Although general equilibrium theory originated in the late nineteenth century, modern elaboration and development of the theory began only in the 1930s and 1940s. This book focuses on the version of the theory developed in the second half of the twentieth century, referred to by Lionel McKenzie as the classical general equilibrium theory. McKenzie offers detailed and rigorous treatment of the classical model, giving step-by-step proofs of the basic theorems. In many cases (...) he elaborates on the individual steps to give a fuller understanding of the underlying principles. His goal is to provide readers with a true mastery of the methodology so that they can derive new results that will further enrich their thinking about general equilibrium theory. Special attention is given to the McKenzie model, in which it is not assumed that the number of firms is given but rather that technologies or activities are available to any agents who can supply the resources they require. The McKenzie model is used to establish the turnpike theorems of optimal and competitive capital accumulation. (shrink)

Most philosophers of economics are hostile towards neoclassical economics in general and general equilibrium theory in the vein of Arrow and Debreu in particular. Especially the latter’s dismissal is justified by pointing out its lack of direct relevance for an understanding of real economies. Many recommend a more pragmatic approach along the lines of Keynes instead. The criterion of scientific legitimacy underlying this approach derives from a philosophy of science developed along the lines of Popper and (...) Lakatos. They, however, neglect the importance of conceptual problems and of the choice of adequate ‘language-systems’ in science. Since these conceptual and ‘linguistic’ aspects may be able to explain and to justify the rationale of the Arrow-Debreu approach, I recommend the more balanced philosophies of Carnap and Laudan, in which conceptual as well as empirical problems are allowed for, as a framework for methodological appraisal. I explain why such a balanced view is obstructed for most philosophers of economics and advocate a moderate pluralism leaving room for different theories, methodologies and language-systems, depending on the scientific aims that are pursued. (shrink)

General Equilibrium Theory: An Introduction treats the classic Arrow-Debreu general equilibrium model in a form accessible to graduate students and advanced undergraduates in economics and mathematics. Topics covered include mathematical preliminaries, households and firms, existence of general equilibrium, Pareto efficiency of general equilibrium, the First and Second Fundamental Theorems of Welfare Economics, the core and core convergences, future markets over time and contingent commodity markets under uncertainty. Demand, supply, and excess demand (...) appear first as functions, then optionally as correspondences. The mathematics presented includes a real analysis, the Brouwer fixed point theorem, and separating and supporting hyperplane theorems. Optional chapters introduce the existence of equilibrium with set-valued supply and demand, the mathematics of upper and lower hemicontinuous correspondences, and the Kakutani fixed point theorem. The treatment emphasizes clarity and accessibility to the student through use of examples and intuition. (shrink)

The concept of general equilibrium, one of the central components of economic theory, explains the behavior of supply, demand, and prices by showing that supply and demand exist in balance through pricing mechanisms. The mathematical tools and properties for this theory have developed over time to accommodate and incorporate developments in economic theory, from multiple markets and economic agents to theories of production.Yves Balasko offers an extensive, up-to-date look at the standard theory of (...) class='Hi'>general equilibrium, to which he has been a major contributor. This book explains how the equilibrium manifold approach can be usefully applied to the general equilibrium model, from basic consumer theory and exchange economies to models with private ownership of production. Balasko examines properties of the standard general equilibrium model that are beyond traditional existence and optimality. He applies the theory of smooth manifolds and mappings to the multiplicity of equilibrium solutions and related discontinuities of market prices. The economic concepts and differential topology methods presented in this book are accessible, clear, and relevant, and no prior knowledge of economic theory is necessary.General Equilibrium Theory of Value offers a comprehensive foundation for the most current models of economic theory and is ideally suited for graduate economics students, advanced undergraduates in mathematics, and researchers in the field. (shrink)

This book, together with Marx's Economic and Walras' Economics, completes a sequence of titles by Professor Morishima on the first generation of scientific economists. The author's assessment of Ricardo differs substantially from the established views adopted by economists and historians of economic thought. While economists such as Pasinetti, Caravale and Samuelson have concentrated on macroeconomic interpretations of Ricardo, and historians of economic thought have emphasised his labour theory of value, Morishima takes a different course. In this book the author (...) concentrates on Ricardo's main work, The Principles, and shows that his economics is the prototype of mathematical economies without the symbols and formulae. Morishima then translates Ricardo's economics into mathematical language to find a general equilibrium system concealed within. The analysis also contradicts the conventional view that marginalism emerged in opposition to classical economics, showing instead that Ricardian analysis is firmly based on marginalist principles, using prices, wages and profits rather than labour values. The book ends with a discussion of the historical character of economic theory and an attempt to specify the epoch of Ricardian economics. (shrink)

