Much like the trade and traits of bubbles in financial markets, similar bubbles appear on the science market. When economic bubbles burst, the drop in prices causes the crash of unsustainable investments leading to an investor confidence crisis possibly followed by a financial panic. But when bubbles appear in science, truth and reliability are the first victims. This paper explores how fashions in research funding and research management may turn science into something like a bubble (...) economy. (shrink)

According to complexity economics, a speculative bubble is a paradigmatic case of emergence which forms from individual behaviour. In order to provide a more detailed ontological investigation of this ‘lower level’, this paper aims to understand what a transaction is and how people actualize their financial choices. Given that selling and buying operations may involve just machines, it is argued that collective intentionality, at least in John Searle’s version, is not successful. It would seem, therefore, that the pivotal role is (...) played by documents. The paper focuses mostly on the documents’ capacity to anchor quasi-abstract entities to reality and to attribute social and economic properties, such as property having a certain value. The latter is clearly involved in the emergence of a bubble. (shrink)

(2013). Bad advice, herding and bubbles. Journal of Economic Methodology: Vol. 20, Methodology, Systemic Risk, and the Economics Profession, pp. 45-55. doi: 10.1080/1350178X.2013.774850.

This article discusses the topic of algorithmic personalization and the creation of the so-called “filter bubble” effect, which is often understood as one of the most problematic influences of artificial intelligence on democratic social order. The author suggests that focusing on the issue of information diversity, which had far-reaching effect on the empirical research that tried to quantitatively measure and systematically prove the existence of the filter bubbles, was the wrong starting point for the discussion on the application of (...) algorithmic personalization. It has drawn our attention away from the deeper issue: habit. Habitual adaptation of algorithmic personalization, namely, stands in essential contradiction to the ideal image of a non-adaptive public sphere, upon which democratic societies should be based. Focusing on habitual adaptation could also explain why users addictively stick to certain kinds of information, even if they are not caught in an isolated chamber. (shrink)

ABSTRACT Asset‐market bubbles occur dependably in laboratory experiments and almost as reliably throughout economic history—yet they do not usually bring the global economy to its knees. The Crash of 2008 was caused by the bursting of a housing bubble of unusual size that was fed by a massive expansion of mortgage credit—facilitated, in turn, by the longest sustained expansionary monetary policy of the past half century. Much of this mortgage credit was extended to people with little net wealth (...) who made slender down payments, so that when the bubble burst and housing prices declined, their losses quickly exceeded their equity. These losses were transmitted to the financial system—including banks, investment banks, insurance companies, and the institutional and private investors who provided liquidity to the mortgage market through structured securities. It seems that many of these institutions became insolvent; it is certain that they became illiquid. Liquidity loss and solvency fears created a feedback cycle of diminished financing, reduced housing demand, falling housing prices, more borrower losses, and further damage to the financial system and eventually the stock market and the real economy. There are important parallels with the housing and financial‐market booms that led up to the Crash of 1929 and the Great Depression. (shrink)

The sharp changes in oil prices since 2004 featured a nonlinear data-generating mechanism which displayed bubble-like behavior. A popular view is that such a salient pattern cannot be explained by shifts in economic fundamentals, but was driven by speculative bubbles as a consequence of the increased financialization of oil future markets. Testing this hypothesis, however, is challenging since the fundamental component of the oil price is unobservable. This paper attempts to isolate the contribution of speculative bubbles and (...) fundamentals to the evolution of oil prices by providing a stylized model of commodity pricing. Motivated by our theoretical model, we adopt a continuous-time model with a random and time-varying persistence parameter to empirically investigate the presence of speculative bubbles in daily oil future prices over the period April 1983 to June 2020. We do not find any evidence in favor of speculative bubbles, although we indeed find that oil prices exhibit episodes of unstable behavior after 2004. (shrink)

