NEP-HPE 2010-10-02, 14 papers

NEP: New Economics Papers
History and Philosophy of Economics

Edited by:	Erik Thomson
University of Manitoba
Issue date:	2010-10-02
Papers:	14

Note: Access to full contents may be restricted.
NEP is sponsored by SUNY Oswego.

In this issue we have:

1. Psychology for Economists Piet Keizer
2. Economic Value and Costs are Subjective Stringham, Edward
3. Recent Advances in the Economics of Individual Subjective Well-Being Bruno S. Frey
4. Adam Smith: Managerial Insights from the Father of Economics George Crowley; Russell S. Sobel
5. We-thinking and vacillation between frames: filling a gap in Bacharach’s theory Smerilli, Alessandra
6. Mäki on Economics Imperialism John B. Davis
7. Limitações teóricas da literatura convencional sobre impactos regionais de política monetária Fernanda Faria Silva; Marco Aurélio Crocco Afonso; Carlos Javier Rodríguez-Fuentes
8. Extreme Value Theory as a Theoretical Background for Power Law Behavior Simone Alfarano; Thomas Lux
9. The Ownership of the Firm under A Property Rights Approach Leshui He
10. The Framing of Games and the Psychology of Play Martin Dufwenberg; Simon Gaechter; Heike Hennig-Schmidt
11. Endogenous preferences in games with type indeterminate players Ariane Lambert-Mogiliansky
12. How and why does history matter for development policy ? Woolcock, Michael; Szreter, Simon; Rao, Vijayendra
13. QUE FAIRE DE « L’APPROCHE PAR LES CAPACITES » ? Pour une lecture « rawlsienne » de l’apport de Sen Claude Gamel
14. Fairness and Cheating Daniel Houser; Stefan Vetter; Joachim Winter

Contents.

1. Psychology for Economists
   

   Date:	2010-09
   By:	Piet Keizer
   URL:	http://d.repec.org/n?u=RePEc:use:tkiwps:1017&r=hpe
   Orthodox economics focuses on the analysis of the way the economic force or motivation operates, thereby abstracting from the functioning of other primary forces or motivations, such as the social and the psychic motivation. By assuming perfect rationality psychic problems are ignored. This text discusses six approaches in psychology . cognitive, behaviourist, biological, psychodynamic, humanistic and social psychology – to find out what orthodox economics needs in order to extend its analysis with the more realistic idea of imperfect rationality. In this discussion the state of the art of behavioural economics in included.
   Keywords:	orthodox economics, psychology, behavioural economics, imperfect rationality
   JEL:	A11

2. Economic Value and Costs are Subjective
   

   Date:	2010
   By:	Stringham, Edward
   URL:	http://d.repec.org/n?u=RePEc:pra:mprapa:25384&r=hpe
   Question 1 begins by discussing an area of subjectivism where most economists agree: Is economic value subjective? This area differentiates most modern economists from classical economists and many non-economists. Question 2 probes an area where many but not all economists agree: Are costs subjective? This area differentiates many Austrian and certain neoclassical economists from orthodox neoclassical economists following Alfred Marshall’s tradition. Questions 3, 4, 5, and 6 discuss areas where even fewer still economists agree: Can we survey people’s subjective preferences? Can we measure an individual’s utility? Can we compare utility between individuals? Can we aggregate the utility of many people? For these questions one can find Austrian and neoclassical economists on both sides of the debate. Questions 7, 8, 9, and 10 look at alternative approaches to making welfare comparisons between nations that do not purport to depend on measuring subjective utility, such as looking at per capita income, migration patterns, society-wide cost-benefit analysis with dollars as the unit of measurement, and a demonstrated preference Pareto rule. Where one stands on these issues depends on how far one is willing to extend the logic of economic subjectivism. And where one stands on questions of economic subjectivism has an important influence on how one analyzes the world and what policies one recommends.
   Keywords:	welfare economics; economic efficiency; economic subjectivism
   JEL:	D60