This paper supports the literature which argues that derivational robustness can have epistemic import in highly idealized economic models. The defense is based on a particular example from mathematical economic theory, the dynamic Walrasian general equilibrium model. It is argued that derivational robustness first increased and later decreased the credibility of the Walrasian model. The example demonstrates that derivational robustness correctly describes the practices of a particular group of influential economic theorists and provides support for the arguments (...) of philosophers who have offered a general epistemic justification of such practices. (shrink)

Contemporary general equilibrium theory is characteristically short-run, separated from monetary aspects of the economy, and as such does not deal with long-run problems such as capital accumulation, innovation, and the historical movement of the economy. These phenomena are discussed by growth theory, which assumes a given or shifting production function, and in turn cannot therefore deal with the fundamental problem of growth, namely how the production function is derived. Thus traditional theories have a common weakness in (...) that they divorce real economic growth from the activities of the financial sector. This book provides a much-needed synthesis of growth theory and monetary theory. Professor Morishima draws on the work of Schumpeter, Keynes and the pre-war neoclassical economists to formulate a capital-theoretic general equilibrium theory. (shrink)

Economic methodologists most often study the relations between models and reality while focusing on the issues of the model's epistemic relevance in terms of its relation to the ‘real world’ and representing the real world in a model. We complement the discussion by bringing the model's constructive mechanisms or self-implementing technologies in play. By this, we mean the elements of the economic model that are aimed at ‘implementing’ it by envisaging the ways to change the reality in order to bring (...) it more in line with the model. We are thus concerned mainly not with the ways to change the model to ‘fit’ the reality, but rather with the model's own armature that is supposed to transform the world along theoretical lines. The case we study is Arrow–Debreu–McKenzie general equilibrium model. In particular, we show the following: gradient methods and stability could be regarded as constructive mechanisms of general equilibrium modeling in the context of market socialism debates; the obsession of general eq.. (shrink)

What is the nature of the intellectual enterprise - general equilibrium analysis - that so many economists regard as the centerpiece of their discipline? In this book, Roy Weintraub considers both the modern history of the analysis, and the methodological puzzles that it, and mathematical economic theory in general, pose. Professor Weintraub argues that previous writings on the history and method of general equilibrium theory have been curiously biased and misleading. He provides a (...) clear and careful presentation of the development of the theory from the 1930s through to the Arrow-Debreu work of the 1950s. This historical analysis is the centre of the book: a case study which permits the author to justify the status of general equilibrium theory in economics and the activity in which economic theorists engage. He argues that previous methodological investigations have been distorted by their use of inappropriate models taken from the philosophy of science that were developed to appraise work in the physical sciences. (shrink)

A basic issue in political economy is the question of how a decentralized economy is possible: How can a system survive and, moreover, be efficient, if all decisions are taken independently, that is, without any explicit coordination? The issue has two sides to it. On the one hand, it is a “thought experiment,” falsifiable only on logical grounds, an object of debate for the sake of pure intellectual interest, even for people who might not live in a market economy. On (...) the other hand, for those who do or might live in such an economy, a thought experiment of this kind contains a critical political dimension, for the conclusions derived from it will usually be appealed to in arguing about the ideal organization of the economy. (shrink)

General equilibrium analysis is a theoretical structure which focuses research in economics. On this point economists and philosophers agree. Yet studies in general equilibrium analyses are not well understood in the sense that, though their importance is recognized, their role in the growth of economic knowledge is a subject of some controversy. Several questions organize an appraisal of general equilibrium analysis. These questions have been variously posed by philosophers of science, economic methodologists, and historians (...) of economic thought. Is general equilibrium analysis a theory, a paradigm, a scientific research program, or a set of interrelated theories? Is it not any of these but rather a branch of applied mathematics? Is GE analysis associated with the growth of knowledge, or does it waste intellectual resources? How is it related to other work in economics? Is it connected to, or is it apart from, the concerns of applied economists? (shrink)

The development of general equilibrium theory represents one of the greatest advances in economic analysis in the latter half of the twentieth century. This book, intended for advanced undergraduates and graduate students, provides a broad introduction to competitive equilibrium analysis with an emphasis on concrete applications. The first three chapters are introductory in nature, paving the way for the more advanced second half of the book. Relative to the competition, it is much more 'user friendly' while (...) offering exceptionally broad coverage of topics. Well-designed and interesting applications help to make potentially abstract material more accessible. The book includes 92 illustrations and nearly 200 exercises. (shrink)

