Showing papers in "Economics and Philosophy in 2010"

Two kinds of we-reasoning

Abstract: People sometimes think in terms of ‘we’ referring to a group they belong to. When making decisions, they frame the decision problem as: ‘What should we do?’ instead of ‘What should I do?’. We study one particular approach to such ‘we-reasoning’, economist Michael Bacharach's theory of ‘team reasoning’, and relate it to philosopher Raimo Tuomela's distinction between ‘I-mode’ reasoning and ‘we-mode’ reasoning. We argue that these theories complement each other: Tuomela's philosophical theory provides a conceptual framework augmenting Bacharach's theory, and Bacharach's mathematical results support Tuomela's view on the irreducibility of the we-mode to the I-mode. We-mode reasoning can explain some kinds of human cooperative behaviour left unexplained by standard game theory. Standard game theory is not well-equipped to deal with we-mode reasoning but it can be extended by the methods developed by Bacharach. However, we argue that both standard game theory and Bacharach's theory require more attention to the information-sharing stages that precede actual decision making, and we describe a stage-based model of we-reasoning.

Hedonism and welfare economics

Abstract: This essay criticizes the proposal recently defended by a number of prominent economists that welfare economics be redirected away from the satisfaction of people's preferences and toward making people happy instead. Although information about happiness may sometimes be of use, the notion of happiness is sufficiently ambiguous and the objections to identifying welfare with happiness are sufficiently serious that welfare economists are better off using preference satisfaction as a measure of welfare. The essay also examines and criticizes the position associated with Daniel Kahneman and a number of co-authors that takes welfare to be ‘objective happiness’ – that is, the sum of momentary pleasures.

Opportunity as mutual advantage

Abstract: 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 ‘opportunity as mutual advantage’ 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.

Varieties of altruism

Abstract: 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.

Game theory: a practitioner's approach

Abstract: To a practitioner in the social sciences, game theory primarily helps to identify situations in which interdependent decisions are somehow problematic; solutions often require venturing into the social sciences Game theory is usually about anticipating each other's choices; it can also cope with influencing other's choices To a social scientist the great contribution of game theory is probably the payoff matrix, an accounting device comparable to the equals sign in algebra

The naked emperor: seeking a more plausible genetic basis for psychological altruism

Abstract: The adequacy of currently popular accounts of the genetic basis for psychological altruism, including inclusive fitness (kin selection), reciprocal altruism, sociality, and group selection, is questioned. Problems exist both with the evidence cited as supporting these accounts and with the relevance of the accounts to what is being explained. Based on the empathy-altruism hypothesis, a more plausible account is proposed: generalized parental nurturance. It is suggested that four evolutionary developments combined to provide a genetic basis for psychological altruism. First is the evolution in mammals of parental nurturance. Second is the evolution in humans (and possibly a few other species) of the ability to see others as sentient, intentional agents and, thereby, to recognize other's needs, even subtle ones. Third is the evolution in humans of tender, empathic emotions as an important component of parental nurturance. Fourth is the evolution in humans of cognitive capacities that make it possible to generalize tender, empathic feelings and, thereby, altruism beyond offspring.

The moral basis of prosperity and oppression: altruism, other-regarding behaviour and identity

Abstract: Much of economics is built on the assumption that individuals are driven by self-interest and economic development is an outcome of the free play of such individuals. On the few occasions that the existence of altruism is recognized in economics, the tendency is to build this from the axiom of individual selfishness. The aim of this paper is to break from this tradition and to treat as a primitive that individuals are endowed with the ‘cooperative spirit’, which allows them to work in their collective interest, even when that may not be in their self-interest. The paper tracks the interface between altruism and group identity. By using the basic structure of a Prisoner's Dilemma game among randomly picked individuals and building into it assumptions of general or in-group altruism, the paper demonstrates how our selfish rationality interacts with our innate sense of cooperation. The model is used to outline circumstances under which cooperation will occur and circumstances where it will break down. The paper also studies how sub-groups of a society can form cooperative blocks, whether to simply do better for themselves or exploit others.