3. Recent Advances in the Economics of Individual Subjective Well-Being
   

   Date:	2010
   By:	Bruno S. Frey (University of Basel)
   URL:	http://d.repec.org/n?u=RePEc:bsl:wpaper:04/10&r=hpe
   Over the last decades, empirical research on subjective well-being in the social<br />sciences has provided a major new stimulus to the discourse on individual happiness.<br />Recently this research has also been linked to economics where reported subjective wellbeing<br />is often taken as a proxy measure for individual welfare. In our review, we intend to<br />provide an evaluation of where the economic research on happiness stands and of three<br />directions it might develop. First, it offers new ways for testing the basic assumptions of the<br />economic approach and for going about a new understanding of utility. Second, it provides a<br />new possibility for the complementary testing of theories across fields in economics. Third,<br />we inquire how the insights gained from the study of individual happiness in economics affect<br />public policy.<br />Keywords: Economics, happiness, life satisfaction, survey data, income, public goods,<br />unemployment<br />JEL Classifications: A10, D60, H41, I31

4. Adam Smith: Managerial Insights from the Father of Economics
   

   Date:	2010
   By:	George Crowley (Department of Economics, West Virginia University) Russell S. Sobel (Department of Economics, West Virginia University)
   URL:	http://d.repec.org/n?u=RePEc:wvu:wpaper:10-13&r=hpe
   This paper applies the ideas found in the work of Adam Smith, the preeminent 18th century economist, to the field of management. Adam Smith was the first person to identify specialization and the division of labor as the main drivers of productivity. He also conceptualized the ‘invisible hand principle’ which explains how, under the proper set of incentives, self-interested individuals are directed to pursue activities that benefit the whole of society. Both ideas are of utmost importance in the field of management. Specifically, successful managers are those who are able to create good ‘rules of the game’ which align the incentives of labor with the goals of the firm. Smith’s contributions provide a foundation for the division of labor and demonstrate the importance of establishing the right ‘institutions’ within a firm.
   Keywords:	Adam Smith, Division of labor, Invisible hand

5. We-thinking and vacillation between frames: filling a gap in Bacharach’s theory
   

   Date:	2010-08-25
   By:	Smerilli, Alessandra
   URL:	http://d.repec.org/n?u=RePEc:pra:mprapa:25246&r=hpe
   The idea of team-thinking or we-thinking is increasingly drawing the attention of economists. The main claim of scholars who analyze we-thinking is that it is a coherent mode of reasoning people may use when they face a decision problem. But, if there is a general agreement on the existence of the we-mode of reasoning and on the fact people endorse it, scholars have different opinions about the way in which we-thinking arises and how it brings people to behave in a particular way. Then different authors have proposed different analyses of the issue. In this paper I address the issue by proposing a simple model of vacillation between the I and we-modes of reasoning, as a way in which we-thinking can arise in the face of a decision problem. The model is based on a not fully developed intuition – the double-crossing problem in the PD game – of Bacharach, whose theory is the most developed from an analytical point of view.
   Keywords:	we-thinking; frames; vacillation; game theory
   JEL:	C79

6. Mäki on Economics Imperialism
   

   Date:	2010-09
   By:	John B. Davis (University of Amsterdam and Marquette University)
   URL:	http://d.repec.org/n?u=RePEc:mrq:wpaper:1005&r=hpe
   This paper reviews Uskali Mäki’s epistemic analysis of economics imperialism formulated in terms of the science unification ideal and the three constraints on imperialism he develops. It then examines the phenomenon of ‘reverse imperialism’ associated with the influence of other fields on economics especially since 1980, and advances a core-periphery model of the identity of economics as a field made up of a collection of different research programs. The discussion returns to Mäki’s constraints framework to re-evaluate the ‘economics’ imperialism of individual research programs, and evaluates what we learn from Mäki’s three constraints. The paper concludes with a brief comment on the deductive top-down nature of Mäki’s epistemic model, and outlines a more historical approach to the subject of disciplinary imperialism that provides an alternative concept of constraints on research program extensions in terms of the idea of ‘resistances and accommodations.’
   Keywords:	economics imperialism, epistemic account, ‘reverse imperialism,’ core-periphery model of economics
   JEL:	B20

