeness,deductive closure,rationalité,raisonnement,intentions,croyances,préférences,cohérence,complétude,clôture déductive
    Date: 2018–07
  12. By: Cristina Bicchieri; Eugen Dimant (Philosophy, Politics and Economics, University of Pennsylvania); Erte Xiao;
    Abstract: A stream of research examining the effect of punishment on conformity indicates that punishment can backfire and lead to suboptimal social outcomes. We examine whether this effect originates from a lack of perceived legitimacy of rule enforcement, enabling agents to justify selfish behavior to themselves. We address the question of punishment legitimacy by shedding light upon the importance of social norms and their interplay with punishment. Often people are presented with incomplete norm information: either about what most others do (empirical) or what most others deem appropriate (normative). We show that neither punishment nor empirical/normative information in isolation result in prosocial behavior. In turn, we find that prosociality is significantly increased when normative information and punishment are combined, but only when compliance is relatively cheap. When compliance is more expensive, we find that the combination of punishment and empirical information about others’ conformity can have detrimental effects on prosocial behavior. We attribute this outcome to the differential ability to distort one’s own beliefs about applicable norms. Our results have important implications for researchers and practitioners alike.
    Keywords: Conformity, Experiments, Punishment, Social Norms, Trust Game
    JEL: C91 D03 D73 H26
    Date: 2018–10
  13. By: Oettler, Anika
    Abstract: The legitimacy of transitional justice currently derives from the contribution it makes to the recognition of victims. Adding the aspect of authoritative power to ongoing debates on transitional justice, however, could significantly alter our views on recognition. Recognition is widely believed to be key to overcoming traumatic experiences. At the same time, however, it strengthens authoritative power. Seeking a more nuanced understanding of the recognition-power nexus, the paper provides a rough and critical account of various understandings of recognition and power on the part of authors such as Honneth, Fraser, Bertram and Celikates, Ikäheimo, Arendt, Foucault, Popitz, and Bourdieu. It then examines how these theoretical approaches intersect and speak to each other. To see recognition as a reciprocal interaction sensitive to power relations is to pave the way for a power-sensitive turn in current debates on victim-centred transitional justice. Multidirectional relationships of power exist, with varying forms of coercion, resistance, and struggle. This insight corresponds with the observation, seen from the other perspective, that truth and recognition are inside power. Placing theoretical approaches to power and recognition side by side has strong implications for politics. The paper therefore applies these theoretical insights to the Colombian peace process, showing the potential and pitfalls of putting recognition into practice.
    Keywords: transitional justice,recognition,power,victims,Colombia
    Date: 2017
  14. By: Hestermann, Nina (Toulouse School of Economics); Le Yaouanq, Yves (LMU Munich)
    Abstract: We study the inference and experimentation problem of an agent in a situation where the outcomes depend on the individual\'s intrinsic ability and on an external variable. We analyze the mistakes made by decision-makers who hold inaccurate prior beliefs about their ability. Overconfident individuals take too much credit for their successes and excessively blame external factors if they fail. They are too easily dissatisfied with their environment, which leads them to experiment in variable environments and revise their self-confidence over time. In contrast, underconfident decision-makers might be trapped in low-quality environments and incur perpetual utility losses.
    Keywords: overconfidence; attribution bias; experimentation; learning.;
    JEL: D83
    Date: 2018–11–02

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