Mirror neuron research and Adam Smith’s concept of sympathy: Three points of correspondence

In The Theory of Moral Sentiments, Adam Smith asserts that humans have an innate interest in the fortunes of other people and desire for sympathy with others. In Smith??s theory, sympathy is an imperfectly reflected combination of emotion and judgment when one observes someone (the agent) in a particular situation, and imagines being that person in that situation. That imagination produces a degree of interconnectedness among individuals. Recent neuroscience research on mirror neurons provides evidence consistent with Smith??s assertion, suggesting that humans have an innate capability to understand the mental states of others at a neural level. A mirror neuron fires both when an agent acts and when an agent observes that action being performed by another; the name derives from the ??mirroring?? of the action in the brain of the observer. This neural network and the capabilities arising from it have three points of correspondence with important aspects of the Smithian sympathetic process: an agent??s situation as a stimulus or connection between two similar but separate agents, an external perspective on the actions of others, and an innate imaginative capacity that enables an observer to imagine herself as the agent, in the agent??s situation. Both this sympathetic process and the mirror neuron system predispose individuals toward coordination of the expression of their emotions and of their actions. In Smith??s model this decentralized coordination leads to the emergence of social order, bolstered and reinforced by the emergence and evolution of informal and formal institutions grounded in the sympathetic process. Social order grounded in this sympathetic process relies on a sense of interconnectedness and on shared meanings of actions, and the mirror neuron system predisposes humans toward such interconnection.     

Economic Efficiency,the Economics Discipline,and the “Affected-With-A-Public-Interest” Concept

This paper examines Adam Smith's explanation of the stability of a competitive market. An initial hypothesis in the paper holds that the mechanism described in The Wealth of Nations has nothing to do with production costs, longterm, or sympathetic relationships. My proposal draws on the literature that evokes the decisive influence, acknowledged by Adam Smith, of institutions over the behavior of individuals. The argument is that Adam Smith's natural rates are a collective pattern that provides the basis for consistent expectations. Smith proposes this pillar to support the construction of a spontaneous order: Coordination through the market is a stable mechanism because it allows for an adjustment of plans grounded in consistent expectations.     

集体行动的逻辑与可持续发展的困境

个体理性的效率追求是经济活动的动力,但个体理性往往导致集体非理性。本文从个体理性与集体理性概念的相对性出发,探讨个体、地方政府、国家在经济活动中本位利益的追求与可持续发展目标的背离。纯粹的市场效率追求会导致“市场失灵,”政府在解决“市场失灵”时如果无法有效约束个体理性的本位利益追求与政绩偏好,在可持续发展问题上就会出现一定程度的“政府失灵”。在“双重失灵”的情况下,集体行动的逻辑必然导致可持续发展陷入困境。要在个体理性的效率追求与集体理性的“共同信念”中实现可持续发展战略,必须明确政府责任并进行追加性制度投资。     

Making profits working on patients’ expectations, a behavioral analysis of pharmaceutical clinical research

This paper presents a model that demonstrates how pharmaceutical companies can make profits from human experimentation by working on patients?? expectations and physicians?? inability to evaluate innovations in medical knowledge. In order to understand how profits can be made, it is important to analyze the effect the physician??s expectations have on patients, both in the enrolment process and in the collected effectiveness, as well as the nature of the physician??s interest in producing this effect. Starting from the process through which companies collect clinical evidence, the analysis will focus on the economic use of that data on the drug market and the national drug agency??s role. A model illustrates the companies?? potential opportunistic strategies as well as what the public stakeholder??s target should be. Is public intervention really necessary in order to regulate the imperfect market of drugs? In other words, taking imperfection due to the expectation process in human experimentation into account, is there another practicable path? The final normative analysis will try to answer these questions.     