7. Limitações teóricas da literatura convencional sobre impactos regionais de política monetária
   

   Date:	2010-01
   By:	Fernanda Faria Silva (Cedeplar-UFMG) Marco Aurélio Crocco Afonso (Cedeplar-UFMG) Carlos Javier Rodríguez-Fuentes (Universidad de La Laguna – Spain)
   URL:	http://d.repec.org/n?u=RePEc:cdp:texdis:td381&r=hpe
   The aim of this paper is to analyze the theoretical limitations of the mainstream’s Works related to the regional impacts of monetary policy. After a general presentation of the conventional framework, followed by the typology proposed in Dow & Rodríguez-Fuentes (1997), we present our arguments based on the Post-Keynesian theory against the traditional approach. In our view, the Post-Keynesian framework is the most appropriate for analyzing this type of dynamics. Its theoretical elements have the best explanation for the dynamics of the monetary policy at a regional level, once they take into account the role played by uncertainty and liquidity preference of economic agents and institutions, which are essential for the understanding the regional economics in a "center – periphery” context.
   Keywords:	regional monetary policy, liquidity preference, Post-Keynesian theory.
   JEL:	B59

8. Extreme Value Theory as a Theoretical Background for Power Law Behavior
   

   Date:	2010-09
   By:	Simone Alfarano Thomas Lux
   URL:	http://d.repec.org/n?u=RePEc:kie:kieliw:1648&r=hpe
   Power law behavior has been recognized to be a pervasive feature of many phenomena in natural and social sciences. While immense research efforts have been devoted to the analysis of behavioural mechanisms responsible for the ubiquity of power-law scaling, the strong theoretical foundation of power laws as a very general type of limiting behavior of large realizations of stochastic processes is less well known. In this paper, we briefly present some of the key results of extreme value theory, which provide a statistical justification for the emergence of power laws as limiting behavior for extreme fluctuations. The remarkable generality of the theory allows to abstract from the details of the system under investigation, and therefore allows its application in many diverse fields. Moreover, this theory offers new powerful techniques for the estimation of the Pareto index, detailed in the second part of this chapter
   Keywords:	Power law, estimation, tail index
   JEL:	C16

9. The Ownership of the Firm under A Property Rights Approach
   

   Date:	2010-09
   By:	Leshui He (University of Connecticut)
   URL:	http://d.repec.org/n?u=RePEc:uct:uconnp:2010-23&r=hpe
   The boundaries of the firm and the ownership of the firm have been two of the main themes of the economics of organization over the past several decades. In this paper, I develop a general multi-party framework that integrates the ownership of the firm into the property-rights approach to the firm. I consider the ownership of the firm as the ownership of the rights to terminate cooperation with any party while maintaining a contractual or employment relation with all the other related parties of the firm. The model in this paper allows for the separation of the ownership of the firm from the ownership of the alienable assets that partly constitute it. Such a general multi-party setup may provide new tools for the study of the problem of the firm’s boundaries as well as inspiration for further applications of the theory of property rights.
   Keywords:	Owner of the Firm; Boundary of the Firm; Property Rights Theory; Theory of the Firm.
   JEL:	D2

10. The Framing of Games and the Psychology of Play
    

    Date:	2010-09
    By:	Martin Dufwenberg Simon Gaechter Heike Hennig-Schmidt
    URL:	http://d.repec.org/n?u=RePEc:bon:bonedp:bgse15_2010&r=hpe
    Psychological game theory can provide rational-choice-based framing effects; frames influence beliefs, beliefs influence motivations. We explain this theoretically and explore empirical relevance experimentally. In a 2×2 design of one-shot public good games we show that frames affect subject’s first- and second-order beliefs, and contributions. From a psychological gametheoretic framework we derive two mutually compatible hypotheses about guilt aversion and reciprocity under which contributions are related to second- and first-order beliefs, respectively. Our results are consistent with either.
    Keywords:	framing, psychological game theory, guilt aversion, reciprocity, public good games, voluntary cooperation
    JEL:	C91

11. Endogenous preferences in games with type indeterminate players
    

    Date:	2010
    By:	Ariane Lambert-Mogiliansky
    URL:	http://d.repec.org/n?u=RePEc:pse:psecon:2010-20&r=hpe
    The Type Indeterminacy model is a theoretical framework that uses some elements of quantum formalism to model the constructive preference perspective suggested by Kahneman and Tversky. In this paper we extend the TI-model from simple to strategic decision-making and show that TI-games open a new field of strategic interaction. We first establish an equivalence result between static games of incomplete information and static TI-games. We next develop a new solution concept for non-commuting dynamic TI-games. The updating rule captures the novelty brought about by Type Indeterminacy namely that in addition to affecting information and payoffs, the action of a player impacts on the profile of types. We provide an example showing that TI-game predictions cannot be obtained as Bayes Nash equilibrium of the corresponding classical game.