Computable general equilibrium models are widely used by governmental organizations and academic institutions to analyze the economy-wide effects of events such as climate change, tax policies and immigration. This book provides a practical, how-to guide to CGE models suitable for use at the undergraduate college level. Its introductory level distinguishes it from other available books and articles on CGE models. The book provides intuitive and graphical explanations of the economic theory that underlies a CGE model and includes (...) many examples and hands-on modeling exercises. It may be used in courses on economics principles, microeconomics, macroeconomics, public finance, environmental economics and international trade and finance, because it shows students the role of theory in a realistic model of an economy. The book is also suitable for courses on general equilibrium models and research methods and for professionals interested in learning how to use CGE models. (shrink)

The paper challenges Joseph Salerno’s recent revisionist account in “The Place of Human Action in the Development of Economic Thought” of the relationship between Friedrich von Wieser and F.A. Hayek and of their views on equilibrium theory. The paper argues, contra Salerno, that Wieser was not a proponent of general equilibrium theory, so could not have influenced Hayek in the manner Salerno suggests; that there was not a concerted effort by Schumpeter, Wieser, Mayer, and Hayek (...) to advocate general equilibrium theory in the prewar and inter-war years among the Austrians; and finally, that Hayek’s early attraction to what he called “equilibrium analysis” had causes independent of those alleged by Salerno.Cet article récuse l’interprétation révisionniste récente de Joseph Salerno dans son article “The Place of Human Action in the Development of Economic Thought” à propos des relations entre Friedrich von Wieser et Friedrich Hayek, et de leurs visions au sujet de l’équilibre. S’inscrivant en cela en opposition avec ce qu’avance Salerno, cet article suggère que Wieser n’était pas un partisan de la théorie de l’équilibre général et, en conséquence, ne peut avoir influencé Hayek comme le suggère Salerno ; qu’il n’y a eu aucun effort concerté entre Schumpeter, Wieser, Mayer et Hayek pour promouvoir la théorie de l’équilibre général parmi les autrichiens durant les années d’avant-guerre et celles de l’entre-deux guerres ; et enfin, que l’intérêt du jeune Hayek dans ce qu’il appelait “l’analyse de l’équilibre” avait des causes autres que celles évoquées par Salerno. (shrink)

The theory of competition has held a central place in economic analysis since Adam Smith. This book, written by one of the most distinguished of contemporary economic theorists, reports on a major research program to provide strategic foundations for the theory of perfect competition. Beginning with a concise survey of how the theory of competition has evolved, Gale makes extensive and rigorous use of dynamic matching and bargaining models to provide a more complete description of how a (...) competitive equlibrium is achieved. Whereas economists have made use of a macroscopic description of markets in which certain behavioral characteristics, such as price-taking behavior, are taken for granted, Gale uses game theory to re-evaluate this assumption, beginning with individual agents and modelling their strategic interaction. A strategic foundation for competitive equilibrium shows how such interaction leads to competitive, price-taking behavior. Essential reading for graduate courses in game theory and general equilibrium. (shrink)

The article analyzes the possibilities and limitations of artificial intelligence. The article considers the subjectivity of artificial intelligence, determines its necessity for solving intellectual problems depending on the possibility of representing the real world as a deterministic system. Methodological limitations of artificial intelligence, which is based on the use of big data technologies, are stated. These limitations cause the impossibility of forming a holistic representation of the objects of cognition and the world as a whole. As a tool for deterministic (...) description of the universe it is proposed to use empirical-metaphysical general theory of systems, which is an extension of existing general theories of systems due to ontological justification of the phenomenon of isomorphism and definition of a limited set of laws, rules, patterns and primitives of forms and relations of objects in the universe. The distinction of natural (human) and artificial intelligence is considered, including the realization of multisystem integration of intelligence in physical, biological, social and spiritual systems. A philosophically grounded approach to ensuring the evolutionary properties of artificial intelligence is formulated, based on the inclusion of non-equilibrium mechanisms through which stability is realized. (shrink)