Selfishness, cooperation, the evolutionary point of view and its implications for economics

The assumed selfishness of market actors could be considered in the context of two perspectives: macroeconomic and microeconomic. The first concerns the market mechanism as the most effective from the social well-being or the wealth of a nation points of view. The latter is based on the premises of the nature of human beings. I have distinguished between two possible ways of understanding selfish forms of behaviour in the market: as rational economic behaviour i.e. the most effective from the gains and losses point of view (i.e. public interests in the works of A. Smith) or as selfish from the psychological point of view (this is mostly presented by J. S. Mill's theory). The first approach seems to be concerned with the creation of the most effective market mechanism from the State's point of view. In the context of historical processes over 400 years, cultural evolution “has been promoting” selfish behaviour; for example, it was widely presented in T. Hobbes' works and then for over 200 years, the theory of A. Smith has been supporting and moulding the institutional context of market and social behaviour. Thus, positive economics describes the market created by the ideas of a neo-classical paradigm, which is based on the normative premises of A. Smith and J. S. Mill. Moreover, the virtual market behaviour described by “effects” (f. e. Veblen's effect) and failures seems to be a manifestation of a discrepancy between market reality and the classical assumptions.The social evolution of human beings has been advantageous to the human species. Moreover, from the social point of view, pro-social behaviour is “natural” as well as desirable and it has been preferred by the cultural evolution. Competitiveness assumes that somebody has to lose, because someone gains. Cooperation looks for gains for all the players. The choice is political, and not imposed by selfishness.     

Market, civic virtues, and civic bargaining in the medieval and early modern age: some evidence from sixteenth century Italy

In the last decades, historians have shown that the modern market is rooted in the institutional system created in European towns since the middle ages. This approach leads us beyond the usual opposition between market and society or between public and private market. Indeed, in the medieval and early modern age, the market was part of a wider institutional design of civil life, which had a basic conceptual frame of reference in the notion of the common good, a feature typical of such organicistic and hierarchical societies. This paper explores the process of market construction in the medieval and early modern age. I firstly analysed the role of the market in these societies and then focused on the case of foodstuff provision: a key element of the non-written, ancient pact between rulers and people, based on the assurance of subsistence. As a basis for the study, I employed sixteenth century documents regarding Vicenza, a medium-sized town in the Republic of Venice. These show very clearly that, in general, market and price regulation was not the result of arbitrary interventions by public authorities; on the contrary, it was the result of a process of negotiation, which I call civic bargaining. This process involved??to various degrees??public authorities, landowners, merchants and guilds, and the town??s people, the pursuit of the common good being, in practice, a matter of balancing various needs and interests. Present-day economic and social public policies are, in many aspects, an inheritance of the institutional system created in the medieval and early modern age: knowledge of these origins is useful in the present debate regarding economic versus social development, as discussed at the end of the paper.     

International trade and competitiveness

We analyze the role of international market size differences in determining the investment in process R&D (and thus firms?? competitiveness) in a trade model with oligopolistic market structure, non-homothetic production technology and costly trade. We show that the R&D effort is higher (or even disproportionately so) for firms in the larger market, which causes endogenous asymmetries across countries. As a result, firms in the larger market have higher competitiveness, which increases their market shares in international markets. Furthermore, and contrary to what is predicted by Krugman (Am Econ Rev 70:950?C959, 1980) ??home market effect??, in equilibrium the larger country does not need to host a disproportionately higher share of the world??s industry than of the world??s demand. Despite this, the larger country can still continue to run a trade surplus in the oligopolistic sector, since it hosts firms with higher competitiveness than firms in the smaller country.     

Market failure vs. system failure as a rationale for economic policy? A critique from an evolutionary perspective

This paper reconsiders the explanation of economic policy from an evolutionary economics perspective. It contrasts the neoclassical equilibrium notions of market and government failure with the dominant evolutionary neo-Schumpeterian and Austrian-Hayekian perceptions. Based on this comparison, the paper criticizes the fact that neoclassical reasoning still prevails in non-equilibrium evolutionary economics when economic policy issues are examined. This is more than surprising, since proponents of evolutionary economics usually view their approach as incompatible with its neoclassical counterpart. In addition, it is shown that this “fallacy of failure thinking” even finds its continuation in the alternative concept of “system failure” with which some evolutionary economists try to explain and legitimate policy interventions in local, regional or national innovation systems. The paper argues that in order to prevent the otherwise fruitful and more realistic evolutionary approach from undermining its own criticism of neoclassical economics and to create a consistent as well as objective evolutionary policy framework, it is necessary to eliminate the equilibrium spirit. Finally, the paper delivers an alternative evolutionary explanation of economic policy which is able to overcome the theory-immanent contradiction of the hitherto evolutionary view on this subject.     