Nudge: Improving Decisions about Health, Wealth, and Happiness , Richard H. Thaler and Cass R. Sunstein. Yale University Press, 2008. x + 293 pages. [Paperback edition, Penguin, 2009, 320 pages.]

Abstract: At a time of spectacular failures of sub-prime mortgages, catastrophic levels of personal debt, an epidemic spread of obesity, it is unsurprising that so many are now doubting citizens’ capacities to make sensible decisions. For related reasons, behavioural economists now find themselves with an audience of policy makers who are eager for advice on how to address social ills by revising institutions and policies to fit ordinary human biases and irrationalities. The present book makes a particularly engaging case for a whole range of policy implications of behavioural economics. Behavioural economist Richard Thaler and legal theorist Cass Sunstein (now Director of the Office of Information and Regulatory Affairs in the US White House) have done an excellent job of presenting their ideas for governmental reform that, in their terms, include much-needed ‘paternalistic’ interventions without violating widely shared ‘libertarian’ principles. The rhetoric is highly compelling, and their approach is already having a significant impact. However, while the wider audience for whom the book is written may not be interested in the justification of the underlying principles, it is precisely the cracks in the foundations that pose the greatest threat to the project. The book’s central claim is this: since people are so susceptible to various counterproductive behavioural and cognitive tendencies, it is appropriate for social planners, policy makers, and other ‘choice architects’ to modify decision-making situations in ways that nudge people toward better choices, where ‘nudging’ is distinguished from ‘forcing’ by the fact that people can still choose the de-emphasized option relatively easily. For example, many employees have the opportunity to

Eager for fairness or for revenge? psychological altruism in economics

Abstract: To understand the human capacity for psychological altruism, one requires a proper understanding of how people actually think and feel. This paper addresses the possible relevance of recent findings in experimental economics and neuroeconomics to the philosophical controversy over altruism and egoism. After briefly sketching and contextualizing the controversy, we survey and discuss the results of various studies on behaviourally altruistic helping and punishing behaviour, which provide stimulating clues for the debate over psychological altruism. On closer analysis, these studies prove less relevant than originally expected because the data obtained admit competing interpretations – such as people seeking fairness versus people seeking revenge. However, this mitigated conclusion does not preclude the possibility of more fruitful research in the area in the future. Throughout our analysis, we provide hints for the direction of future research on the question.

Can unstable preferences provide a stable standard of well-being?

Abstract: How do we determine the well-being of a person when her preferences are not stable across worlds? Suppose, for instance, that you are considering getting married, and that you know that if you get married, you will prefer being unmarried, and that if you stay unmarried, you will prefer being married. The general problem is to find a stable standard of well-being when the standard is set by preferences that are not stable. In this paper, I shall show that the problem is even worse: inconsistency threatens if we accept both that your desires determine what is good for you and that you must prefer what is better for you. After I have introduced a useful toy model and stated the inconsistency argument, I will go on to discuss a couple of unsuccessful theories and see what we can learn from their mistakes. One important lesson is that how you would have felt about a life had you never led it is irrelevant to the question of how good that life is for you. What counts is how you feel about your life when you are actually leading it. Another lesson is that a life can be better for you even if you would not rank it higher, if you were to lead it.

Altruism as a thick concept

Abstract: In this paper, we examine different forms of altruism. We commence by analysing the ‘behavioural’ definition and, after clarifying its conditions for altruism, we argue that it is not in ‘reflective equilibrium’ with everyday linguistic usage of the term. We therefore consider a ‘psychological’ definition, which we likewise refine, and argue that it better reflects ordinary language use. Both behavioural and psychological approaches define altruism descriptively and thus fail to capture an important aspect of altruism, namely its normative component. Altruism, we argue, is a ‘thick concept’, i.e. one which embodies both positive and normative components. We discuss and compare various formulations of this normative component.