Bruce Caldwell has disputed a number of points in my earlier account of the development of the Austrian school of economics from Carl Menger to Ludwig von Mises and F.A. Hayek. The issues in contention regard Friedrich von Wieser’s intellectual affiliation with Hayek and his influence on the formation of Hayek’s economic thought; Wieser’s status as a general equilibrium theorist; and the reason for Hayek’s early flirtation with general equilibrium theory. In this article I argue (...) that Hayek was a self-conscious adherent of the Wieserian tradition and remained so even after he received the Nobel Prize in 1974 and that he distinguished between this tradition and the Böhm-Bawerkian tradition followed by Ludwig von Mises. I also contend that Wieser used the construction of a general equilibrium economy subject to a single will as both a normative benchmark by which to appraise the performance of the real-world market economy and as an analytical tool to explain the formation of market prices. Finally, I argue that Hayek concerned himself with the problems of the Wieser-type general equilibrium economy beginning with his earliest writings as a professional economist, years before he began to focus on the theoretical problems of money and the business cycle.Bruce Caldwell a discuté un certain nombre de points de mon article récent sur le développement de l’école autrichienne d’économie de Carl Menger en passant par Ludwig von Mises et F.A. Hayek. Les controverses concernant l’affiliation intellectuelle de Hayek vis-à-vis de Friedrich von Wieser et l’influence de ce dernier sur la pensée économique de Hayek, le statut de Wieser en tant que théoricien de l’équilibre général, et les raisons pour lesquelles le jeune Hayek flirta avec la théorie de l’équilibre général.Dans cet article je défends la thèse selon laquelle Hayek était conscient du fait qu’il s’inscrivait dans la tradition Wieserienne et qu’il l’était toujours même après sa réception du prix Nobel en 1974 et quand il fît la distinction entre cette tradition et la tradition inaugurée par Böhm-Bawerk et poursuivie par Mises. L’article affirme aussi que Wieser utilisa la construction d’une économie en équilibre général sujette à une volonté unique à la fois comme standard normatif pour évaluer les performances des marchés dans le monde réel et comme outil analytique pour expliquer la formation des prix marchands. Enfin, l’article argumente que Hayek s’intéressa aux problèmes relevant d’une économie en équilibre général à la Wieser dans ses premiers écrits en tant qu’économiste et cela bien avant qu’il ne se concentrât sur les problèmes théoriques de la monnaie et du cycle des affaires. (shrink)

Andreu Mas-Colell has been doing pioneering work using differential topology in the analysis of general equilibrium. This work is regarded as outstanding and one of the major contributions to the development of rigorous economic theory in the last twenty years. The articles he has written have been difficult and technically demanding. In this book he brings this work together to show its scope and its power. He presents the analysis in a way which makes it accessible to (...) the broader range of economic theorists and advanced students. This book has been long awaited as a seminal contribution to the subject. (shrink)

This paper considers in detail the ontological and normative presuppositions of the state-contingent approach to pricing commodities first introduced by Arrow in his model of general equilibrium under uncertainty, which became a milestone in the theory of finance. By contextualizing Arrow’s fundamental contribution and subsequent developments in finance, it demonstrates how this new conceptual framework implied certain technologies—both intellectual and financial. In showing how theoretical thinking about finance was underlying institutional developments in finance, this paper complements the (...) familiar narrative of the performativity of economics. (shrink)

In The Equilibrium Manifold, noted economic scholar and major contributor to the theory of general equilibrium Yves Balasko argues that, contrary to what many textbooks want readers to believe, the study of the general equilibrium model did not end with the existence and welfare theorems of the 1950s. These developments, which characterize the modern phase of the theory of general equilibrium, led to what Balasko calls the postmodern phase, marked by the (...) reintroduction of differentiability assumptions and the application of the methods of differential topology to the study of the equilibrium equation. Balasko's rigorous study demonstrates the central role played by the equilibrium manifold in understanding the properties of the Arrow-Debreu model and its extensions. Balasko argues that the tools of differential topology articulated around the concept of equilibrium manifold offer powerful methods for studying economically important issues, from existence and uniqueness to business cycles and economic fluctuations. After an examination of the theory of general equilibrium's evolution in the hundred years between Walras and Arrow-Debreu, Balasko discusses the properties of the equilibrium manifold and the natural projection. He highlights the important role of the set of no-trade equilibria, the structure of which is applied to the global structure of the equilibrium manifold. He also develops a geometric approach to the study of the equilibrium manifold. Applications include stability issues of adjustment dynamics for out-of-equilibrium prices, the introduction of price-dependent preferences, and aspects of time and uncertainty in extensions of the general equilibrium model that account for various forms of market frictions and imperfections. Special effort has been made at reducing the mathematical technicalities without compromising rigor. The Equilibrium Manifold makes clear the ways in which the postmodern" developments of the Arrow-Debreu model improve our understanding of modern market economies. (shrink)

