Theory in Economics, Misc

Linguistic structures have recently started to attract attention from economists as determinants of economic phenomena. This paper provides the first comprehensive review of this nascent literature and its achievements so far. First, we explore the complex connections between language, culture, thought and behaviour. Then, we summarize the empirical evidence on the relationship between linguistic structures and economic and social outcomes. We follow up with a discussion of data, empirical design and identification. The paper concludes by discussing implications for future research (...) and policy. (shrink)

Lipsey and Lancaster's ``general theory of second best'' is widely thought to have significant implications for applied theorizing about the institutions and policies that most effectively implement abstract normative principles. It is also widely thought to have little significance for theorizing about which abstract normative principles we ought to implement. Contrary to this conventional wisdom, I show how the second best theorem can be extended to myriad domains beyond applied normative theorizing, and in particular to more abstract theorizing about the (...) normative principles we should aim to implement. I start by separating the mathematical model used to prove the second best theorem from its familiar economic interpretation. I then develop an alternative normative-theoretic interpretation of the model, which yields a novel second best theorem for idealistic normative theory. My method for developing this interpretation provides a template for developing additional interpretations that can extend the reach of the second best theorem beyond normative theoretical domains. I also show how, within any domain, the implications of the second best theorem are more specific than is typically thought. I conclude with some brief remarks on the value of mathematical models for conceptual exploration. (shrink)

This article challenges the idea that competition was central to Adam Smith’s thinking by scrutinizing the concept’s role in Smith’s work, particularly The Wealth of Nations. We will understand Smith’s perspective better if we avoid reading later developments of the concept, particularly in economics, back into Smith’s times and writings. Conversely, I argue that the division of labor is the governing idea providing the basic organizational structure of Wealth of Nations. Clarifying (and demoting) the role of competition in Smith’s thinking (...) requires showing the centrality of the idea of the division of labor—the idea doing the major analytic work in his thinking. The argument contributes to recent reassessments of the scope and significance of Smith’s social theory and strengthens the view that his approach has more in common with historical and political sociology than with economics as currently configured. -/- . (shrink)

The notion of ‘revealed preference’ is unclear and should be abandoned. Defenders of the theory of revealed preference have misinterpreted legitimate concerns about the testability of economics as the demand that economists eschew reference to (unobservable) subjective states. As attempts to apply revealed-preference theory to game theory illustrate with particular vividness, this demand is mistaken.

Modern law and economics received much of its impetus from Ronald Coase's analysis in ‘The Problem of Social Cost,’ and a goodly amount of that comes from the Coase theorem, which states that, absent transaction costs, externalities will be efficiently resolved through bargaining. The fact that the analysis that came to be codified in the Coase theorem was an exercise in pure fiction on Coase's part did not deter the erection of a substantial edifice of positive and normative analysis on (...) this foundation, nor, for that matter, has subsequent elaboration of Coase's intent done anything to abate the interest in the theorem and its implications. (shrink)

review of two similar collections on well-being.

Gossen's and Becker's theory of time allocation are compared.

The article addresses critical discourses pertaining to triangulation methodology as a step forward in dealing with policy formulation, particularly at the Bank of Sierra Leone. Alternative prescriptive measure like critical discourse analysis have been proposed as a means to the cutting head development in bridging the gap between orthodox and heterodox views of economic sciences investigations.

Research suggests that people tend to be fooled by randomness and mistake luck for skill, particularly when evaluating extreme performances. I argue that these predictable mistakes can be translated into a source of competitive advantage: informed managers can exploit others’ misperceptions of luck, such as by arbitraging in strategic factor markets. I then discuss limits to this arbitrage strategy due to social constraints: stakeholders may not be able to accurately evaluate performances and may disapprove atypical strategic activities, suggesting that only (...) strategists who are less sensitive to this “lemon problem” can take advantage of the resulting arbitrage opportunities. I conclude with a flowchart about when strategists should pursue this alternative source of strategic opportunity that turns the well- known biases on their head. (shrink)

