Back to Buchanan? Explorations of welfare and subjectivism in behavioral economics

In light of behavioral findings regarding inconsistent individual decision-making, economists have begun to re-conceptualize the notion of welfare. One prominent account is the preference purification approach (PP), which attempts to reconstruct preferences from choice data based on a normative understanding of neoclassical rationality. Using Buchanan’s notion of creative choice, this paper criticizes PP’s epistemic, ontological, and psychological assumptions. It identifies PP as a static position that assumes the satisfaction of given ‘true preferences’ as the normative standard for welfare. However, following Buchanan, choice should be understood dynamically as a process whereby preferences constantly regenerate. Accordingly, the meaning of welfare emerges from an ongoing quest for individual self-constitution. If this holds true, then rationality axioms cannot serve as a priori normative standards. Instead, creative imagination and learning processes must remain central to any understanding of welfare in economics.     

Characterization of a second-best rationalizable choice function with full domain

The idea of equating the concept of ‘rationality’ with that of the ‘choice of best elements’ unnecessarily limits the sense and scope of ‘rationality’. The existing internal consistency conditions that are popularly used in the social choice theory to assess a choice function are insufficient to analyze several non-standard choice patterns. This paper makes a modest effort to address this limitation. The paper accepts a broader definition of rationality and characterizes choice behaviors where an individual chooses a second best element when available and chooses a best element only when a second best is not available.     

Normative ecological rationality: normative rationality in the fast-and-frugal-heuristics research program

The purpose of this paper is to examine the normative interpretation of the fast-and-frugal research program and in particular to contrast it with the normative reading of rational choice theory and behavioral economics. The ecological rationality of fast-and-frugal heuristics is admittedly a form of normative naturalism (Gigerenzer and Sturm 2012) – it derives what agents “ought” to do from that which “is” ecologically rational – and the paper will examine how this differs from the normative rationality associated with rational choice theory. I will also attempt to assess the relative adequacy of normative ecological rationality.     

理性与非理性选择在经济活动中的耦合——基于经济学与社会学的思考

现实的丰富多变和人性的复杂使得并非一切行为都是理性的,即使在一个行动内或决策中,理性与非理性的标准也是模糊的,没有纯粹的理性,也没有单一的非理性。本文基于理性和非理性选择在中国市场化进程中的角色演绎,肃清了传统上对理性和非理性存在的认识误区。进一步提出在理性主导下进行非理性选择,在非理性中纳入理性思考;借助于由意愿和能力两个变量构造的支付矩阵,分析了理性与非理性在市场中耦合的可行性。最后探讨了为这种可行性提供有效保障的耦合点即激励与约束相容的制度建设,保障对理性、非理性中积极因素的引导、奖励,对消极因素的约束、惩罚,使人们在理性与非理性相结合的内在激励与约束下所做出的决策与他们对市场的预期一致,与该制度期望达到的目标相符。     

Of clouds and clocks and Keynes: conceptions of reality and the growth of knowledge function of money ∗

In this paper, John Maynard Keynes' General theoryand the concept of money are given an evolutionary interpretation. This interpretation is based on Karl Popper's delightful essay ‘Of clouds and clocks: an approach to the problem of rationality and the freedom of man’. The essay presents two things: Popper's conception of indeterminism and his general theory of abstractions. Popper's general theory concerns the role of abstractions and rule-governed, hierarchical systems of abstractions in structuring an indeterministic and uncertain world. He applies his general theory to science.Popper maintains that science is an abstract, rule-governed, linguistic process that facilitates criticism as a way of learning about our world. Popper calls this the growth of knowledge function of science. Popper's general theory can be applied to Keynes' General theory. Following Popper, I argue for a conception of the economy as a rule-governed, monetary language of commerce that facilitates critically minded inquiry in the domain of ordinary economic transactions. A monetary system facilitates the growth of commonsense knowledge in the economy. I call this the growth of knowledge function of money. An awareness of indeterminism and a growth of knowledge like function of money seem to pervade Keynes' General theory.     

From Mill to Weber: the meaning of the concept of economic rationality

Weber recognized explicitly that his concept of ideal-type is directly borrowed from economic theory and as it is commonly admitted from the German-speaking ‘marginalist school’. Nevertheless, the construction of ideal-types reminds greatly the definition of economic rationality made by John Stuart Mill, who also built up a concept to explain, in individualistic terms, the real world in a given historical and geographical context. The position defended here is that Weber generalizes Mill's methodological proposition of concept formation regarding economic rationality to accomplish his much larger project of determining the social factors responsible for the rationalization of the Western civilization.     