Macroeconomics is evolving in an almost dialectic fashion. The latest evolution is the development of a new synthesis that combines insights of new classical, new Keynesian and real business cycle traditions into a dynamic, stochastic general equilibrium model that serves as a foundation for thinking about macro policy. That new synthesis has opened up the door to a new antithesis, which is being driven by advances in computing power and analytic techniques. This new synthesis is coalescing around developments (...) in complexity theory, automated general to specific econometric modeling, agent-based models, and non-linear and statistical dynamical models. This book thus provides the reader with an introduction to what might be called a Post Walrasian research program that is developing as the antithesis of the Walrasian DSGE synthesis. (shrink)

The resurgence of rational choice theory in sociology has given rise to a debate about its scope and limits. This paper approaches the debate in a constructive spirit. Taking Coleman's recent work as exemplary of rational choice theory in sociology, the discussion begins by noticing some elements common to this theory and to the framework employed by neofunctionalist critics of rational choice theory. First, the concept of control plays a central role in both theoretical models. Second, (...) both theories attempt to generalize the general equilibrium theory of economics, thereby capturing the economic theory as a special case. The constructive work consists of showing how key concepts of one model relate to analogous key concepts in the other. The aim is to forge the beginning of the synthesis in which the strengths of each model are preserved in one that includes both. (shrink)

This book is a collection of essays on various problems arising in connection with John Rawls's theory of justice. Its focus is the method of wide reflective equilibrium. The first half of the book begins with Daniels's well-known essay "Wide Reflective Equilibrium and Theory Acceptance in Ethics" and ends with an excellent discussion of the role of reflective equilibrium in Rawls's Political Liberalism. The essays in the second part discuss justice in health care. They are (...) of interest in their own right, and also as illustrating Daniels's view that for those practicing the method of reflective equilibrium, applied moral philosophy is integral to the process of moral theorizing. Daniels says that the essays do not constitute a systematic treatment of wide reflective equilibrium. But they display a much higher degree of thematic coherence than is usual in a collection, and they read much like the chapters of a monograph. (shrink)

Like many theorists before him, Paul Weirich has set out to find the Holy Grail of classical game theory: the solution concept that identifies the uniquely rational solution to every non-cooperative game. In this book, he reports an intermediate stage in his quest. He cannot actually identify the unique solution for every game but, he believes, he has found a new concept of equilibrium that is a necessary property of that solution.

The noema is one of the most daring and controversial concept of the Husserlian theory of intentionality. It was first introduced by Husserl in 1912, within some research manuscripts, but was only fully developed in Ideen. In this paper I claim that the noema is an ambiguous notion, the result of a theoretical operation, the epoché, whose aim is contradictory. In an effort to keep open the epoché, and therefore maintain distance with respect to every transcendent object, Husserl is (...) forced to multiply intentional objects and complicate the notions of sense and noema. Given that, I propose to overcome the paradoxes of noema through the language of game theory. Game theory offers a very fruitful descriptive model that allows us to save the original Husserlian approach without the contradictions of the epoché. For this reason, I propose to re-interpret intentionality as social game, and the noema as Nash equilibrium. By replying to possible objections, I will show that this approach gives us many theoretical advantages. The general aim of the paper is a global reformulation of the phenomenalogical method. (shrink)

The method of reflective equilibrium focuses on the relationship between principles and judgments. Principles are relatively general rules for comprehending the area of enquiry. Judgments are our intuitions or commitments, ‘at all levels of generality’ (Rawls 1975: 8), regarding the subject matter. The basic idea of reflective equilibrium is to bring principles and judgments into accord. This can be achieved by revising the principles and/or the judgments. -/- I first look at normative political judgments (Section 2) before (...) considering the role of principles, arguments, devices of representation and background theory in wide reflective equilibrium (Section 3). I then consider two of the main challenges to the method (Section 4), and show how to use it to deliberate about substantive political principles (Section 5). I conclude with an extended example of the method in action (Section 6). (shrink)

Influential neoclassical economist Lionel McKenzie has made major contributions to postwar economic thought in the fields of equilibrium, trade, and capital accumulation. This selection of his papers traces the development of his thinking in these three crucial areas.McKenzie's early academic life took him to Duke, Princeton, Oxford, the University of Chicago, and the Cowles Commission. In 1957, he went to the University of Rochester to head the economics department there, and he remains at Rochester, now Wilson Professor Emeritus of (...) Economics. McKenzie's most significant research was undertaken during a period that saw the development of the major themes of neoclassical economics and the use of fundamental mathematical methods to do so. McKenzie contributed to both aspects of this research program. He helped shape the direction of the field and, at Rochester, influenced generations of future scholars. In 2002, The MIT Press published McKenzie's Classical General Equilibrium Theory, a detailed summary of the model and methodology. This book, collecting his most important papers in the form in which they were originally published, can be seen as a companion to that one. The many state-of-the-art results achieved in McKenzie's original papers present sophisticated theoretical work that will continue to be important to future developments in the discipline. (shrink)