This paper addresses objectivity in economics. It criticizes a closed science, ‘view from nowhere’ conception of economics and defends an open science, ‘view from somewhere’ conception of objective science. It ascribes the first conception to mainstream economics, associates it with its principle practices – reductionist modeling, formalization, limited interdisciplinarity, and value neutrality – and argues their foundation is the Homo economicus individual conception. Two problematic consequences of adopting this stance are: (i) value blindness regarding the range and complexity of human (...) values; (ii) fatalism regarding human behavior associated with employing a tenseless representation of time. The paper contrasts the principle practices of an open science, view from science conception – complexity modeling, mixed methods, strong relationships to other disciplines, and value diversity – and argues their foundation is a socially and historically embedded economics individual conception that avoids the value blindness and fatalism problems. (shrink)

Professor Vernon L. Smith is a major creator of the new discipline of experimental economics. This collection of his papers from 1962 to 1990 surveys key developments in the field from early attempts to study economic behaviour in now classic double oral auction markets through recent studies of industrial organization and decision making. Topics covered include monopoly and oligopoly, supply and demand theory under posted pricing, uniform pricing, double continuous auction, and sealed bid-offer auctions; hypothetical valuation and market pricing; (...) asset price bubbles; predatory pricing; market contestability and natural monopoly; and the methodology of experimental economics. Taken together, the papers form a history of the study of economics under controlled conditions. (shrink)

John Law left a remarkable legacy of economic concepts from a time when economic conceptualization was very much at an embryonic stage. Yet he is best known--and generally dismissed--today as a rake, duellist, and gambler. This intellectual biography offers a new approach to Law, one that shows him to have been a significant economic theorist with a vision that he attempted to implement as policy in early-eighteenth-century Europe. Law's style, marked by a clarity and use of modern (...) terminology, stands out starkly against the turgid prose of many of his contemporaries. His vision of a monetary and financial system was certainly one of a later age, for Law believed in an economy of banknotes and credit where specie had no role to play. Ultimately Law failed as a policy-maker, in part because of the entrenchment of the financiers and their aristocratic backers and in part because of theoretical flaws in his vision. His struggle for power took place against the background of Europe's first major stock boom and collapse. The collapse of the Mississippi System, which he had conceived, and the South Sea Bubble led to a lasting impression of Law as a failure. It is this impression that Antoin Murphy seeks to dispel. (shrink)

Military and defense-related procurement has been an important source of technology development across a broad spectrum of industries that account for an important share of United States industrial production. In this book, the author focuses on six general-purpose technologies: interchangeable parts and mass production; military and commercial aircraft; nuclear energy and electric power; computers and semiconductors; the INTERNET; and the space industries. In each of these industries, technology development would have occurred more slowly, and in some case much more slowly (...) or not at all, in the absence of military and defense-related procurement. The book addresses three questions that have significant implications for the future growth of the United States economy. One is whether changes in the structure of the United States economy and of the defense-industrial base preclude military and defense-related procurement from playing the role in the development of advanced technology in the future, comparable to the role it has played in the past. A second question is whether public support for commercially oriented research and development will become an important source of new general-purpose technologies. A third and more disturbing question is whether a major war, or the threat of major war, will be necessary to mobilize the scientific, technical, and financial resources necessary to induce the development of new general-purpose technologies. When the history of United States technology development in the next half century is written, it will focus on incremental rather than revolutionary changes in both military and commercial technology. It will also be written within the context of slower productivity growth than of the relatively high rates that prevailed in the United States in the 1950s and 1960s or during the information technology bubble that began in the early 1990s. These will impose severe constraints on the capacity of the United States to sustain a global-class military posture and a position of leadership in the global economy. (shrink)