This doctoral thesis was prepared in 1975-77 at Ecole des Hautes Etudes en Sciences Sociales, Paris, under the supervision of Prof. Raymond ARON. It was submitted in 1977 in fulfilment of the requirements for a Ph.D. degree in Social Sciences (Doctorat de 3e cycle en sciences sociales). The oral examination (soutenance de thèse) was held in January 1978, with the examination committee consisting of Prof. Aron, Bartoli, Boudon and Brochier. This 250 page unpublished dissertation was the first study ever written (...) in French on Karl Marx's Grundrisse - a 1857-58 manuscript preparatory to Marx's main economic work, Capital. The dissertation reviews Marx's successive projects for his economic work since the 1844 Manuscripts and then proceeds to a presentation and critical discussion of Grundrisse. The proposed interpretation explains the linkage that Marx operated in 1857-58 between Ricardo's economics and Hegel's dialectics, and it emphasizes that Marx was at that time primarily trying to reconstruct the dynamics of capitalism, without going to the stage of developing a formal theory of value and exploitation, as he will eventually do in Capital. (shrink)

(Expected) adverse effects of the ‘ICT Revolution’ on work and opportunities for individuals to use and develop their capacities give a new impetus to the debate on the societal implications of technology and raise questions regarding the ‘responsibility’ of research and innovation (RRI) and the possibility of achieving ‘inclusive and sustainable society’. However, missing in this debate is an examination of a possible conflict between the quest for ‘inclusive and sustainable society’ and conventional economic principles guiding capital allocation (including the (...) funding of research and innovation). We propose that such conflict can be resolved by re-examining the nature and purpose of capital, and by recognising mainstream economics’ utilitarian foundations as an unduly restrictive subset of a wider Aristotelian understanding of choice. (shrink)

By introducing elements of phenomenological philosophy to the analysis of human needs in economics; from Sartrean postulates as well as the nature and essence of individual’s needs, has been revealed a theorethical framework that serves to ponder human being’s existential behavior by means of their phenomenologic social choices and welfare. Defining a planning agent under strong assumptions of rationality and projective efficacious capabilities, the Arrow’s theorem has been proved for the economic agent aware of its finitude in this world.

This article reviews Herbert Simon's theory of bounded rationality, with a view of deemphasizing his "satisficing" model, and by contrast, of emphasizing his distinction between "procedural" and "substantive" rationality. The article also discusses a possible move from neo-classical economists to respond to Simon's criticisms, i.e., a reduction of bounded rationality to a special case of second-optimization, using Stigler's search theory. This move is eventually dismissed.

Introducing the ontology of theory choice -/- Economists choose theories and they choose ways of pursuing theories, and they leave others unchosen. Why do economists choose the way they do? How should economists choose? What are the objectives and what are the constraints? What should they be? The questions are both descriptive and prescriptive. -/- There are two broad classes of “criteria of choice” that have been somewhat systematically considered in the recent literature on economic methodology: (1) Empirical criteria. There (...) are several possible ways of incorporating empirical criteria in one's theory of science. The respective methodology of theory assessment may be static or dynamic, it may be deductivist or inductivist, it may include various ideas of what constitutes empirical evidence, and so on. What they all share is the general idea that scientific theories are, or are to be, checked against empirical evidence according to some rules, and that this determines the choice of theory. (2) Social criteria. Again, there are several options. The social criteria may be related to the social interests of scientists or larger social collectives, they may be based on the persuasiveness and tradition-boundedness of theories, they may involve social or moral norms, they may be derived from various costs and benefits of holding a theory in a given research community, and so on. If they involve empirical data, it is the social aspects of the data that matter. What all these views share is that scientific theories are taken to have social attributes (functions, consequences) that play or should play a major role in theory choice. (shrink)

The explanation of everything by economic causes alone is never exhaustive in any sense whatsoever, in any sphere of cultural phenomena, not even in the economic sphere itself. Max Weber, “Objectivity”in Social Science and Social Policy (1904).

As the title of this essay suggests, my concern is with the issue of what are economic models. However, the goal of the paper is not to offer an in-depth study on multiple approaches to modelling in economics, but rather to overcome the dichotomical divide between conceptualizing models as isolations and constructions. This is done by introducing the idea of economic models as believable worlds, precisely descriptions of mechanisms that refer to the essentials of the modelled targets. In doing so (...) I make use of the Woodward’s (2002) conceptualization of mechanisms. It is shown that such models do not offer the perfectly true descriptions of the actual world but justified beliefs about the modelled, precisely they aim at maximizing truth and minimizing falsity in a large body of belief about the real world. The analysis throughout the paper is supported by in-depth examination of the Varian’s (1980) model of sales that is here treated as a representative way of reasoning in neoclassical economics. (shrink)