Goals,rationality criteria and market functioning ∗

The behaviours of economic operators may be directed by goals and rationality criteria other than those postulated by neoclassical theory. Under certain conditions, the existence of deviant goals and rationality criteria, far from being eliminated by the process of ‘natural selection’, has a profound effect on market functioning. It alters the ‘natural selection’ criterion and thereby influences the market trajectory. It can also favour the development of specific mechanisms of co-ordination. Our hypothesis is illustrated by an analysis of the cultural markets.     

A Humean theory of choice of which rationality may be one consequence

For the reader who considers economic theory of choice as a special case of a more general theory of action, Hume's discussion of the determinants of action in the Treatise of Human Nature (1739?–?40), in the Enquiry on Human Understanding (1748) and in the Dissertation on Passions (1757) deserves attention. However, according to some modern commentators, Hume does not seem to have given any evidence that would favour what nowadays we would consider as the kind of rationality involved in modern theories of rational choice. On the contrary, this paper arrives at the conclusion that consistency between preferences and choice, like the usual properties of completeness and transitivity, may be considered as outcomes of a mental process, described by means of a decision algorithm that aims to represent Hume's theory of choice.     

Why rationality may be a consequence of Hume's theory of choice

Facing R. Sugden's criticism of our interpretation, it is shown in this paper that rationality appears as a possible consequence of Hume's theory of choice. We first argue that Sugden's dismissal of the preference relation from the type of rationality through which Hume's theory is apprehended, is highly disputable, from the point of view of both standard choice theory and Hume's theory of passions. Nonetheless, Sugden's criterion of rationality might be restated in Humean terms as a condition of non-revision of preferences in the dynamics of passions. But, since the process of choice that we have described explicitly takes into account the revision of preferences, and shows that, when this last is no longer required, rationality occurs as an outcome of this process, it is not really concerned by Sugden's criticism.     

康德美学矛盾中暗示的主观历史积淀性

康德的判断力批判在西方美学史上有相当的地位和价值,然而也有不少人对其中表现出的矛盾和神秘表示质疑。文章就其矛盾入手,探索其未明示的深层涵义;思索其提出的判断力背后的广阔背景;发掘其完全主观、不涉及概念的形式又成为普遍有效的原因,进而探讨人的合目的性有怎样的历史基础。     

The Liverpool macroeconomic model of the United Kingdom

The paper describes the Liverpool Model, a rational expectations model of the UK economy used for forecasting since March 1980. The model is of the ‘new classical’ type, in that all markets clear; in the labour market, there is a union sector with one-year nominal wage contracts but the non-union sector clears excess demands. Equilibrium (or ‘natural rate’) values of output, employment, real wages, etc are endogenously determined. In- and out-of-sample errors, a full set of simulations, and a complete listing are included. The interim experience of the model as a test bed for rational expectations methods is ‘far from discouraging’.     

Robots and us: towards an economics of the ‘Good Life’

(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.     

Weeds in the Ivy: college admissions under preference constraints

In a series of cases spanning more than three decades, the courts have attempted to establish boundaries on the permissible use of racial preferences in college admissions. Proponents of these policies believe that race-based preferences are needed to create a diverse student body that facilitates effective learning and social inclusion. Opponents of such policies contend that racial preferences are inherently discriminatory and eliminating them would yield a more able student body. Whereas race-based preferences have garnered the most attention, elite colleges regularly employ other types of preferences, including those for alumni and talented athletes. To inform this important policy debate, we develop a simple model comprised of a rational college administrator that maximizes a linear combination of student body ability and the college endowment through the choice of race, legacy and merit admission shares. We find that relaxing the racial-preferences constraint can produce a ‘less-able’ student body even when the college administrator places greater weight on student body ability than she does on the college endowment. The change in admissions policy may serve only to increase the number of admissions that can be ‘sold’ to wealthy alumni through legacy preferences and thereby foster the growth of weeds in the Ivy.     

The brain drain, ‘educated unemployment’, human capital formation,and economic betterment1

Extending both the ‘harmful brain drain’ literature and the ‘beneficial brain gain’ literature, this paper analyzes both the negative and the positive impact of migration by skilled individuals in a unified framework. The paper extends the received literature on the ‘harmful brain drain’ by showing that in the short run, international migration can result in ‘educated unemployment’ and overeducation in developing countries, as well as a brain drain from these countries. A simulation suggests that the costs of ‘educated unemployment’ and overeducation can amount to significant losses for the individuals concerned, who may constitute a substantial proportion of the educated individuals. Adopting a dynamic framework, it is then shown that due to the positive externality effect of the prevailing, economy‐wide endowment of human capital on the formation of human capital, a relaxation in migration policy in both the current period and the preceding period can facilitate ‘take‐off’ of a developing country in the current period. Thus, it is suggested that while the migration of some educated individuals may reduce the social welfare of those who stay behind in the short run, it improves it in the long run.     

