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on History and Philosophy of Economics |
| By: | Vernon L. Smith (Economic Science Institute, Chapman University); Sabiou M. Inoua (Economic Science Institute, Chapman University) |
| Abstract: | We argue that neoclassical value theory suffers from a more basic and serious logical indeterminacy, which is inherent in the axiom of price-taking behavior, and which renders price dynamics indeterminate before inquiring as to its stability. If everyone in the economy takes price as given, whence come these prices? Who is giving these prices? Jevons avoided the indeterminacy by assuming that people must have complete information on supply and demand, and the consequent equilibrium prices—‘perfect competition.’ Walras in effect imported an external agent who found the prices by trial-and-error-correction (the Walrasian Auctioneer). Paradoxically, both approaches had the potential better to serve central planning, than a market economy. A theory based on price taking agents required some agency for giving prices. Indeed, the fit with socialism was rigorously established by influential neoclassical authors starting from Wieser (1893, ch. VI) and Pareto (1897, 364-371; 1909, 362-364), and, more formally during the Socialist Calculation Debate, by Barone ([1908] 1935), Lerner (1934), and Lange (1936, 1937). The paradox is hidden in the idea of ‘perfect competition’ a passive treatment of individuals who are not even interacting, let alone interacting in a rivalrous manner. ‘Perfect competition’ is the negation of any real competition, as Hayek (1948) emphasized. |
| Keywords: | Methodology of Economics, Micro-economic Theory, Experimental Economics, History of Economic Thought. |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:19-15&r=all |
| By: | Dalton, John; Logan, Andrew |
| Abstract: | This paper was written for a symposium on "Reconsidering the Classics." Rereading Joseph Schumpeter's Capitalism, Socialism and Democracy (CSD) for today, we argue Schumpeter's vision for a dynamic world remains essential for understanding the world. We begin the paper by briefly describing some background on Schumpeter and the context in which CSD was written. Then, we summarize the book, which Schumpeter divided into five separate parts on Marx, capitalism, socialism, democracy, and a history of socialist parties. Throughout our summary, we highlight the key arguments and touch on many ideas in the book, such as Schumpeter's description of socialism and his theory of democracy. Instead of tackling all these ideas in depth, we discuss the book's usefulness for readers today by focusing on Schumpeter's Big Idea--"creative destruction." We conclude by discussing how influential CSD has been, and continues to be, in the social sciences and then provide suggestions for those interested in reading CSD today. |
| Keywords: | Joseph Schumpeter; Capitalism, Socialism and Democracy; Innovation; Entrepreneurship; Creative Destruction |
| JEL: | B31 O3 P0 |
| Date: | 2019–07–11 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:95012&r=all |
| By: | Thomas Delcey (CES - Centre d'économie de la Sorbonne - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Francesco Sergi (UWE Bristol - University of the West of England [Bristol]) |
| Abstract: | This article investigates the origins and early development of the association between the efficient market hypothesis and rational expectations. These two concepts are today distinctive theoretical benchmarks for mainstream approaches to, respectively, finance and macroeconomics. Moreover, scholars in each of these two fields tend to associate the two ideas as related equilibrium concepts; they also claim that the two have a common historical origin. Although some historical accounts have been provided about either the origins of rational expectations or of the efficient market hypothesis, very few historians have been investigating the history of the association between the two concepts (or, more generally, the history of the interactions between macroeconomics and finance). The contribution of this paper is precisely to fill this gap in the historical literature, while assessing and challenging self-produced narratives told by practitioners. We suggest that the two concepts were independently developed in the 1960s. Then, we illustrate how they were associated for the first time the early 1970s, within a debate about the term structure of the interest rates involving Sargent, Modigliani, Shiller, and Fama. Finally, we discuss some early controversies about the association, which nevertheless became, at the turn of the 1970s, a step-stone for both macroeconomics and finance. |
| Keywords: | Efficient market hypothesis,Fama (Eugene),Lucas (Robert E),history of finance,history of macroeconomics,rational expectations,Sargent (Thomas J) |