The Methodology of Positive Economics: Reflections on the Milton Friedman Legacy, Uskali Mäki, editor. Cambridge University Press, 2009. xvii + 363 pages.

Abstract: Anderson, J. 2009. Autonomielücken als soziale Pathologie. Ideologiekritik jenseits des Paternalismus. [Autonomy gaps as social pathology: Ideologiekritik without paternalism]. In Sozialphilosophie und Kritik, ed. Rainer Forst. Frankfurt: Suhrkamp. Dworkin, G. 1988. Paternalism: some second thoughts. In The Theory and Practice of Autonomy, 121–129. New York: Cambridge University Press. John, P., G. Smith and G. Stoker. 2009. Nudge nudge, think think: two strategies for changing civic behaviour. The Political Quarterly 80: 361–370.

Nancy Cartwright on Hunting Causes - Hunting Causes and Using Them: Approaches in Philosophy and Economics, Nancy Cartwright. Cambridge University Press, 2008, x + 270 pages.

Abstract: Nancy Cartwright’s recent book Hunting Causes and Using Them comes to causality in an interesting stage of its stormy, century-old courtship with economics. A survey article by Hoover (2004, ‘Lost causes’) counts the frequency of causal terminology in econometrics articles and asks, ‘Where have all the causes gone?’ Hoover notes a steady decline from the 1930s to the early 1980s, a period of over half a century, followed by two decades of sluggish recovery, to be followed by a marked upsurge of usage in the year 2000. This pattern is both enigmatic and pathological considering that the central aim of econometrics is to provide a methodology for understanding and controlling economical phenomena, and that the founding fathers of econometrics were the ones who developed the basic mathematical tools for causal analysis, in the form of structural equation models (Haavelmo 1943; Marschak 1950; Strotz and Wold 1960). The decline of causal understanding in econometrics has in fact been so severe, that in 1995, while I was working on my book Causality (Pearl, 2000a), Jim Heckman had difficulty naming a single econometric textbook that adequately treats causality.1

Across the Boundaries: Extrapolation in Biology and Social Science , Daniel P. Steel. Oxford University Press, 2007. xi + 241 pages.

Abstract: Boland, L. 1979. A critique of Friedman’s critics. Journal of Economic Literature 17: 503–22. Boland, L. 1985. Reflections on Blaug’s Methodology of Economics: suggestions for a revised edition. Eastern Economic Journal 11:450–454. Boland, L. 1997. Critical Economic Methodology: A Personal Odyssey. London: Routledge. Boland, L. 2003. Methodological Criticism vs. ideology and hypocrisy. Journal of Economic Methodology 10: 521–526. Mäki, U. 2003. ‘The methodology of positive economics’ (1953) does not give us the methodology of positive economics. Journal of Economic Methodology 10: 495–505. Mayer, T. 2003. Symposium: Fifty years of Milton Friedman’s ‘The methodology of positive economics’. Journal of Economic Methodology 10: 493–530. Wong, S. 1973. The ‘F-twist’ and the methodology of Paul Samuelson. American Economic Review 63: 312–325.

Philosophical egoism: its nature and limitations

Abstract: Egoism and altruism are unequal contenders in the explanation of human behaviour. While egoism tends to be viewed as natural and unproblematic, altruism has always been treated with suspicion, and it has often been argued that apparent cases of altruistic behaviour might really just be some special form of egoism. The reason for this is that egoism fits into our usual theoretical views of human behaviour in a way that altruism does not. This is true on the biological level, where an evolutionary account seems to favour egoism, as well as on the psychological level, where an account of self-interested motivation is deeply rooted in folk psychology and in the economic model of human behaviour. While altruism has started to receive increasing support in both biological and psychological debates over the last decades, this paper focuses on yet another level, where egoism is still widely taken for granted. Philosophical egoism (Martin Hollis’ term) is the view that, on the ultimate level of intentional explanation, all action is motivated by one of the agent's desires. This view is supported by the standard notion that for a complex of behaviour to be an action, there has to be a way to account for that behaviour in terms of the agent's own pro-attitudes. Psychological altruists, it is claimed, are philosophical egoists in that they are motivated by desires that have the other's benefit rather than the agent's own for its ultimate object (other-directed desires). This paper casts doubt on this thesis, arguing that empathetic agents act on other people's pro-attitudes in very much the same way as agents usually act on their own, and that while other-directed desires do play an important role in many cases of psychologically altruistic action, they are not necessary in explanations of some of the most basic and most pervasive types of human altruistic behaviour. The paper concludes with the claim that philosophical egoism is really a cultural value rather than a conceptual feature of action.