We discuss recent work on bounded rationality and learning in relation to Soros' principle of reflexivity and stress the empirical importance of non-rational, almost self-fulfilling equilibria in positive feedback systems. As an empirical example, we discuss a behavioral asset pricing model with heterogeneous expectations. Bubble and crash dynamics is triggered by shocks to fundamentals and amplified by agents switching endogenously between a mean-reverting fundamental rule and a trend-following rule, based upon their relative performance. We also discuss learning-to-forecast laboratory experiments, showing (...) that in positive feedback systems individuals coordinate expectations on non-rational, almost self-fulfilling equilibria with persistent price fluctuations very different from rational equilibria. Economic policy analysis may benefit enormously by focusing on efficiency and welfare gains in correcting mispricing along almost self-fulfilling equilibria. (shrink)

The science writer, John Horgan (1995, 1997), has ridiculed what he labels “chaoplexology,” a combination of chaos theory and complexity theory. A central charge against this alleged monstrosity is that it, or more precisely its two component parts separately, are (or were) fads, intellectual bubbles of little consequence. They would soon disappear and deservedly so, once scholars and intellects realized what worthless dross they truly were (or are). As the culminating centerpiece of his argument, Horgan introduced the label, “the (...) four C’s,” which consist of cybernetics, catastrophe theory, chaos theory, and complexity theory.[2] More.. (shrink)

A review of U. Mäki (ed.). Fact and Fiction in Economics, Cambridge: Cambridge University Press, 2003. pp. xvi 384. ISBN 0521 00957. As people interested mainly in theory, methodologists and philos...

"Of all the economic bubbles that have been pricked," the editors of The Economist recently observed, "few have burst more spectacularly than the reputation of economics itself." Indeed, the financial crisis that crested in 2008 destroyed the credibility of the economic thinking that had guided policymakers for a generation. But what will take its place? In How the Economy Works, one of our leading economists provides a jargon-free exploration of the current crisis, offering a powerful argument for (...) how economics must change to get us out of it. Roger E. A. Farmer traces the swings between classical and Keynesian economics since the early twentieth century, gracefully explaining the elements of both theories. During the Great Depression, Keynes challenged the longstanding idea that an economy was a self-correcting mechanism; but his school gave way to a resurgence of classical economics in the 1970s-a rise that ended with the current crisis. Rather than simply allowing the pendulum to swing back, Farmer writes, we must synthesize the two. From classical economics, he takes the idea that a sound theory must explain how individuals behave-how our collective choices shape the economy. From Keynesian economics, he adopts the principle that markets do not always work well, that capitalism needs some guidance. The goal, he writes, is to correct the excesses of a free-market economy without stifling entrepreneurship and instituting central planning.Recent events have shown that we cannot afford to treat economics as an ivory-tower abstraction. It has a direct impact on our lives by guiding regulators and policymakers as they make decisions with far-reaching practical consequences. Written in clear, accessible language, How the Economy Works makes an argument that no one should ignore. (shrink)

This paper challenges the first Gettier counterexample to the tripartite account of knowledge. Noting that 'the man who will get the job' is a description and invoking Donnellan's distinction between their 'referential' and 'attributive' uses, I argue that Smith does not actually believe that the man who will get the job has ten coins in his pocket. Smith's ignorance about who will get the job shows that the belief cannot be understood referentially, his ignorance of the coins in his pocket (...) shows that it cannot be understood attributively. An explanation for why Smith appeared to have justified true belief is given by distinguishing between 'belief' and 'belief in truth'. Smith believes the sentence 'the man who will get the job has ten coins in his pocket' to be true (he mistakenly believes that Jones will get the job, of whom he knows that he has ten coins in his pocket) (hence his 'belief'), the sentence is true (hence 'truth'), and he has sufficient reason to assent to it (hence his 'justification'). But he does not believe the proposition expressed. Hence he does not know it either. (shrink)

In this paper we investigated how justifications for price increases are associated with risky decision making and emotional responses. Across two studies with paired lottery choices and sequential decisions, we found that participants presented with a justification for price increases based on increasing demand decided to invest in a comparatively riskier asset more often than participants presented with a justification for price increases based on increasing tax or those presented with no justification at all. We also found that participants presented (...) with justifications for price increases based on increasing demand also reported more arousal displayed higher galvanic skin response than people in the other two justification conditions. Together, these studies provide evidence that the sole increasing demand underlying a price increase of a risky asset can influence the decision to buy it and suggests that emotional activation is involved in such a decision process. (shrink)