Natural resources are infinite. This is possible because humans can create theories whose potential goes beyond the limited imaginative capacity of the inventor. For instance, no number of people can work out all the economic potential of quantum theory. Economic Resources are created by an interaction of Karl Popper's Worlds 1, 2 and 3, the worlds of physics, psychology and the abstract products of the human mind, such as scientific theories. Knowledge such as scientific theories has unfathomable information content, is (...) universally applicable, and infinitely copyable. The point can be made with technological knowledge such as that embodied in the wheel. The theory of the wheel has un- bounded potential to be embodied in unforeseeable new technologies, is useful on the Moon as on Earth, and can be infinitely copied. Unlike a piece of land (using fixed factors), such knowledge shows increasing returns. This helps to explain Julian Simon's observation that "natural" resources are now less scarce than they used to be and why an increasing population can increase resources in the long-run. It was Simon's breakthrough to elaborate on the abstract character of "natural" resources. I further explore this abstract character and thereby explain why natural resources are infinitely expandable. Economic growth and the creation of natural resources depends on the rate of invention. F. Machlup's suggestion (Machlup 1962) that the opportunity for new inventions increases geometrically with the number of inventions at hand is acknowledged for its suggestiveness, but criticised for its conservative position. Frank Tipler's fascinating argument for indefinite economic growth (Tipler 1994), is reinforced by my argument by making a distinction between information in the engineer's sense and the infinite potential "information" in our scientific knowledge based on Popper's notion of information content. (shrink)

The book "Idealization XIV: Models in Science" offers a detailed ontological, epistemological and historical account of the role of models in scientific practice. The volume contains contributions of different international scholars who developed many aspects of the use of idealizations and models both in the natural and the social sciences. This volume is particularly relevant because it offers original contributions concerning one of the main topic in philosophy of science: the role of models in such branches of the sciences and (...) the humanities like comparative historical sociology, economics, history, linguistics and political philosophy. -/- Contributors are: Giacomo Borbone, Krzysztof Brzechczyn, Mieszko Ciesielski, Adam Czerniak, Xavier de Donato Rodríguez, José L. Falguera, Adolfo García de la Sienra, Lidia Godek, Igor Hanzel, Łukasz Hardt, Krzysztof Kiedrowski, Barbara Konat, Zenonas Norkus, Piotr Przybysz, Piotr Szwochert. (shrink)

In Chapter 12 of the General Theory, on “The State of Long-Term Expectation,” Keynes writes: “It would be foolish, in forming our expectations, to attach great weight to matters which are very uncertain”. In a footnote to this sentence, Keynes points out that by “very uncertain” he does not mean the same as “very improbable” and refers to the chapter on “The Weight of Arguments” in his earlier Treatise on Probability. The purpose of this article, in the first place, is (...) to provide an account of, and to sort out the relations between, Keynes's views on probability, uncertainty, and the weight of arguments. (shrink)

Wherever a government or state is concerned with the welfare of its citizens, there will probably also exist policies which compel the individual citizen to undertake or abstain from activities which affect that citizen alone. The set of theories behind such policies is collectively known as ‘paternalism’. It is not hard to understand why this term has developed strong pejorative overtones. Policies of this type appear to offend a fundamental tenet of liberal societies: namely, that the individual is best placed (...) to know what is in his or her interests. Paternalistic policies imply, and are concerned with correcting, failures of precisely this kind of judgement. And yet, at the same time, there is a popular consensus that compelling people to wear a seat belt when driving a car is a reasonable restriction of personal liberty. Paternalism may be difficult to accept in principle, but it is equally difficult to avoid in practice. Not surprisingly, the literature reveals a long heritage of debate in a wide range of academic disciplines. This debate reveals a failure to make progress in two areas in particular. First, analyses of paternalism often confuse policies which are actually concerned with correcting failures of market exchange — in particular, those concerned with insufficient or imperfect information — with those which are genuinely paternalistic. One objective of this paper will be to clarify the difference between these two kinds of policy. (shrink)

F. A. Hayek is uniquely responsible for his fellow economists grasping the importance of the decentralization of knowledge: as Hayek shows in his pathbreaking “The Use of Knowledge in Society,” knowledge nowhere exists as a coherent whole and to pretend otherwise is a most serious error. Hayek also shares responsibility for the popularity of a strong form of the methodological individualist research program which asserts that since collectives as such have no impact on the choices of individuals, investigators ought to (...) purge any reliance on collectives from our analysis. (shrink)