Part IIb presents some of the most important theorems for stable equilibrium states that can be deduced from the four postulates of the unified theory presented in Part I. It is shown for the first time that the canonical and grand canonical distributions are the only distributions that are stable. Moreover, it is shown that reversible adiabatic processes exist which cannot be described by the dynamical equation of quantum mechanics. A number of conditions are discussed that must be (...) satisfied by the general equation of motion which is yet to be discovered. (shrink)

How can we figure out what’s right or wrong, if moral truths are neither self-evident nor something we can perceive? Very roughly, the method of reflective equilibrium (RE) says that we should begin moral inquiry from what we already confidently think, seeking to find a a match between our initial convictions and general principles that are well-supported by background theories, mutually adjusting both until we reach a coherent outlook in which our beliefs are in harmony (the equilibrium (...) part) and we know why and how they support each other (the reflective part). It has been central to the self-understanding of normative ethics and other branches of philosophy in the last half a century. In this chapter, we examine the history of the idea of RE and introduce a schema for generating 256 variants. We explain why RE is subject to serious objections insofar as it purports to yield epistemic justification in virtue of achieving coherence. However, we also develop a new argument to the effect that RE is the best feasible method for us to achieve moral understanding and the ability to justify our judgments to others. It may thus be crucial for responsible moral inquiry, even if coherence among considered judgments and principles is neither sufficient nor necessary for justified moral belief. (shrink)

One of the fundamental themes in economic theory is the study of the role of prices in achieving an optimal allocation of resources in a competitive, decentralized economy. The book begins with a review of the basic results on the rigorous elaboration of the Walras-Pareto theory in the context of a static economy with many agents. It summarizes some subsequent research in which the limits of the price-mechanism as a successful coordination device are recognized. When economic activity is (...) allowed with no pre-assigned terminal period, the two fundamental theorems linking competitive equilibrium allocations to Pareto optimality are challenged and the question of decentralization is carefully re-examined. With incomplete markets, and sequential trading, the concept of a Radner equilibrium is next introduced, and some of the striking properties of this are summarized. In a large economy with random shocks to preferences and/or endowments of individual agents, the implications of the celebrated laws of probability theory are explored. This book provides a clear and comprehensive analysis of the efficiency properties of general equilibrium, with many agents and an expanded list of commodities. It will be of particular interest to postgraduate and doctorate students of economic theory as well as scholars on Walrasian equilibrium, Pareto optimality and uncertainty theories. (shrink)

In the 1930s, socialist economists used the assumptions of equilibrium theory to argue that a central planner could coordinate supply and demand from above. This argument led Hayek, over the years, to try to explain the limitations of equilibrium theory and, conversely, to explain how capitalism functioned without the assumptions of equilibrium being met. In a changing world of agents who are ignorant of the future, how is a functioning market “order” possible? One answer can (...) be found in Hayek's argument that evolved rules make people's future behavior more predictable and, more to the point, that they contain previously accumulated knowledge that provides the building blocks for future economic growth. Hayek's evolutionary theory was flawed, however, in failing to explain how people can know which rules are responsible for their success or failure so that they persist in using those rules and pass them forward in time. However, markets provide immediate feedback about success and failure through profits and losses. An evolutionary explanation of the economy would have permitted Hayek to dispense with the metaphor of general equilibrium, which was increasingly irrelevant to his understanding of economic order. (shrink)

This paper studies an economy whose agents perceive their consumption possibilities subjectively, and whose preferences are defined on what they subjectively experience, rather than on those alternatives that are objectively present. The model of agents' perceptions is based on intuitionistic logic. Roughly, this means that agents reason constructively: a solution to a problem exists only if there is a construction by which the problem can be solved. The theorems that can be proved determine how an agent perceives a set of (...) alternatives. A dual model relates perceived alternatives to a shared language, which the agents use in trading. So perceptions relate objective alternatives to an agent's subjective view of them, and reporting dually relates an agent's subjective world to a shared language. It turns out that an appropriately modified notion of competitive equilibrium always exists. However, in contrast with standard results in economic theory, competitive equilibrium need not be efficient. (shrink)