12. How and why does history matter for development policy ?
    

    Date:	2010-09-01
    By:	Woolcock, Michael Szreter, Simon Rao, Vijayendra
    URL:	http://d.repec.org/n?u=RePEc:wbk:wbrwps:5425&r=hpe
    The consensus among scholars and policymakers that"institutions matter"for development has led inexorably to a conclusion that"history matters,"since institutions clearlyform and evolve over time. Unfortunately, however, the next logical step has not yet been taken, which is to recognize that historians (and not only economic historians) might also have useful and distinctive insights to offer. This paper endeavors to open and sustain a constructive dialogue between history — understood as both"the past"and"the discipline"– and development policy by (a) clarifying what the craft of historical scholarship entails, especially as it pertains to understanding causal mechanisms, contexts, and complex processes of institutional change; (b) providing examples of historical research that support, qualify, or challenge the most influential research (by economists and economic historians) in contemporary development policy; and (c) offering some general principles and specific implications that historians, on the basis of the distinctive content and method of their research, bring to development policy debates.
    Keywords:	Cultural Policy,Economic Theory&Research,Population Policies,Cultural Heritage&Preservation,Development Economics&Aid Effectiveness

13. QUE FAIRE DE « L’APPROCHE PAR LES CAPACITES » ? Pour une lecture « rawlsienne » de l’apport de Sen
    

    Date:	2010-09-21
    By:	Claude Gamel (GREQAM – Groupement de Recherche en Économie Quantitative d’Aix-Marseille – Université de la Méditerranée – Aix-Marseille II – Université Paul Cézanne – Aix-Marseille III – Ecole des Hautes Etudes en Sciences Sociales (EHESS) – CNRS : UMR6579)
    URL:	http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-00519630_v1&r=hpe
    « L’approche par les capacités » d’Amartya Sen fait consensus auprès des théoriciens et praticiens de toutes les sciences sociales, en dépit, semble-t-il, d’un problème de cohérence d’ensemble de cette approche et d’un problème d’applicabilité des politiques publiques qu’elle suscite. C’est pourquoi nous défendons l’idée que l’apport incontestable de Sen – le passage des « ressources » aux « capacités » – serait bien plus fécond et mieux valorisé en restant « encastré » dans le cadre général et hiérarchisé de la théorie de la justice de John Rawls. De ce fait, il est permis de douter de la pertinence du clivage fondamental, récemment proposé par Sen, entre les conceptions « transcendantale » et «comparative » de la justice sociale, clivage qui le pousse à radicaliser encore sa critique de la théorie rawlsienne.
    Keywords:	Ressources, capacités, principes de justice, approche transcendantale, approche comparative.

14. Fairness and Cheating
    

    Date:	2010-09
    By:	Daniel Houser (George Mason University) Stefan Vetter (University of Munich) Joachim Winter (University of Munich)
    URL:	http://d.repec.org/n?u=RePEc:trf:wpaper:335&r=hpe
    We present evidence from a laboratory experiment showing that individuals who believe they were treated unfairly in an interaction with another person are more likely to cheat in a subsequent unrelated game. Specifically, subjects first participated in a dictator game. They then flipped a coin in private and reported the outcome. Subjects could increase their total payoff by cheating, i.e., lying about the outcome of the coin toss. We found that subjects were more likely to cheat in reporting the outcome of the coin flip when: 1) they received either nothing or a very small transfer from the dictator; and 2) they claimed to have been treated unfairly. This is consistent with the view that experiencing a norm violation is sufficient to justify the violation of another norm at the expense of a third party. This result extends the growing literature on social norms.
    Keywords:	cheating; social norms; experimental design
    JEL:	C91

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