The Value of Advanced Interdisciplinary Classes for Students of Economics: Case Study of a 300-Level Class on Gender in the Economy

Interdisciplinary classes are valuable to students of economics for many reasons. This paper discusses three reasons why such classes, at an advanced level, are useful and important for students of economics. First, interdisciplinary classes have the potential to encourage theory building and critical thinking, especially through the use of primary sources. Second, interdisciplinary classes also provide students with a richer empirical understanding of the world, beyond the narrowly quantitative data used in most economics research. Fostering a ‘constructivist’ view of data, this facilitates future economists building the tools to tell marginalized stories. Lastly, interdisciplinary classes can create a diverse learning environment that facilitates peer learning about difficult subjects such as race, class, and gender. A case study of a 300-level class titled Gender in the Economy, in which a diverse group of students from backgrounds in women’s studies, economics, business, and American studies came together to study the economic history of gender, is used to explore such benefits.     

Schumpeter: Theorist of the avant-garde

This paper argues that Schumpeter’s 1911 edition of ‘Theory of Economic Development’ can be fruitfully read as a theory of the avant-garde, in line with such theories developed by artistic avant-garde around the same time, in particular by the Italian Futurists. In particular it will show that both Schumpeter and other avant-garde theorists sought to break with past (1), identify an avant-garde who could force that break (2), find new ways to represent the dynamic world (3), embrace the new and dynamic (4) and promote a perpetual dynamic process, instead of a specific end-state or utopia (5). This new reading helps us to understand the cultural meaning of this seminal text in economics. Secondly it greatly facilitates our understanding of the differences with the later interwar German edition and English edition, which were more cautious in their embrace of the new, less focused on the individual qualities of the entrepreneur and placed more emphasis on historical continuity. Thirdly this reading suggests a different reason for the bifurcation between Schumpeter and the rest of the Austrian school of economics. Traditionally this split is explained by Schumpeter’s affinities with the Lausanne School, this paper instead suggests that the crucial break between Schumpeter on the one hand and Böhm-Bawerk, Wieser and later members of the Austrian School on the other hand is their theory of and attitude toward social change.     

经济学视域下的公共政策分析:批判与反思

当前主流经济理论对公共政策的分析主要是基于其广泛适用的规则和假设,在进行演绎式分析推理过程中,其所使用的抽象效率标准将公平分析几乎完全排除在外,从而使公共政策在很大程度上失去了其应有的价值判断。现实中,社会性个体基于契约理性追求角色意义上的目标及其协调,因此,公共政策首先应考虑的是目标定位与一致认可,这必然要兼顾公平与效率,并全面考虑人类行为的伦理、经济和法律方面,这是人作为一切社会关系的总和的必然产物和要求。政府公共政策及其引导下的集体行动是对个体角色目标的协调一致的表现和结果,因此公共政策只有能够满足诸多个体实现不同的个人目标,才有被认可并得到执行的可能。由此可见,公共政策首先应当有其价值判断,该价值判断建立在共识判断的基础之上。     

Europeanisation and Discourse Building: The European Commission,European Narratives and European Neighbourhood Policy

Europeanisation is a legitimising process through which the European Union strives to gain meaning, actorness and presence internationally. However, this process continues to be described in less than complimentary ways as ambiguous, incomplete, unsettled, or impotent. We contend that it is the contradictory demands of negotiating order at the ‘internal’ and ‘external’ levels both operationally and normatively which critically affect the EU's ability to achieve presence and actorness in international affairs. In this paper we focus upon the role of the European Commission in the external projection of Europeanisation towards the Mediterranean with an emphasis upon the discursive construction, performance and survival of Europeanisation. We show the ways in which the external projection of Europeanisation produces fuzziness and messiness in which the Mediterranean emerges as both a chaotic conception and site of chaos.     

Verifying India’S Exchange Rate Regime in the Pre-Reforms Period (1975–91)

Verifiability of an announced exchange rate regime becomes important in the context of credibility and transparency of a regime. These latter ideas become especially significant in the context of the currently reigning hypothesis of the missing middle, which postulates that exchange rate regimes intermediate to the corner regimes of ‘free floating’ and ‘firm fixing’ are increasingly becoming nonviable in a world of greater international capital mobility as these intermediate regimes are more difficult to verify. This paper attempts to verify India’s exchange rate regime in the so-called basket arrangement period. Using auxiliary information about the regime, it estimates the confidential Indian basket and shows that the behaviour of India’s exchange rate was not exactly as per the announced regime.