| Date: | 2019–07–17 |
| URL: | http://d.repec.org/n?u=RePEc:hal:cesptp:hal-02187362&r=all |
| By: | Jean Baccelli (MCMP - Munich Center for Mathematical Philosophy, IHPST - Institut d'Histoire et de Philosophie des Sciences et des Techniques - UP1 - Université Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - DEC - Département d'Etudes Cognitives - ENS Paris - ENS Paris - École normale supérieure - Paris) |
| Abstract: | In this paper, I investigate the betting behavior of a decision-maker who can influence the likelihood of the events upon which she is betting. In decision theory, this is best known as a situation of moral hazard. Focusing on a particularly simple case, I sketch the first systematic analysis of moral hazard in the canonical Savage framework. From the results of this analysis, I draw two philosophical conclusions. First, from an observational and a descriptive point of view, there need to be no incompatibility between moral hazard and the Savage framework. This qualifies the incompatibility view, that is ubiquitous in decision theory. Second, in general, moral hazard is not sufficient to overcome the challenges posed by state-dependent utility to the behav-ioral identification of beliefs. This qualifies the sufficiency view, that is influential in decision theory. These two philosophical conclusions are the main contributions of my paper. |
| Date: | 2019–03–16 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-02172242&r=all |
| By: | Vernon L. Smith (Economic Science Institute, Chapman University); Sabiou M. Inoua (Economic Science Institute, Chapman University) |
| Abstract: | For classical economists, markets served the highest value buyers without anyone in the market needing to know that it was possible to write aggregate buyer reservation prices in the form, D = F (p). Cournot, thereby launched neoclassical economics as modelling and thinking of economic action in terms of their outcome effects, rather than their roots in human experience. |
| Keywords: | History of economic thought, micro theory, experimental economics |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:19-14&r=all |
| By: | Donato Masciandaro; Davide Romelli |
| Abstract: | This chapter reviews the evolution of the theory of monetary policy design since the 1980s, highlighting the emerging role of central banker psychology. Three subsequent stages are evident. First, the central bank was considered as an independent institution (modern economics). Second, central bankers were assumed to be delegated bureaucrats (advanced political economy). Third, a link with psychology was established (behavioural economics). |
| Keywords: | MONETARY POLICY, POLITICAL ECONOMICS, BEHAVIORAL ECONOMICS |
| JEL: | E52 E58 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:baf:cbafwp:cbafwp19105&r=all |
| By: | Solms, Mark |
| Abstract: | In his paper Emotion and reasoning in human decision-making (Economics Discussion Papers, No 2019-8) Edmund Rolls points out that multiple and independent types of reinforcement exist in the human brain, and that they cannot be reduced to a common currency. The present commentary introduces non-specialist readers to this wide variety of reinforcers, each of which carries equal biological value. The evolutionary forces underwriting them reveal much about the causes of our apparently irrational choices - which is why it is important for economists to acquaint themselves with such things. |
| Keywords: | decision-making,brain mechanisms,basic emotions,reward value,economicvalue,dominance hierarchies,macroeconomics,microeconomics,affective neuroscience |
| JEL: | D01 D87 D91 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwedp:201945&r=all |
| By: | Nicola Gennaioli; Guido Tabellini |
| Abstract: | We present a theory of identity politics that builds on two ideas. First, voters identify with the social group whose interests are closest to theirs and that features the strongest policy conflict with outgroups. Second, identification causes voters to slant their beliefs of self and others toward group stereotypes. The theory yields two main implications: i) voters’ beliefs are polarized along the distinctive features of salient groups; ii) economic shocks that render new groups salient bring about large and non standard changes in beliefs and policies across many issues. In particular, exposure to globalization or cultural changes may induce voters to switch identities, dampening their demand for redistribution and exacerbating conflicts in other social dimensions. We show that survey evidence is broadly consistent with these implications. |
| JEL: | H00 Z10 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_7707&r=all |
