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on History and Philosophy of Economics |
| By: | Kakarot-Handtke, Egmont |
| Abstract: | In a programmatic article Alfred Eichner explained, from a Post Keynesian perspective, why neoclassical economics is not yet a science. This was some time ago and one would expect that Post Keynesianism, with a heightened awareness of scientific standards, has done much better than alternative approaches in the meantime. There is wide agreement that this is not the case. Explanations, though, differ widely. The present – strictly formal – inquiry identifies an elementary logical flaw. This strengthens the argument that the Post Keynesian motto ‘it is better to be roughly right than precisely wrong!’ is methodologically indefensible. |
| Keywords: | new framework of concepts; structure-centric; axiom set; consistency; Post Keynesian hard core; logical rigor; loose verbal reasoning; hypothetico-deductive method; profit; retained profit; saving; general complementarity; IS-fallacy |
| JEL: | E12 B22 B41 |
| Date: | 2012–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:43171&r=hpe |
| By: | Nicholas C. Barberis |
| Abstract: | Prospect theory, first described in a 1979 paper by Daniel Kahneman and Amos Tversky, is widely viewed as the best available description of how people evaluate risk in experimental settings. While the theory contains many remarkable insights, economists have found it challenging to apply these insights, and it is only recently that there has been real progress in doing so. In this paper, after first reviewing prospect theory and the difficulties inherent in applying it, I discuss some of this recent work. While it is too early to declare this research effort an unqualified success, the rapid progress of the last decade makes me optimistic that at least some of the insights of prospect theory will eventually find a permanent and significant place in mainstream economic analysis. |
| JEL: | D03 D81 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:18621&r=hpe |
| By: | Ying-Fang Kao; K. Vela Velupillai |
| Abstract: | This paper aims to interpret and formalize Herbert Simon's notions of bounded rationality, satisficing and heuristics in terms of computability theory and computational complexity theory. Simon's theory of human problem solving is analysed in the light of Turing's work on Solvable and Unsolvable Problems. It is suggested here that bounded rationality results from the fact that the deliberations required for searching computationally complex spaces exceed the actual complexity that human beings can handle. The immediate consequence is that satisficing becomes the general criterion of decision makers and heuristics are the procedures used for achieving their goals. In such decision problems, it is demonstrated that bounded rationality and satisficing are more general than Olympian rationality and optimization, respectively, and not the other way about. |
| Keywords: | Bounded Rationality, Satisficing, Heuristics, Computability, Computational Complexity |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:trn:utwpas:1222&r=hpe |
| By: | Bartling, Björn; Fehr, Ernst; Schmidt, Klaus M. |
| Abstract: | Employment contracts give a principal the authority to decide flexibly which task his agent should execute. However, there is a tradeoff, first pointed out by Simon (1951), between flexibility and employer moral hazard. An employment contract allows the principal to adjust the task quickly to the realization of the state of the world, but he may also abuse this flexibility to exploit the agent. We capture this tradeoff in an experimental design and show that principals exhibit a strong preference for the employment contract. However, selfish principals exploit agents in one-shot interactions, inducing them to resist entering into employment contracts. This resistance to employment contracts vanishes if fairness preferences in combination with reputation opportunities keep principals from abusing their power, leading to the widespread, endogenous formation of efficient long-run employment relations. Our results inform the theory of the firm by showing how behavioral forces shape an important transaction cost of integration – the abuse of authority – and by providing an empirical basis for assessing differences between the Marxian and the Coasian view of the firm, as well as Alchian and Demsetz’s (1972) critique of the Coasian approach. |
| Keywords: | theory of the firm; transaction cost economics; authority; power abuse; employment relation; fairness; reputation |
| JEL: | C91 D23 D86 M5 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:trf:wpaper:391&r=hpe |
| By: | Kukushkin, Nikolai S. |
| Abstract: | We study what topological assumptions should be added to the acyclicity of individual best response improvements in order to ensure the existence of a (pure strategy) Nash equilibrium as well as the possibility to reach a Nash equilibrium in the limit of a best response improvement path. |