Cartwright on Causality: Methods, Metaphysics and Modularity - Hunting Causes and Using Them: Approaches in Philosophy and Economics, Nancy Cartwright. Cambridge University Press, 2008, x + 270 pages.

Abstract: Christ, C. 1966. Econometric Models and Methods. Chichester: John Wiley and Sons. Dawid, A. P. 2000. Causal inference without counterfactuals (with comments and rejoinder). Journal of the American Statistical Association 95: 407–448. Haavelmo, T. 1943. The statistical implications of a system of simultaneous equations. Econometrica 11: 1–12. Reprinted in The Foundations of Econometric Analysis, ed. D. F. Hendry and M. S. Morgan, 477–490. Cambridge University Press, 1995. Haavelmo, T. 1944. The probability approach in econometrics (1944)∗. Supplement to Econometrica 12: 12–17, 26–31, 33–39. Reprinted in The Foundations of Econometric Analysis, ed. D. F. Hendry and M. S. Morgan, 440–453. Cambridge University Press, 1995. Heckman, J. J. and E. J. Vytlacil 2007. Econometric evaluation of social programs, Part I: Causal models, structural models and econometric policy evaluation. In Handbook of Econometrics, Volume 6B, ed. J. J. Heckman and E. Leamer, 4779–4874. Amsterdam: Elsevier. Heckman, J. J. 2005. The scientific model of causality. Sociological Methodology 35: 1–97. Hoover, K. D. 2004. Lost causes. Journal of the History of Economic Thought 26: 149–164. Hoover, K. D. 2008. Causality in economics and econometrics. In The New Palgrave Dictionary of Economics, 2nd edn, ed. S. N. Durlauf and L. E. Blume. New York: Palgrave Macmillan. Imbens, G. W. 2004. Nonparametric estimation of average treatment effects under exogeneity: a review. Review of Economics and Statistics 86: 4–29. Marschak, J. 1950. Statistical inference in economics. In Statistical Inference in Dynamic Economic Models, ed. T. Koopmans, 1–50. Cowles Commission for Research in Economics, Monograph 10. Wiley. Neyman, J. 1923. On the application of probability theory to agricultural experiments. Essay on principles. Section 9. Statistical Science 5: 465–480. Pearl, J. 2000a. Causality: Models, Reasoning, and Inference. Cambridge: Cambridge University Press. [2nd edn, 2009.] Pearl, J. 2000b. Comment on A.P. Dawid’s, causal inference without counterfactuals. Journal of the American Statistical Association 95: 428–431. Pearl, J. 2003. Reply to Woodward. Economics and Philosophy 19: 341–344. Pearl, J. 2009. Causality: Models, Reasoning, and Inference, 2nd edition. Cambridge: Cambridge University Press. Rubin, D. B. 1974. Estimating causal effects of treatments in randomized and nonrandomized studies. Journal of Educational Psychology 66: 688–701. Strotz, R. H. and H. O. A. Wold 1960. Recursive versus nonrecursive systems: an attempt at synthesis. Econometrica 28: 417–427.