Discussions of altruism occur in three importantly different contexts. During the past four decades, evolutionary theory has been concerned with the possibility that forms of behaviour labelled as altruistic could emerge and could be maintained under natural selection. In these discussions, an agent A is said to act altruistically towards a beneficiary B when A's action promotes the expected reproductive success of B at expected reproductive cost to A. This sort of altruism, biological altruism, is quite different from the kind (...) of behaviour important to debates about ethical and social issues. There the focus is on psychological altruism, a notion that is concerned with the intentions of the agent and that need have no connection with the spread of anyone's genes. Psychological altruists are people with other-directed desires, emotions or intentions (this is a rough preliminary characterization, to be refined below). Finally, in certain kinds of social scientific research, the important concept is that of behavioural altruism. From the outside, behavioural altruists look like psychological altruists, although their motives and preferences may be very different. (shrink)

The term ‘communitarianism’ is often identified with ‘altruism’: an individual is taken to be communitarian-minded if he or she is concerned with the well-being of others, and not only with his or her own well-being. While communitarianism may embrace altruism, it is most appositely viewed as having a broader connotation. Consider, for example, the puzzle of voting behaviour, discussed by Amitai Etzioni and many others ). Casting one's vote entails a cost, albeit usually a small one: however, if there are (...) large numbers voting, then one's own vote has a negligible effect on the outcome. An altruist might therefore rationally refrain from voting, since he incurs a cost, and neither he nor anybody else receives a benefit. And yet, millions of people the world over regularly vote in elections. Other examples could also be given. ‘Group-oriented’ behaviour has been the focus of a number of recent studies. C. Clague, for example, examines the roles of guilt and shame in discouraging tax evasion, and informally discusses how social influences may affect the strength of these sentiments. R. Naylor and M. Cripps examine the influence of social custom on individuals' propensity to join trade unions, while P. Nelson argues that in choosing which party to vote for people assign some weight to the preferences of persons they associate with. (shrink)

Many recent developments in artificial intelligence research are relevant for traditional issues in the philosophy of science. One of the developments in AI research we want to focus on in this article is diagnostic reasoning, which we consider to be of interest for the theory of explanation in general and for an understanding of explanatory arguments in economic science in particular. Usually, explanation is primarily discussed in terms of deductive inferences in classical logic. However, in recent AI research it is (...) observed that a diagnostic explanation is actually quite different from deductive reasoning. In diagnostic reasoning the emphasis is on restoring consistency rather than on deduction. Intuitively speaking, the problem diagnostic reasoning is concerned with is the following. Consider a description of a system in which the normal behavior of the system is characterized and an observation that conflicts with this normal behavior. The diagnostic problem is to determine which of the components of the system can, when assumed to be functioning abnormally, account for the conflicting observation. A diagnosis is a set of allegedly malfunctioning components that can be used to restore the consistency of the system description and the observation. In this article, this kind of reasoning is formalized and we show its importance for the theory of explanation. We will show how the diagnosis nondeductively explains the discrepancy between the observed and the correct system behavior. The article also shows the relevance of the subject for real scientific arguments by showing that examples of diagnostic reasoning can be found in Friedman's Theory of the Consumption Function. Moreover, it places the philosophical implications of diagnostic reasoning in the context of Mill's aprioristic methodology. (shrink)

I attempt a reconstruction of Adam Smith's view of human nature as explicated in The Theory of Moral Sentiments. Smith's view of human conduct is neither functionalist nor reductionist, but interactionist. The moral autonomy of the individual, conscience, is neither made a function of public approval nor reduced to self-contained impulses of altruism and egoism. Smith does not see human conduct as a blend of independently defined impulses. Rather, conduct is unified, by the underpinning sentiment of sympathy.