| Keywords: | Cournot tatonnement; Cournot potential; game with structured utilities; aggregative game |
| JEL: | C72 |
| Date: | 2012–12–09 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:43188&r=hpe |
| By: | Bartling, Björn (University of Zurich); Fehr, Ernst (University of Zurich); Schmidt, Klaus M. (University of Munich) |
| Abstract: | Employment contracts give a principal the authority to decide flexibly which task his agent should execute. However, there is a tradeoff, first pointed out by Simon (1951), between flexibility and employer moral hazard. An employment contract allows the principal to adjust the task quickly to the realization of the state of the world, but he may also abuse this flexibility to exploit the agent. We capture this tradeoff in an experimental design and show that principals exhibit a strong preference for the employment contract. However, selfish principals exploit agents in one-shot interactions, inducing them to resist entering into employment contracts. This resistance to employment contracts vanishes if fairness preferences in combination with reputation opportunities keep principals from abusing their power, leading to the widespread, endogenous formation of efficient long-run employment relations. Our results inform the theory of the firm by showing how behavioral forces shape an important transaction cost of integration – the abuse of authority – and by providing an empirical basis for assessing differences between the Marxian and the Coasian view of the firm, as well as Alchian and Demsetz's (1972) critique of the Coasian approach. |
| Keywords: | theory of the firm, transaction cost economics, authority, power abuse, employment relation, fairness, reputation |
| JEL: | C91 D23 D86 M5 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7029&r=hpe |
| By: | Ada Ferrer-i-carbonell (Campus U.A.B., Institut d'Anàlisi Econòmica, IAE(CSIC)); Ramos, X. (Xavier) |
| Abstract: | In recent years there has been an accumulation of empirical evidence suggesting that individuals dislike inequality (Alesina and Giuliano, 2011 and Dawes et al., 2007). The literature has built upon estimating the degree of this dislike as well as its causes. The use of self-reported measures of satisfaction or well-being as a proxy for utility has been one of the empirical strategies used to this end. In this survey we review the papers that estimate or examine the relationship between inequality and self-reported happiness, and find that inequality reduces happiness in Western societies. The evidence for non-Western societies is more mixed and less reliable. Notwithstanding that, trust in the institutions seems to play an important role in shaping the relationship between income inequality and subjective wellbeing. We conclude with suggestions for further research. |
| Date: | 2012–05 |
| URL: | http://d.repec.org/n?u=RePEc:aia:ginidp:38&r=hpe |
| By: | Petros G. Sekeris (Center for Research in the Economics of Development, University of Namur) |
| Abstract: | Earlier research has shown that the tragedy of the commons may be resolved by Folk theorems for dynamic games. In this article we graft on a standard natural-resource exploitation game the possibility to appropriate the resource through violent means. Because conflict emerges endogenously as resources get depleted, the threat supporting the cooperative outcome is no longer subgame perfect, and thus credible. The unique equilibrium is such that players exploit non-cooperatively the resource when it is abundant and they revert to conflict when it becomes scarce. The players' utility is shown to be lower even if conflict wastes no resources. |
| Keywords: | Tragedy of the Commons, Conflict, Dynamic Game |
| JEL: | C73 D74 Q2 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:nam:wpaper:1213&r=hpe |
| By: | Kris De Jaegher; Britta Hoyer |
| Abstract: | This paper presents a game-theoretic rationale for the beneficial effect of a common enemy on cooperation. In a defence game against a common natural threat, the value of the public good of defence is equal to the sum of the players' defensive efforts. The game therefore takes the form of a prisoner's dilemma, leading to free-riding. When the same defence game is played against a common enemy, the value of the public good of defence is equal to the smallest defensive effort. The game now takes the form of a stag hunt, so that a cooperative equilibrium becomes possible. For this reason, an informed and benevolent government may not want to inform the public that it is facing a common natural threat rather than a common enemy. At the same time, the common enemy has an incentive to mimic nature, and perform only random rather than targeted attacks. |
| Keywords: | Common Enemy Effect; Defence Games; Prisoner's Dilemma; Stag Hunt. |
| JEL: | D74 H41 C72 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:use:tkiwps:1224&r=hpe |
| By: | Paulo Brito, Bipasa Datta and Huw Dixon |