This paper critically examines Japan's recent drive to learn from the West. The paper first presents the historical setting and then goes on to develop future scenarios for Japan. The focus of the paper is learning and change following the collapse of the Japanese economic bubble, and the relevance of the US and Western models of corporate governance. The question it raises is what to change, and from which quadrant(s) of society this drive can be initiated and sustained. The (...) paper proposes various paths to learning and change. It recommends that the most challenging and rewarding path is the eclectic-innovative path, which requires active and non-cosmetic management of change. The paper concludes that the West is but one source of learning for Japan. Japan needs to learn from its mother civilisation, from within which fresh challenges will arise again. (shrink)

Although the following essay is literary-philosophical, it arose from a practical interest. I have been struck by how widespread today is the complaint about the ‘inadequate father’. Of course a father may be inadequate in diverse ways, either absconding, absent and weak, or overbearing, bullying, and tyrannical, or some combination of these. Further, I am not restricting the term ‘father’ to its narrow biological sense, but using it rather as a metaphor for any institution or structure which an individual or (...) a group feels should have been in place to guide, direct, and protect them in important situations, but did not do its job properly. Consequently they are willing to concede they are not all they could have been, but they insist it is not their fault, rather the fault of the ‘father’ who should have done his job better. This ties in with the fashionable appeal of ‘victimhood’. Everybody today seems to want to cast themselves as a ‘victim’, for reasons similar to those mentioned above. If you are a ‘victim’, then there must be an ‘oppressor’– and some ‘parent’ organization that should have guided, directed, and protected you against the oppressor, but again did not do its job adequately. It is striking how many individuals and groups around the world today choose to perceive themselves, and to present themselves to others, as ‘victims’; it has indeed become a preferred characterization of our age, for it carries with it a rhetorical advantage that trumps all others. If you are able to cast yourself as a ‘victim’, and have others accept this, you disarm and neutralize criticism, not only of what you are, but of what you are currently doing – because the latter can be presented as a just ‘compensation’ for what you have suffered. As with guilt, there is no built-in quota or statute of limitations. This rhetoric was not as common thirty or forty years ago.There is an added factor here in America and the New World generally where, according to a whispered criticism, as our ancestors crossed the ocean, they experienced a ‘drop in civilization’. Life here was initially without some of the structures and institutions which had evolved over thousands of years in the Old World, which could thus be presumed there but here were absent. As we won with difficulty our independence, we unconsciously repudiated much of the ‘higher culture’ of the colonial master, throwing out the baby with the bathwater. As the ‘economic bubble’ of having won the Second World War has gradually dissipated, we discover we are handicapped by an absence of the forms of maturation and self-realization that arise in and are necessary for dealing with prolonged peace. In our ‘ideology of liberty’, our adults become essentially grown children, unschooled in anything higher, and thus have particular difficulty assuming the responsibilities of parenthood. They are forced to fall back upon a military style of giving orders, because on this side of the water, ‘final causes’ in the form of commonly admired or agreed on goals for striving are not in place. In this sense there is an absence of the ‘adequate father’. Further, as ‘American Culture’ expands through publicity and the media, we spread the same disease.There is another relevant factor, the ‘celebrity-liberationist’ lifestyle that has been diffused into the general population since the 1960's and has become a default secular ethic of our time, replacing the traditional Judeo-Christian decalogue. The former is invoked as a justification for aggressively seeking fame and fortune, and making no attempt to conceal this; rather than worrying that such an attitude will cause offense, it is worn proudly and defiantly in the hope that others will identify with it, thereby branding the performer a cultural hero. This popular strategy towards fulfilment itself rests on a metaphysic of ‘expressive individualism’, a position that holds that the supreme ethical imperative to which other obligations must be subordinated is for each to bring forward their hidden noumenal core, the only source of value, into phenomenal appearances where it may be admired and benefit others and such that creation will for the first time be complete. This change in Western culture made possible by greater affluence and security represents a trickle-down phenomenon and democritization of the awe reserved for the artist revered as a genius during the nineteenth century, now spread to the entire population. Anything that constrains this expansion, which interrupts or limits this transfer, is to be rejected as parental abuse, psychological repression, or cultural imperialism. (shrink)