| By: | Paul Clist (University of East Anglia); Ying-yi Hong (Chinese University of Hong Kong) |
| Abstract: | Lying is an important human behaviour that has received unprecedented empirical attention in recent years due to a new experimental paradigm in which subjects are incentivised to misreport a die roll for financial gain. Amongst theoretical attempts to explain results, Justified Dishonesty (JD) is a theory with impressive support and a plausible psychological foundation. JD predicts subjects will swap a paid and unpaid roll of a die whenever financially beneficial, as this feels less like lying. However, JD's predictions are virtually identical to a competing economic model. In Dufwenberg & Dufwenberg's (DD) subjects have perceived cheating aversion, incurring a cost of lying that is in proportion to the amount they are perceived to cheat. Current evidence is unable to distinguish between these two distinct mechanisms. Here we show that JD often makes accurate predictions, but is a poor expla- nation. We perform a placebo test, finding that JD is more accurate when it should be irrelevant. Furthermore, we elicit the second (unpaid) roll, strongly rejecting a direct corollary of JD. Our results demonstrate that the role of justifications and desired counterfactuals have been overstated. The simple idea that subjects dislike others perceiving them as liars in proportion to the size of the lie is sufficient to explain patterns of lying behaviour. |
| Keywords: | Dishonesty, Dice, Justification, Counterfactual, Perceived Lying Aversion |
| JEL: | D82 C72 D91 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:uea:wcbess:19-03&r=all |
| By: | Tara M. Sinclair (The George Washington University) |
| Abstract: | Throughout the history of macroeconomic forecasting, several major themes have remained surprisingly consistent. The failure to forecast economic downturns ahead of time is perhaps the most significant of these. Forecasting approaches have changed, but forecasts for recessions have not improved. What can we learn from past evaluations of macroeconomic forecasts? Is it possible to predict major economic shocks or is it a fool’s errand? This chapter discusses how forecasting techniques have evolved over time and yet the record on forecasting recessions remains dismal. There are several competing hypotheses for why forecasters fail to foresee recessions, but little evidence any of them are going to be addressed before the next recession occurs. This suggests planners and policymakers should expect to be surprised by the arrival of downturns and develop ways to be prepared for recessions without having clear warning of their coming. |
| Keywords: | Forecast evaluation, recessions |
| JEL: | E37 C53 |
| Date: | 2019–08 |
| URL: | http://d.repec.org/n?u=RePEc:gwc:wpaper:2019-003&r=all |
| By: | Azam, Jean-Paul |
| Date: | 2019–08–01 |
| URL: | http://d.repec.org/n?u=RePEc:tse:iastwp:123288&r=all |
| By: | Ball, Sheryl (Virginia Tech University); Dave, Chetan (University of Alberta, Department of Economics); Dodds, Stefan (University of Winnipeg) |
| Abstract: | Policy debates increasingly employ the language of ‘rights’: how they are assigned and what entitlements individuals in a society are due. In designing present day constitutions for transitional democracies, framers face the issue of whether to formally codify rights or not. We design and implement a novel experiment to test whether social cooperation depends on the assignment of individual rights, by framing the right of subjects to take a particular action either positively or negatively. We find that when rights are framed positively, there exists an ‘entitlement effect’ that reduces social cooperation levels and crowds-out the tendency of individuals to act pro-socially. |
| Keywords: | Constitutional Design; Coase Theorem; Framing; Preferences; Rights; Battle of the Sexes |
| JEL: | D71 P48 |
| Date: | 2019–07–30 |
| URL: | http://d.repec.org/n?u=RePEc:ris:albaec:2019_011&r=all |
| By: | Thomas Calvo (Université Paris-Dauphine, PSL University, CNRS UMR8007, IRD UMR260, LEDa, DIAL); Marion Mercier (Universite Paris-Dauphine PSL Research University, LEDa, DIAL, Paris; and IZA, Bonn) |