| Abstract: | This paper adopts an evolutionary perspective on the rent-extraction model with conjectural variations (CV) allowing for mixed-strategies. We analyze the dynamics of the model with n CVs under the replicator equation. We find that the end points of the evolutionary dynamics include the pure-strategy consistent CVs. However, there are also mixed-strategy equilibria that occur: these are on the boundaries between the basins of attraction of the pure-strategy sinks. Further, we develop a more general notion of consistency which applies to mixed-strategy equilibria. In a three conjecture example, by conducting a global dynamics analysis, we prove that in contrast to the pure-strategy equilibria, the mixed-strategy equilibria are not ESS: under the replicator dynamics, there are three or four mixed equilibria that may either be totally unstable (both eigenvalues positive), or saddle-stable (one stable eigenvalue). There also exist heteroclinic orbits that link equilibria together. Whilst only the pure-strategies can be fully consistent, we find a lower bound for the probability that mixed strategy conjectures will be ex post consistent. |
| Keywords: | Rent-extraction, evolutionary dynamics, consistent conjectures, global dynamics, mixed-strategy |
| JEL: | D03 L15 H0 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:yor:yorken:12/33&r=hpe |
| By: | Andreas Wagener (School of Economics and Management, University of Hannover) |
| Abstract: | Concert etiquette demands that audiences of classical concerts avoid inept noises such as coughs. Yet, coughing in concerts occurs more frequently than elsewhere, implying a widespread and intentional breach of concert etiquette. Using the toolbox of (behavioral) economics, we study the social costs and benefits of concert etiquette and the motives and implications of individually disobeying such social norms. Both etiquette and its breach arise from the fact that music and its "proper" perception form parts of individual and group identities, convey prestige and status, allow for demarcation and inclusion, produce conformity, and affirm individual and social values. |
| Keywords: | Concert etiquette, social norms, music |
| JEL: | Z11 Z13 D02 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:cue:wpaper:awp-05-2012&r=hpe |
| By: | Diris, Ron Emiel Marie (Maastricht University) |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ner:maastr:urn:nbn:nl:ui:27-31026&r=hpe |
| By: | Raphaële Préget; Phu Nguyen-Van; Marc Willinger |
| Abstract: | We show that the preference to act as a leader rather than as a follower is related to subjects’ behavioral type. We rely on the methodology proposed by Fischbacher et al. (2001) and Fischbacher and Gächter (2010) in order to identify subjects’ behavioral types. We then link the likelihood to act as a leader in a repeated public goods game to the elicited behavioral types. The leader in a group is defined as the subject who voluntarily decides in the first place about his contribution. The leader’s contribution is then reported publicly to the remaining group members who are requested to take their contribution decisions simultaneously. Our main findings are that leaders emerge in almost all rounds and that conditional cooperators are more likely to act as leaders compared to free riders. We also find that voluntary leaders, irrespective of their behavioral type, contribute more than the followers. However leadership does not prevent the decay that is commonly observed in linear public goods experiments. |
| Keywords: | Public Goods, Experimental Economics, Voluntary Contribution Mechanism, Leadership. |
| JEL: | H41 C92 |
| Date: | 2012 |
| URL: | http://d.repec.org/n?u=RePEc:ulp:sbbeta:2012-21&r=hpe |
| By: | Metin Cosgel (University of Connecticut) |
| Abstract: | There appear to be two seemingly contradictory images of law and economic change in the Islamic world. Whereas some scholars have viewed Islamic societies as rigid and incapable of adapting to a changing environment, others have held the opposite image of Islamic societies as flexible, quick to adapt to change, and conducive to economic development. Researchers have often focused on either stagnation or change as being the more representative image that needs explanation, rarely looking to explain why both images coexisted. Using a political economy approach, this paper explains the nuanced flexibility of Islamic law by focusing on the relationship between the ruler and the legal-religious community. This community has been an influential group in Islamic societies because of its power in the interpretation and adjudication of the law and its ability to confer legitimacy on the rulers. Change or stagnation has emerged as the outcome of the strategic interaction between the rulers and legal community, rather than from a fixed characteristic of Islamic societies or an intrinsic quality of a new development. |
| Keywords: | Islamic law, change, stagnation, technology, legal community, political economy |
| JEL: | D7 H2 H3 N7 O3 O5 P48 P5 Z12 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2012-44&r=hpe |