In understanding economics and the organisation of economics, the questions are what constituteeconomics and the thinking behind economics today? In short what is the field of economics? And in what ways can we connect to and understand this field of study? Of course, the answer to this depends upon the perspective chosen, in which one sees and thinks of economics from a particular philosophical and even political position and perspective. If one takes the perspective on economics from a qualitative paradigm (...) that draws upon the tradition from Kant, Husserl, Simmel, Mead, Schutz, Blumer, then it can be stated that economics cannot only be understood as something that appears in nature. On the contrary, economics must be understood as “something” which results from human behaviour, interaction and groups in human activities and the thinking involved and embedded in those activities. Therefore in analyzing economics it is significant to note that economics belongs to and is being constructed by people due to their everyday lives. What appears as central in those statements, from a qualitative perspective, is that the essences of economics have to be discussed in relation to the mind and thinking related to an understanding of individual and group societal activities. Economics is to be understood as constructed and maintained through everyday human interactions and exchanges, whereby people are creating the meanings of situations with objectives of what are believed as important in the understanding of economics activities, actions and results. Those meanings and definitions of economics are being produced and exchanged in order to become a new comprehensive framework that influences, co-produces, limits and creates contradictions in everyday economic life. This additional qualitative focus [1] outlines the importance of understanding how human cognitions produce meaning of objects, definitions, activities and actions which provides the framework for the field of economics. The epistemological perspective for this is that the objects are not only within themselves.No, instead the objects are as they presents themselves to people, and thereby the meanings we are constructing and attaching to them. The paper will therefore discuss some of the scientific complexities in three areas: mind and thinking; understanding economics as a social activity and construction, and the interplay between economic activities and economic theoretical work. (shrink)

This paper reconsiders Frank Ramsey's essay on subjective probability (1926) as a consistent way to articulate logic, rationality and knowledge. The first part of the essay builds an axiomatic theory of subjective probability based on ‘formal logic’, defining rationality as choice-consistency. The second part seems to open up different horizons: the evaluation of degrees of belief by ‘human logic’. Because of the interest Keynes (1931) had taken in ‘human logic’, it was considered to be a possible alternative to the formal (...) logic underlying the neoclassical theory of individual behaviour. The analysis of Ramsey's method in the entire paper, the relation between logic and rationality it constructs and the conception of uncertainty it reveals, lead me to note on the contrary that Ramsey's human logic was a complementary logic rather than an alternative to formal logic. Defining a standard to evaluate beliefs formation according to a frequentist criterion, it completes a normative representation of rationality which supports an original theory of knowledge that appears more in line with further developments of neoclassical methodology than with Keynesian economics. (shrink)

In a series of recent writings, John Roemer has made a provocative claim: exploitation and class are merely second-order concepts within Marxian theory, because both phenomena derive directly from differential ownership of productive assets ; indeed, exploitation remains a consistent index of economic injustice only if a “property relations” conception of exploitation replaces the common “labor-value” view. In sum, property relations, not the labor exchange, the labor proces, labor values, or even capitalist accumlation should be the central concern of Marxian (...) theory. (shrink)

This paper argues that measurements of opportunity which focus on the contents of a person's opportunity set fail to capture open-ended aspects of opportunity that liberals should value. I propose an alternative conception of which does not require the explicit specification of opportunity sets, and which rests on an understanding of persons as responsible rather than rational agents. I suggest that issues of distributive fairness are best framed in terms of real income, and that meaningful measurements of real income are (...) possible if opportunity as mutual advantage is ensured. (shrink)

This paper introduces a new approach to economic analysis. We show how to move from deductive to inductive modeling and thereby reunite economics with approaches used in the natural sciences. This paper presents the empathy-generosity-punishment model as an example of research based on observation, experimentation, and the elimination of alternatives. Inductive modeling in neuroeconomics allows the identification of the physiologic mechanisms that produce behavior. Unlike most neuroeconomics studies, we show how to establish causation by using drugs to manipulate brain activity. (...) This approach is demonstrated using three experiments that circumscribe the brain processes behind prosocial behavior. (shrink)

Keynesian concepts of probability and uncertainty emphasize the basis of knowledge available to economic decision makers. Conditions of uncertainty, which involve missing evidence or doubtful arguments, are distinguished from probable risk. Beyond this, on the basis of the claim that the future is yet to be created, some authors argue for further distinctions among different kinds of uncertainty. The paper reviews this particular argument, distinguishing it from Keynesian uncertainty theory generally, and provides a critique of its implication that, due to (...) innovation, objective distributions of possible events do not generally exist at the time of economic decisions. (shrink)

The power of economic thinking can be explained by seven core principles which include accountability, investments, economy, incentive, freedom of choice, nondiscrimination and one price. By understanding and incorporating these principles, better decisions will be made on individual, corporate and government levels. To explain this thesis, the author offers analyses of key economists who have changed their views over time, an examination of major domestic and international issues, and an explanation of how economists can predict which politicians will be successful.

In this short note I speculate about the various ways in which the study of neurological aspects of decision making could be fruitful for economic modelling.