Interpersonal coordination and epistemic support for intentions with we-content

Abstract: In this paper I study intentions of the form 'I intend that we ...', that is, intentions with a we-content, and their role in interpersonal coordination. I focus on the notion of epistemic support for such intentions. Using tools from epistemic game theory and epistemic logic, I cast doubt on whether such support guarantees the other agents' conditional mediation in the achievement of such intentions, something that appears important if intentions with a we-content are to count as genuine intentions. I then formulate a stronger version of epistemic support, one that does indeed ensure the required mediation, but I then argue that it rests on excessively strong informational conditions. In view of this I provide an alternative set of conditions that are jointly sufficient for coordination in games, and I argue that these conditions constitute a plausible alternative to the proposed notion of epistemic support.

How do you Know? The Economics of Ordinary Knowledge , Russell Hardin. Princeton University Press, 2009. xv + 224 pp.

Abstract: widely used, is inadequate. There are more complex models that add parameters, but unless both seller and buyer are using the same model, there is unlikely to be full communication. Old-fashioned Chartism is still prevalent (looking for trends using graphs of price movements) and because enough traders take it seriously (akin to astrology in the eyes of financial economists), other sceptics need to incorporate it insofar as it affects price movements. Although most of the book was written before the recent financial crisis, the closing chapter reflects openly on the possibility that the new kinds of financial markets failed for some of the reasons MacKenzie detected in his sociological investigations. As the banks discovered at the time of the crisis, the LIBOR rates had become something of a fiction; banks held bonds and other liabilities that could only be sold at distressed prices. ‘The credit crisis – far from over at the time of writing – is, amongst other things, a crisis of the infrastructure of the financial world: not of its technological infrastructure, where only limited difficulties were manifest, but of its cognitive infrastructure, of its fact-generation mechanisms’ (p. 178). This quote helps capture the manner in which MacKenzie’s studies highlight the inefficiencies and in-built biases of financial markets. This is an important study, one that probes profoundly into the nature of financial markets from the standpoint of the sociology of science and raises as many questions as it answers.

The Foundations of Positive and Normative Economics: A Handbook , ed. Andrew Caplin and Andrew Schotter. Oxford University Press, 2008, xxii + 382 pages.

Abstract: of central banks and financial markets I could refine these upper and lower bounds. But I don’t think that I would be doing this by thinking in terms of frequencies and objective probabilities. Financial history is simply not homogeneous enough for the notion of frequency to be applicable. The subjective probability theorist seems at least to have a more accurate way of describing what I would be doing – namely, as fixing a subjective probability interval (a range of degrees of belief). The key question, then, is whether Binmore’s approach can be understood in terms of subjective probabilities. He argues persuasively that subjective probabilities cannot be applied in the way that the subjective Bayesian wants to apply them – at least, not outside the small worlds where it is possible to look before one leaps, as he puts it. But, given that he is proposing an extension of Bayesian decision theory to larger-than-small worlds, his position must be that his own arguments do not apply to subjective probabilities that fix upper and lower bounds, as opposed to giving unique degrees of belief. The book does not, however, explain why this should be the case. What’s so special about subjective probability intervals that they should be immune to arguments that are effective against subjective probabilities in the classical sense? As far as I can see, the arguments for restriction to small worlds based on the requirements of Bayesian updating and fixing priors apply just as forcefully in the case where upper and lower probabilities diverge as in the case where they coincide. In any event, this is something that I hope Binmore will clarify in future work. As I hope this review has made clear, Rational Decisions contains a wealth of stimulating arguments and thought-provoking claims. It would be an excellent text for an advanced seminar in decision theory, particularly for students with a solid technical background. And no economist, philosopher or political scientist seriously interested in theories of rational decision-making can afford to ignore Binmore’s controversial and iconoclastic claims.

Material Markets: How Economic Agents are Constructed , Donald MacKenzie. Oxford University Press, 2009. ix + 228 pages.