The contemporary proliferation of “filter bubbles” and “echo chambers” seems to render obsolete the notion of a public sphere in the singular. In my article, I would like to argue against this view: Following Jürgen Habermas, “the public sphere” can be understood as the concomitant horizon of communicative action, while the latter permeates society as a whole. On the basis of this socio-philosophical approach, the omnipresent tendencies toward fragmentation appear as reactive attempts to ward off this socially established and (...) context-transcending context of discussion. Habermas himself, however, has never adopted this perspective. Instead, he interprets the various symptoms of the decline of the public sphere—including its fragmentation—as the result of a “colonization of the lifeworld” by economic, bureaucratic, and technological system logics. However, on the basis of the concept of “systematically distorted communication,” which was still crucial for Habermas’s early work, it is possible to reconstruct how the lifeworld context of communicative action, out of which the public sphere emerges, is not only corroded and cut through from the outside by system logics but also exhibits its own dialectic of the refusal of discourse and the overcoming of this refusal. The fragmentation of the public sphere that we are confronted with today can be theoretically interpreted and politically addressed as a precarious standstill of this dialectic. (shrink)

Starting from the analysis of Marx’s Chapter 26 of the first volume of Capital, this article describes Marxian emphasis on the extremely violent aspects—a list of the main cases is also provided—of the so-called “enclosures” as fundamental procedures that favored the “primitive accumulation”, that is, the first social and economic step that led to capitalism. The “enclosures” that characterized the primitive accumulation process, violently expropriating peasants, razing their cottages and dwellings, are illustrated in detail. At the same time, we (...) will describe what we call the “moral bubble”, created by the narratives—morally edifying—about enclosures, only devoted to the emphasis on the positive economic and social outcomes: the moral bubble acts as a powerful conceptual device capable of concealing the violence that accompanies enclosures. The second part of the article stresses the fact that the mechanism of enclosures can be traced back not only to violently expropriating common lands in which the peasants flourished but also to the violent processes against women to have them basically reduced to machines for the production of new workers, in the framework of the new “patriarchy of the wage”. The importance of the so-called “new enclosures” is further delineated after having shown how enclosures express the historical and general tendency of capitalistic accumulation and not only of the primitive one. The violent aspects of primitive accumulation, and so of primitive enclosures, are described as the main characters of every phase of the recent capitalist globalization, marked by continuous and unprecedented assault on the commons, perpetrated by the World Bank, the International Monetary Fund, coronavirus lockdown and, currently, also by the paradoxical economic effects of the interplay between the green era and Ukraine war–global food and energy crisis. Finally, the last section provides insight on what we called the “terminal enclosure” related to the aggression of the ultimate common good: water. (shrink)

Since the collapse of Japan's bubble economy in the early 1990' s, the Japanese economy has only recovered slightly. This has direct implications for employment. Both the seniority wage system and the lifetime employment system, which were popular during the period of economic growth in Japan, unavoidably changed to an outcome-wage system. Now there is greater mobility in employment, increased use of nonregular employees, and diversed working patterns. The problem of karoshi – a potentially fatal syndrome resulting from long (...) work hours – has been known since the early 1980s. This problem has become more serious in recent years. The purpose of this article is to provide an overview of the economic and employment conditions in Japan, as well as to examine the working lifestyle of Japanese men and its connection to "karoshi." It is argued that the long work hours are not the preference of individuals, but rather the result of the adaptation to the work environment, and; solving this problem requires re-conceptualization of workers' human rights on the part of both companies and the society as a whole. (shrink)