Order-Dependent Knowledge and the Economics of Science

Economists approaching the study of science typically assume the applicability of a market analogy, but then base their analysis on the presumption that science constitutes an area of pervasive market failure. Given the interactions that are actually observed to occur between scientists, we suspect that the failure is in the analogy, not in the putative market. In considering how one might better apply the economic way of thinking to the understanding of science as an activity, we suggest that it is necessary to specify exactly how scientific interaction differs from market interaction, and to be clear about how the behavior of interacting scientists might be modeled in terms of the general pursuit of self-interest in a noncatallactic context. Our model of science portrays an institutionalized mode of interaction between scientists involving the publication, use, and citation of scientific papers, and it is in the exploration of the individual incentives thrown up by this arrangement that the interesting empirical implications arise. We give a short exposition of the possible lines of investigation that could be followed based on this approach.     

Public policies: will policy be ineffective if welfare is a random-walk

This study contradicts the view that policy cannot be effective if the welfare variable is a random-walk. Also, the study disagrees with the methodology employed by some proponents of this view, and goes on to show that the conclusion of policy ineffectiveness was only due to a wrong inference procedure. Furthermore, it points out that the notion of policy effectiveness suggests the examination of the relationship between policy and welfare; hence, what to look for is not a trend in the individual time series, but a common trend which relates the policy instrument and the welfare-variable in the policy environment under consideration.     

Diverse beliefs and time variability of risk premia

Why do risk premia vary over time? We examine this problem theoretically and empirically by studying the effect of market belief on risk premia. Individual belief is taken as a fundamental primitive state variable. Market belief is observable; it is central to the empirical evaluation and we show how to measure it. Our asset pricing model is familiar from the noisy REE literature but we adapt it to an economy with diverse beliefs. We derive equilibrium asset prices and implied risk premium. Our approach permits a closed form solution of prices; hence we trace the exact effect of market belief on the time variability of asset prices and risk premia. We test empirically the theoretical conclusions. Our main result is that, above the effect of business cycles on risk premia, fluctuations in market belief have significant independent effect on the time variability of risk premia. We study the premia on long positions in Federal Funds Futures, 3- and 6-month Treasury Bills (T-Bills). The annual mean risk premium on holding such assets for 1?C12?months is about 40?C60 basis points and we find that, on average, the component of market belief in the risk premium exceeds 50% of the mean. Since time variability of market belief is large, this component frequently exceeds 50% of the mean premium. This component is larger the shorter is the holding period of an asset and it dominates the premium for very short holding returns of less than 2?months. As to the structure of the premium we show that when the market holds abnormally favorable belief about the future payoff of an asset the market views the long position as less risky hence the risk premium on that asset declines. More generally, periods of market optimism (i.e. ??bull?? markets) are shown to be periods when the market risk premium is low while in periods of pessimism (i.e. ??bear?? markets) the market??s risk premium is high. Fluctuations in risk premia are thus inversely related to the degree of market optimism about future prospects of asset payoffs. This effect is strong and economically very significant.     

Too little or too much R&D?

According to the first generation models of endogenous growth based on expanding product variety, the market economy unambiguously generates too little R&D. Later, by disentangling returns to specialization from the market power parameter, it was shown that with sufficiently low returns to specialization too much R&D can occur. The present paper takes a step further, disentangling the market power parameter from the capital share in final output. At a theoretical level this helps finding too much R&D as well. On the other hand, in view of the empirically realistic order of magnitude between the parameters, disentangling market power and capital share tends to diminish the scope for excess R&D. Finally, by differentiating between net and gross returns to specialization we demonstrate what drives the differing inefficiency results in this literature.     