As a procedure, reflective equilibrium is simply a familiar kind of standard scientific method with a new name. A theory is constructed to account for a set of observations. Recalcitrant data may be rejected as noise or explained away as the effects of interference of some sort. Recalcitrant data that cannot be plausibly dismissed force emendations in theory. What counts as a plausible dismissal depends, among other things, on the going theory, as well as on background (...) theory and on knowledge that may be relevant to under-standing the experimental design that is generating the observations, including knowledge of the apparatus and observation conditions. This sort of mutual adjustment between theory and data is a familiar feature of scientific practice. Whatever authority RE seems to have comes, I think, from a tacit or explicit recognition that it has the same form as this familiar sort of scientific inference. One way to see the rationale underlying this procedure in science is to focus on prediction. Think of prediction as a matter of projecting what is known onto uncharted territory. To do this, you need a vehicle—a theory—that captures some invariant or pattern in what is known so that you can project it onto the unknown. How convincing the projection is depends on two factors: how sure one is of the observational base, and how sure one is that the theory gets the invariants right. The two factors are not independent, of course. One's confidence in the observational base will be affected by how persuasively the theory identifies and dismisses noise; one's confidence in the theory, on the other hand, will depend on one's confidence in the observations it takes seriously. Prediction is important as a test of theory precisely because verified predictions seem to show that the theory has correctly captured the general in the particular, that it has got the drift of the observational evidence in which our confidence is ultimately grounded. (shrink)

For the last century, economic analysis has been wedded to the idea of equilibrium, in spite of the evident fact that most economic relationships are in flux. The theory of transformational growth in this work replaces equilibrium with history. The role of the market is not to allocate resources, but to generate innovations, which are 'selected' by competition in an evolutionary process. These innovations in turn change the way markets work and how they adjust, thus creating new (...) problems and new kinds of pressures to innovate. Different historical periods can be distinguished with a new one perhaps on the horizon. In each a distinctive style of technology prevails, associated with corresponding institutions and patterns of market behavior. The core relationships provide the foundations for a theory of monetary circulation, which makes possible a revised Keynesian approach, based on Classical foundations. (shrink)

There are two general classes of social conventions: conventions of coordination, and conventions of partial conflict. In coordination problems, the interests of the agents coincide, while in partial conflict problems, some agents stand to gain only if other agents unilaterally make certain sacrifices. Lewis' (1969) pathbreaking analysis of convention in terms of game theory focuses on coordination problems, and cannot accommodate partial conflict problems. In this paper, I propose a new game-theoretic definition of convention which generalizes previous game-theoretic (...) definitions (Lewis 1969, Vanderschraaf 1995), and which can be used to characterize norms of justice in partial conflict situations. I argue that the key structural property necessary for a social arrangement to be a convention is that it be conditionally self-enforcing, in the sense that: (i) each agent has a decisive reason to follow her end of the arrangement given that she expects all to do likewise, (ii) given a different set of expectations, some agents would have had a decisive reason to deviate, and (iii) these facts are common knowledge. This leads to a definition of convention as a strict correlated equilibrium (Aumann 1974) together with appropriate common knowledge conditions. Examples are given in which it is shown how this more general account of convention can be used to analyze norms of justice as well as coordination problems. It is only a general sense of common interest; which sense all the members of the society express to one another, and which induces them to regulate their conduct by certain rules. I observe, that it will be for my interest to leave another in the possession of his goods, provided he will act in the same manner with regard to me. He is sensible of a like interest in the regulation of his conduct. When this common sense of interest is mutually express'd, and is known to both, it produces a suitable resolution and behavior. And this may properly be call'd a convention or agreement betwixt us,.. (shrink)

We generalize the concept of Nash equilibrium in mixed strategies for strategic form games to allow for ambiguity in the players' expectations. In contrast to other contributions, we model ambiguity by means of so-called lower probability measures or belief functions, which makes it possible to distinguish between a player's assessment of ambiguity and his attitude towards ambiguity. We also generalize the concept of trembling hand perfect equilibrium. Finally, we demonstrate that for certain attitudes towards ambiguity it is possible (...) to explain cooperation in the one-shot Prisoner's Dilemma in a way that is in accordance with some recent experimental findings. (shrink)