| Abstract: | Entre 1945 et 2007, 40% des pays du monde ont connu une guerre civile. De nombreux travaux quantitatifs et qualitatifs soulignent les conséquences dramatiques que ces violences génèrent sur les économies et individus concernés. Prenant acte de ces résultats, la recherche en économie s’est attelée à comprendre les déterminants des guerres civiles, dans le but d’éclairer les politiques publiques nationales et internationales susceptibles de juguler l’obstacle majeur au développement socio-économique qu’elles représentent. Cet article propose un état des lieux, non-exhaustif mais illustratif, de la littérature consacrée aux causes économiques des guerres civiles qui, quoique relativement récente, est très riche. En mobilisant des travaux à la fois théoriques et empiriques, nous discutons en particulier de l’impact du revenu individuel et de la pauvreté, du rôle du caractère appropriable des ressources nationales, et de celui de l’accès à ces ressources, déterminé entre autres par les institutions et systèmes de redistribution. Nous concluons en évoquant quelques-unes des pistes de recherche ouvertes et en rappelant l’importance des défis méthodologiques qu’elles appellent à relever. Around 40% of the world’s countries have been plagued by a civil war between 1945 and 2007. A large amount of quantitative and qualitative research emphasizes the tragic consequences of such violence for the concerned economies and individuals. As civil conflicts represent a major threat to socio-economic development, the economic literature has worked on uncovering their determinants, in order to enlighten which national and international public policies are likely to be risk-mitigating. This article draws an illustrative overview of the relatively recent, but very rich, literature dedicated to the economic causes of civil wars. Relying on both theoretical and empirical works, we notably discuss the roles of individual income and poverty, resources appropriability, access to resources and institutions and redistribution systems. Finally, we underline some of the currently open research routes, and discuss the methodological challenges they raise. |
| Keywords: | Civil wars; Opportunity cost; Appropriation; Resources. |
| JEL: | D74 I30 Q34 H20 |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:dia:wpaper:dt201911&r=all |
| By: | Mann, Gerald H. |
| Abstract: | [Vorwort] Mit dem vor 120 Jahren geborenen und vor 40 Jahren verstorbenen Ludwig Erhard als Denker und Wirtschaftsminister ist der wirtschaftliche Aufschwung nach dem Zweiten Weltkrieg untrennbar verbunden. Von vielen wird diese Zeit als "Wirtschaftswunder" bezeichnet. Erhard selbst stand diesem Begriff distanziert gegenüber. Doch viele Zeitgenossen haben es nach den Entbehrungen des Zweiten Weltkrieges und der Nachkriegszeit genauso empfunden. Heute wird "Soziale Marktwirtschaft" gerne als ein immer weiterwachsender Sozialstaat mit ein wenig "Rest-"Marktwirtschaft interpretiert. Ludwig Erhard sah das in seinem vor 60 Jahren erschienen Werk "Wohlstand für alle" ganz anders: Nur durch Eigenverantwortung der Menschen, kombiniert mit einem sich auf gute Ordnungspolitik beschränkenden Staat, ist Wohlstand für alle möglich. Die Alternative zu diesem positiven Menschenbild ist der von Erhard befürchtete "soziale Untertan" als Ergebnis von immer mehr Staatsinterventionismus. Das Gedenkjahr 2017 ist also in dreifacher Hinsicht guter Anlass, sich auf Ludwig Erhard und sein Werk zu besinnen. Vor diesem Hintergrund hat die FOM Hochschule in München dem Politiker und Wirtschaftswissenschaftler Ludwig Erhard am 11. Mai 2017 mit spannenden Vorträgen und anschließender lebhafter Diskussion gedacht, die in diesem vorliegenden Arbeitspapier nun dokumentiert und damit einer breiten Öffentlichkeit zugänglich gemacht werden. [...] |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fomarb:74&r=all |
| By: | Olkhov, Victor |
| Abstract: | This paper develops economic theory framework free from general equilibrium assumptions. We describe macroeconomics as system of economic agents under action of n risks. Economic and financial variables of agents, their expectations and transactions between agents define macroeconomic variables. Agents variables depend on transactions between agents and transactions are performed under agents expectations. Agents expectations are formed by economic variables, transactions, expectations of other agents, other factors that impact macroeconomic evolution. We use risk ratings of agents as their coordinates on economic space and approximate description of economic and financial variables, transactions and expectations of numerous separate agents by description of variables, transactions and expectations as density functions on economic space. We describe evolution of macroeconomic density functions of variables, transactions and expectations and their flows induced by motion of separate agents on economic space due to change of agents risk rating. We apply our model to description of business cycles, present models of wave propagation for disturbances of economic variables and transactions, model asset price fluctuations and argue hidden complexities of classical Black-Scholes-Merton option pricing. |
| Keywords: | Economic Theory, Risk Ratings, Economic Space, Economic Flows, Density Functions |
| JEL: | C02 E00 E30 E32 G0 G12 |
| Date: | 2019–03–30 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:94874&r=all |