Dissertation abstract: Three essays on the determinants of behavior in the commons-experimental evidence from fishing communities in Colombia

This dissertation presents the results of a series of common pool experiments conducted in three regions of rural Colombia with individuals who face a social dilemma in their everyday lives that is similar to what was presented in the experiment. The research objectives are to develop an empirical characterization of how individual behavior deviates from purely self-interested Nash behavior and to further our understanding of the effects of alternative institutions to promote more conservative choices in common pool experiments.Groups of five subjects participated in a 20-period common pool resource game framed as a harvest decision from a fishery. Every group first played 10 rounds of a baseline limited access common pool resource game and then 10 additional rounds under one of five institutions: face-to-face communication, one of two external regulations, and communication combined with one of the two regulations. The two external regulations consisted of an individual harvest quota that was set at the efficient outcome, but differ with respect to the level of enforcement. A total of 420 individuals participated in the experiments, with individual earnings averaging slightly more than a day’s wages. The results are presented in three essays.The first essay, What Motivates Common Pool Resource Users?, develops and tests several models of pure Nash strategies of individuals who extract from a common pool resource when they are motivated by combinations of self-interest, altruism, reciprocity, inequity aversion or conformity. The results suggest that a model which balances self-interest with a strong preference for conformity best describes average strategies. The data are inconsistent with a model of pure self-interest, as well as models that combine self-interest with individual preferences for altruism, reciprocity and inequity aversion.The second essay, Communication and Regulation to Conserve Common Pool Resources, tests for interaction effects between formal regulations imposed on a community to conserve a local natural resource and non-binding verbal agreements to do the same. The results indicate that formal regulations and informal communication are mutually reinforcing in some instances, but this result is not robust across regions or regulations. Therefore, the hypothesis of a complementary relationship of formal and informal control of local natural resources cannot be supported in general; instead the effects are likely to be community-specific. There is some evidence to suggest that these effects are correlated with the relative importance of formal regulations versus informal community efforts in the community.The third essay, Within and Between Group Variation in Individual Strategies in Common Pools, analyzes the relative effects of groups and individuals within groups in explaining variation in individual harvest decisions for particular institutions, and uses a hierarchical linear model to examine how these sources of variation may vary across institutions. Communication serves to effectively coordinate individual strategies within groups, but these coordinated strategies vary considerably among groups. In contrast, externally-imposed regulatory schemes (as well as unregulated limited access) produce significant variation in the individual strategies within groups, but these strategies are roughly replicated across groups so that there is little between-group variation.     

Nominal uniqueness and money non-neutrality in the limit-price exchange process

We define continuous-time dynamics for exchange economies with fiat money. Traders have locally rational expectations, face a cash-in-advance constraint, and continuously adjust their short-run dominant strategy in a monetary strategic market game involving a double-auction with limit-price orders. Money has a positive value except on optimal rest-points where it becomes a ??veil?? and trade vanishes. Typically, there is a piecewise globally unique trade-and-price curve both in real and in nominal variables. Money is not neutral, either in the short-run or long-run and a localized version of the quantity theory of money holds in the short-run. An optimal money growth rate is derived, which enables monetary trade curves to converge towards Pareto optimal rest-points. Below this growth rate, the economy enters a (sub- optimal) liquidity trap where monetary policy is ineffective; above this threshold inflation rises. Finally, market liquidity, measured through the speed of real trades, can be linked to gains-to-trade, households?? expectations, and the quantity of circulating money.     

Smith and Rousseau on envy in commercial societies

Abstract

Several works emphasise the similarities between Rousseau and Smith's analysis of self-interest. We will show, along the lines of Le Jalle, that these similarities end on a divergent appreciation of the importance of envy in commercial societies for, contrary to Rousseau, Smith did not consider envy to be a major threat in commercial societies. Part 1 presents their quite similar definitions of envy based on three characteristics: envy comes from a disadvantageous comparison with others; it is painful and malevolent. Part 2, then, studies their moral psychology, or the way they understand the relationship between sympathy and pity on the one hand, and comparison and envy on the other. Here, we identify significant differences between our two philosophers which might explain why they have opposing views on the predominance of envy in commercial societies and on the issue of inequalities of wealth as we show in Part 3. Rousseau thinks that envy increases with wealth and inequality and thus pervades commercial societies, while Smith sees envy as the exception rather than the rule, and, moreover, does not provide a historical genesis for envy. For Smith, it is emulation rather than envy which is the driving force of the progress of society.     