Abstract: that it captures the ‘tendencies’ induced by changes in this or that factor’ (Sutton, 2000: 4); second, as it is revealed by the recurring comparisons with Newtonian mechanics or other branches of natural sciences, in economics (and in other social sciences, for that matter) we never had something equivalent to the (parallelogram) rule for calculating the resultant of different forces acting together on an object; and third, in some circumstances ‘animal spirits’ may explain more than a battery of assumptions about rational behavior (Akerlof and Shiller, 2009). It is a pity that the authors of the essays in this part of the collection have avoided such issues. Finally, let me remind that the subjects covered by all the papers in this collection are far too varied, in scope and in quality, to be easily amenable of an overall judgement. Nevertheless, a number of essays collected here will be attractive for those readers interested in considering how the issue of the existence of ‘scientific laws’ in economics has been dealt with in the different epochs of the history of economic thought.

The Romantic Economist: Imagination in Economics , Richard Bronk. Cambridge University Press, 2009. xviii + 382 pages.

Abstract: not possible for each of us to have our wants satisfied while each of us also does what she finds intrinsically motivating only. A gift-exchange society requires also the reciprocity of market interactions. Even a small community or a family cannot function properly on the basis of gifts and intrinsic motivations. Those who contrast moral societies to market interactions forget that market prices are also, in efficient market systems, signals of social scarcity. Markets, in fact, allow demand and supply of socially useful activities to meet in a liberal and non-authoritarian system (as in the patriarchal family or in feudal and illiberal communities). Neither in the conceptual framework of modern economics nor in Kolm’s theory of reciprocity do we find a way of conceiving of a relationship between individuals as both a mutually beneficial exchange, in which neither partner makes a sacrifice for the benefit of the other, and a genuinely social interaction, carrying moral value by virtue of this social content. If reciprocity is captured by the principle ‘treat others as the others treat you’, then gift-exchange, although important, cannot be enough for a good society based on reciprocity.

Y a-t-il des lois en économie? , edited by Arnaud Berthoud, Bernard Delmas and Thierry Demals. Presses Universitaires du Septentrion, 2007. 647 pages.

Abstract: The question chosen for the title of this volume periodically reappears in economic methodology, together with other questions that are somewhat related to it (cf. for instance D’Autume and Cartelier 1997 or Boehm et al. 2002). Whether or not genuine ‘scientific laws’, with the same degree of generality and character of necessity as traditionally attributed to the so-called laws of the natural sciences, will ever be found in economics (or in any other social science, for that matter) is a question which dates back at least to David Hume’s [1740] conviction that it should have been ‘worthwhile to try if the science of man will not admit of the same accuracy which several parts of natural philosophy are found susceptible of’. Hume was an optimist:

Theory of Decision under Uncertainty , Itzak Gilboa. Cambridge University Press, 2009. xiv + 215 pages.

Abstract: Buchka, P. 1983. Augen kann man nicht kaufen: Wim Wenders und seine Filme. München: Hanser. Cannon, S. F. 1978. Science in Culture: The Early Victorian Period. New York: Science History Publications. Henderson, J. P. 1996. Early Mathematical Economics: William Whewell and the British Case. London: Rowman & Littlefield. Kehlmann, D. 2005. Die Vermessung der Welt. Berlin: Rowohlt. Todhunter, I. 1876/2001. William Whewell: An Account of his Writings, with Selections from His Literary and Scientific Correspondence. Bristol: Thoemmes. Whewell, W. 1837. Letter to Charles Babbage. The Athenaeum, May 30.

Liberty, Games and Contracts: Jan Narveson and the Defence of Libertarianism , Malcolm Murray (ed.). Ashgate, 2007. 273 pages.

Abstract: My general impression is that the parts of the book most closely related to the author’s field of expertise are of a very high quality, and well worth reading for graduate students as well as others interested in decision theory. However, some of the chapters that touch upon issues that lie outside the author’s field of expertise, such as philosophy, are weaker, as exemplified above. When reading those chapters it might be helpful for the reader to also take a look at other books or articles. This does not mean, however, that I do not think that this is an important and valuable addition to the literature. Decision theory is a multidisciplinary subject, and all attempts to make it more interdisciplinary should be welcomed.

Reciprocity, altruism and the civil society: In praise of heterogeneity , Luigino Bruni. Routledge, 2008, XIII + 158 pages

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