Methodological individualism: True and false

I apply Hayek’s distinction between ‘true’ and ‘false’ individualism to methodological individualism. Hayek traced ‘false’ individualism to Cartesian rationalism; Hayek’s rejection of Mises’ praxeology was due to its rationalist underpinnings. The first half of this paper identifies praxeology’s foundational philosophical concepts, emphasising their Cartesian nature, and illustrates how together they constitute a case for methodological individualism: intuition and deduction; reductionism; judgement; dualism. In the second half of this paper, I draw upon philosophy and cognitive science to articulate ‘Hayekian’ (N.B. not Hayek’s) alternatives to these Cartesian concepts. The Hayekian alternative allows a ‘gestalt switch’ from the individual- to the system-level perspective. I therefore suggest that methodological individualism is both true and false: true, in that economic phenomena are grounded in the actions of individuals; false, in that certain problems might be reconceived/discovered at the system-level. I finish by suggesting three avenues of research at system-level: optimisation; stigmergy; computational complexity.     

Appraisal Accuracy and Automated Valuation Models in Rural Areas

The Journal of Real Estate Finance and Economics - Accurate and unbiased property value estimates are essential to credit risk management. Along with loan amount, they determine a mortgage’s...     

WHAT CAN WE LEARN FROM THE IMPLEMENTATION OF MONETARY AND MACROPRUDENTIAL POLICIES: A SYSTEMATIC LITERATURE REVIEW

The emergence of macroprudential policies, implemented by central banks as a means of promoting financial stability, has raised many questions regarding the interaction between monetary and macroprudential policies. Given the limited number of studies available, this paper sheds light on this issue by providing a critical and systematic review of the literature. To this end, we divide the theoretical and empirical studies into two broad channels of borrowers – consisting of the cost of funds and the collateral constraint – and financial intermediaries – consisting of risk‐taking and payment systems. In spite of the existing ambiguity surrounding coordination issues between monetary and macroprudential policies, it is argued that monetary policy alone is not sufficient to maintain macroeconomic and financial stability. Hence, macroprudential policies are needed to supplement monetary. In addition, we find that the role of the exchange rate is critical in the implementation of monetary and macroprudential policies in emerging markets, while volatile capital flows pose another challenge. In so far as how the arrangement of monetary and macroprudential policies varies across countries, key theoretical and policy implications have been identified.     

Jensen's alpha and the market‐timing puzzle

Theory predicts that market‐timing activities bias Jensen's alpha (JA). However, empirical studies have failed to find consistent evidence of this bias. We tackle this puzzle in a nested model analysis and show that the bias contains an exogenous market component that is unrelated to market‐timing skill. In a comprehensive empirical analysis of US mutual funds, we find that the timing‐induced bias in JA is mainly driven by this market component, which is uncorrelated with measured timing activities. Measures of total performance that allow for timing activities are virtually identical to JA, even if timing activities are present in the evaluated fund. Hence, we conclude that JA is a sufficient measure of total performance.     

Prediction based on entrepreneurship-prone personality profiles: sometimes worse than the toss of a coin

Small Business Economics - The human personality predicts a wide range of activities and occupational choices—from musical sophistication to entrepreneurial careers. However, which method...     

Technology transfer via foreign patents in Germany, 1843–77

This article analyses the spread of innovation in mid‐nineteenth‐century Germany using foreign patents as an indicator for technology transfer. It introduces a new dataset of over 1,400 patents granted in the Grand Duchy of Baden between 1843 and 1877. The data show that Baden's technology import via foreign patents from German and non‐German inventors was important. This technology transfer was broadly based, although technologies related to the textile and machine‐building industries are prominent in the data. The decision to file a patent in Baden was driven by competition and the risk of imitation. Using a gravity model with city‐level data, we find evidence that technology transfer through patents reflected existing trade links. The strong correlation between technologies filed by foreigners and domestic inventors provides further evidence that the risk of imitation fostered patent‐based technology transfer during the mid‐nineteenth century. Furthermore, we show that foreigners filed patents predominantly in industries that accounted for a high share of the workforce in Baden.     

Conceptualizing businesses as social actors: A framework for understanding sustainability actions in small‐ and medium‐sized enterprises

Small‐ and medium‐sized enterprises (SMEs) can play a crucial role in advancing environmental and social well‐being. Yet various—often conflicting—explanations have been offered to clarify why SMEs pursue sustainability. Some arguments foreground possibilities of profit maximization, whereas others emphasize individual values and convictions. Research supporting such contradicting explanations is often biased towards large enterprises or small, innovative frontrunners. In this article, we examine the underlying drivers of social and environmental interventions of SMEs by exploring empirical data from a survey of over 1,600 Canadian SMEs and complementary in‐depth interviews. We argue that sustainability actions of SMEs can be understood by viewing these firms as social actors—organizations that are shaped by individual values, internal and external interpersonal relationships, and are embedded in a social environment. This conceptualization directs attention to the full range of factors that shape sustainability engagement of SMEs and highlights frequently overlooked forms of sustainability‐oriented actions.     

Correlates of Narrow Bracketing

Behavior often deviates from standard predictions because individuals evaluate the consequences of choices separately (i.e., narrow bracketing) rather than jointly. The main existing theories classify different narrow bracketing phenomena as either (i) choice errors caused by cognitive limitations, or (ii) strategies to achieve self‐control. Using an online experiment, we find consistent evidence for theory (ii): mental budgets and narrow goals are related to each other and to measures of self‐control, but are distinct from other forms of narrow bracketing. Evidence for the complementary theory (i) is less consistent: few choice bracketing phenomena are related to each other and to cognitive skills.     

Trade policy substitution: theory and evidence

Review of World Economics - With the help of a political economy model, we show that the extent of ‘trade policy substitution’—namely, substitution of tariffs with non-tariff...