Practical equilibrium, like reflective equilibrium, is a way of deciding what to think about morality. It shares with reflective equilibrium the general thesis that there is some way in which a moral theory must, in order to be acceptable, answer to one’s moral intuitions, but it differs from reflective equilibrium in its specification of exactly how a moral theory must answer to one’s intuitions. Whereas reflective equilibrium focuses on a theory’s consistency (...) with those intuitions, practical equilibrium also gives weight to a theory’s approval of one’s having those intuitions. (shrink)

In A Theory of Justice, John Rawls defines a hypothetical contract situation and argues rational people will agree on reflection it is fair to contractors. He solves the rational choice problem it poses by deriving two lexically-ordered principles of justice and suggests the derivation justifies the principles. Its soundness aside, just what justificatory force does such a derivation have?On one view, there is no justificatory force because the contract is rigged specifically to yield principles which match our pre-contract moral (...) judgments. Rawls provides ammunition for this claim: “By going back and forth, sometimes altering the conditions of the contractual circumstances, at others withdrawing our judgments [about what is just] and conforming them to principle, I assume that eventually we shall find a description of the initial situation that both expresses reasonable conditions and yields principles which match our considered judgments duly pruned and adjusted.”. (shrink)

People who work and live in a certain moral practice usually possess a specific form of moral wisdom. If we manage to incorporate their moral intuitions in ethical reasoning, we can arrive at judgements and theories that grasp a moral experience that generally cannot be found outside the said practice. To achieve this goal, we need a legitimate way to balance moral intuitions, ethical principles and general theories. In the present contribution, we describe a version of the model of (...) Reflective Equilibrium, which we call the Normative-Empirical Reflective Equilibrium . RE provides a framework for ethical thinking that includes both moral experience and normative theory.After an outline of the model, we focus on the role of empirical research and illustrate how empirical data on moral intuitions can add to the comprehensiveness of the set of moral beliefs in NE-RE. Subsequently, we describe how coherence among the elements of an NE-RE can be understood and measured. Finally, we address an important question for any method of moral reasoning: what is the status of the outcome of the reasoning process? This is a matter of justification. We argue for a so-called good reasoning-justified outcome strategy in NE-RE. This strategy is built on a reasoning process in which the reason-giving force of each element is tested and weighed. The thinker has to work towards a coherent view in which only the elements with sufficient justificatory power are retained. If the thinker decides that the elements fit together into a coherent view, a reflective equilibrium is reached. NE-RE is an attempt to describe a model for moral reasoning that can profit from the moral wisdom present among experienced agents through the use of empirical research. (shrink)

People who work and live in a certain moral practice usually possess a specific form of moral wisdom. If we manage to incorporate their moral intuitions in ethical reasoning, we can arrive at judgements and theories that grasp a moral experience that generally cannot be found outside the said practice. To achieve this goal, we need a legitimate way to balance moral intuitions, ethical principles and general theories. In the present contribution, we describe a version of the model of (...) Reflective Equilibrium, which we call the Normative-Empirical Reflective Equilibrium . RE provides a framework for ethical thinking that includes both moral experience and normative theory.After an outline of the model, we focus on the role of empirical research and illustrate how empirical data on moral intuitions can add to the comprehensiveness of the set of moral beliefs in NE-RE. Subsequently, we describe how coherence among the elements of an NE-RE can be understood and measured. Finally, we address an important question for any method of moral reasoning: what is the status of the outcome of the reasoning process? This is a matter of justification. We argue for a so-called good reasoning-justified outcome strategy in NE-RE. This strategy is built on a reasoning process in which the reason-giving force of each element is tested and weighed. The thinker has to work towards a coherent view in which only the elements with sufficient justificatory power are retained. If the thinker decides that the elements fit together into a coherent view, a reflective equilibrium is reached. NE-RE is an attempt to describe a model for moral reasoning that can profit from the moral wisdom present among experienced agents through the use of empirical research. (shrink)

Norman Daniels is perhaps best known as one of America’s foremost champions of coherentist moral epistemology, and the justificatory method of wide reflective equilibrium in particular. The striking coherence of Daniels’s career itself is evident in this collection of sixteen of his essays, composed over an eighteen-year period. To a large extent, these essays extend the work of John Rawls—either by attempting to make greater theoretical sense of WRE, or by applying abstract Rawlsian arguments to concrete social problems in (...) applied ethics. These thoroughly engaging essays are uniformly of high calibre. They are tightly argued, carefully researched, and intellectually rich and rewarding. Daniels’s writing is a model of clarity, and, while his work genuinely breaks much new ground, he is refreshingly honest about the limitations of his findings, and cognizant of the force of opposing viewpoints. (shrink)