Employment cycles, low income work and the dynamic impact of wage regulations. A macro perspective

In this paper we investigate, against the background of Goodwin??s (1967) growth cycle model, a dual labor market economy and the consequences of introducing an unemployment benefit system and minimum wages in the second labor market and a maximum wage barrier in the first one. In the framework with free ??hiring?? and firing?? in the both labor markets we show (a) that in fact maximum real wages in the first labor market not only reduce the volatility of this labor market, but also provide global stability to the system dynamics if they are locally explosive, and (b) that larger fluctuations in employment can be made (at least partially) socially acceptable through a (workfare oriented) unemployment benefit system augmented by minimum wage in the low income segment of the labor market.     

Overcoming Contemporary Mythology: An Essay

Over the last 35 years, a free market, laissez faire program has increasingly dominated perceptions as to what constitutes correct economic theory and policy. Most adherents of this program trace its origins to Adam Smith, and claim that its dominant position is the result of superior theory.

The argument here is that Adam Smith is not the theoretical ancestor of modern laissez faire economics, and that there are fundamental differences between Smith’s position on laissez faire and that of conventional neoclassical theory. A difference between “soft” and “hard” laissez faire is made, where Smith represents the former position; neoclassical theory the latter. Further, and more important, it is argued that the current laissez faire program is an outgrowth of a political program instituted in the 1930’s and financially supported in the present era by conservative foundations to promote an ideological framework that permits the development of specific governmental (and non-governmental) actions.     

Entrepreneurial strategy v. accounting accuracy in ‘calculating’ capital and income

Both entrepreneurs and accountants ??calculate?? capital and income but their procedures diverge. The paper examines this divergence and the respective calculational objectives of entrepreneurs and accountants in the business enterprise. For the entrepreneur, capital and income are ex ante calculational judgments of prospective income gain from strategic use of the enterprise??s capital goods. But the accountant must shun entrepreneurial judgments to ??calculate?? the contemporary net market value of enterprise??s capital goods at a specified date. Hence, the accountant??s calculation of income is the net contemporary increase in the market value of the enterprise??s capital goods. These accounting calculations facilitate assessment of the success of an enterprise strategy. But critics assert that accounting practice ignores the need of external investor??s for accurate information on enterprise prospects. The paper concludes with a critique of accounting regulation and explores the feasibility and means of privatizing the entrepreneurial choice of accounting techniques.     

Should evolutionary economists embrace libertarian paternalism?

Libertarian paternalists hold that biases and distortions in human decision-making justify paternalistic interference affecting individuals’ decisions. The aim of this paper is to analzye to what extent an evolutionary outlook supports libertarian paternalism. I will put forward three arguments in favour of libertarian paternalism and six objections that strongly oppose it. While evolutionary economists should take seriously the contention that our positive knowledge of real-world decision-making will have to influence our normative assessment of these decisions, the objections against libertarian paternalism brought forward in this paper serve as a cautionary note. Contrary to the claims of its proponents, libertarian paternalism is neither inevitable, nor does it provide an adequate measuring rod of normative rationality. It is prone to abuse by anchoring its standard of rationality pragmatically to norms and can thus promote conservative bias and stifle innovative exploration. It also presents the policy-maker with a compounded Hayekian knowledge problem. Finally, from a dynamic point of view, libertarian paternalism’s manipulative shaping of preferences might lock-in individuals into heteronomous preference learning paths without them being even aware of it.     

Utilitarianism and the role of utility in Adam Smith

Abstract

In this paper we confront attempts to bring Smith closer to utilitarianism. We show that Smith's conception of utility is not utilitarian. While the pursuit of ‘pleasure’ could lie behind human behaviour, it is not the pleasure referred to by utilitarianism. Instead, utility, in its colloquial sense, plays a greater role that suggests a type of consideration which is foreign to utilitarianism and which also introduces a rationalist element to Smith's moral analysis. Thus, utility, in the utilitarian sense, is neither a guide to action nor a means for moral evaluation.