There is not, of course, a one-to-one relation between policy conclusions and the conclusions of positive economics; if there were, there would be no ...

In this paper, we examine the problems facing a policy maker who observes inconsistent choices made by agents who are boundedly rational. We contrast a model-less and a model-based approach to welfare economics. We make the case for the model-based approach and examine its advantages as well as some problematic issues associated with it.

Introduction : ethical economics? -- The sovereign consumer -- Two myths about economic growth -- The politics of pay -- Happiness -- Pricing life and nature -- New worlds of money : public services and beyond -- Conclusion.

Is economics a science? Deidre McCloskey says 'Yes, but'. Yes, economics measures and predicts, but - like other sciences - it uses literary methods too. Economists use stories as geologists do, and metaphors as physicists do. The result is that the sciences, economics among them, must be read as 'rhetoric', in the sense of writing with intent. McCloskey's books, The Rhetoric of Economics and If You're So Smart, have been widely discussed. In Knowledge and Persuasion in Economics he converses with (...) his critics, suggesting that they too can gain from knowing their rhetoric. The humanistic and mathematical approaches to economics, says McCloskey, fit together in a new 'interpretive' economics. Along the way he places economics within the sciences, examines the role of mathematics in the field, replies to critics from the left, right and centre, and shows how economics can again take a leading place in the conversation of humankind. (shrink)

Introduction -- Unintended consequences -- The origin of money -- Segregation -- The invisible hand -- The origin of money reconsidered -- Models and representation -- Game theory and conventions -- Conclusion.

Given the growing prominence of nudge economics both within and beyond the academy, it is a timely moment to reassess the philosophical and political arguments that sit at its core, and in particular what Richard Thaler and Cass Sunstein call libertarian paternalism. The first half of this paper provides a detailed account of the main features of this form of paternalism, before moving, in the second half, to a critical evaluation of the nudge agenda that questions, among other things, the (...) gendered basis of paternalistic governance; the idea of ‘nudging for good’; and the political values that underpin nudge. The final section of this paper builds on the existing work of John McMahon by asking whether libertarian paternalism should be understood as a new, hybrid form of neoliberalism, or, rather, as a post-neoliberal form of governance that has emerged out of, and flourished in, the post-crisis situation. (shrink)

Economics has become a monolithic science, variously described as formalistic and autistic with neoclassical orthodoxy reigning supreme. So argue Dimitris Milonakis and Ben Fine in this new major work of critical recollection. The authors show how economics was once rich, diverse, multidimensional and pluralistic, and unravel the processes that lead to orthodoxy’s current predicament. The book details how political economy became economics through the desocialisation and the dehistoricisation of the dismal science, accompanied by the separation of economics from the other (...) social sciences, especially economic history and sociology. It is argued that recent attempts from within economics to address the social and the historical have failed to acknowledge long standing debates amongst economists, historians and other social scientists. This has resulted in an impoverished historical and social content within mainstream economics. The book ranges over the shifting role of the historical and the social in economic theory, the shifting boundaries between the economic and the non-economic, all within a methodological context. Schools of thought and individuals, that have been neglected or marginalised, are treated in full, including classical political economy and Marx, the German and British historical schools, American institutionalism, Weber and Schumpeter and their programme of Socialökonomik, and the Austrian school. At the same time, developments within the mainstream tradition from marginalism through Marshall and Keynes to general equilibrium theory are also scrutinised, and the clashes between the various camps from the famous Methodenstreit to the fierce debates of the 1930s and beyond brought to the fore. The prime rationale underpinning this account drawn from the past is to put the case for political economy back on the agenda. This is done by treating economics as a social science once again, rather than as a positive science, as has been the inclination since the time of Jevons and Walras. It involves transcending the boundaries of the social sciences, but in a particular way that is in exactly the opposite direction now being taken by "economics imperialism". Drawing on the rich traditions of the past, the reintroduction and full incorporation of the social and the historical into the main corpus of political economy will be possible in the future. (shrink)

An accessible analysis of the global expansion of financial markets in poor communities, incorporating the latest thinking and evidence.

This book is an examination of the nature of economic explanation. The opening chapters introduce current thinking in the philosophy of science and review the literature on methodology. Professor Blaug then turns to the troublesome question of the logical status of welfare economics, giving the reader an understanding of the outstanding issues in the methodology of economics. This is followed by a series of case studies of leading economic controversies, which shows how controversies in economics may be illuminated by paying (...) attention to questions of methodology. A final chapter draws the strands together and gives the author's view of what is wrong with modern economics. This book is a revised and updated edition of a classic work on the methodology of economics, in which Professor Blaug develops his discussion of the latest developments in macroeconomics, general equilibrium theory and international trade theory. A new section on the rationality postulate is also added. (shrink)

The phenomenon of performativity has recently sparked debates about the status of the economic discourse. This paper aims to discuss the subjectivist idea that if economics ‘performs’ social reality, rather than merely reflects it, then every theory can be considered ‘true.’ My main goal is to point out three limits of performativity. First, not all theories can be performative since some do not produce empirical landmarks for agents. Second, social institutions restrict performativity. Third, I emphasize the necessity that a theory (...) to be self-fulfilling. This article is a prelude to a new kind of performative studies based on an original definition: a theory performs the world if it implies a behavioral regularity which leads to a general coordination between agents. That is to say, if it becomes a convention à la David Lewis. (shrink)

Should we insist on prediction, i.e. on correctly forecasting the future? Or can we rest content with accommodation, i.e. empirical success only with respect to the past? I apply general considerations about this issue to the case of economics. In particular, I examine various ways in which mere accommodation can be sufficient, in order to see whether those ways apply to economics. Two conclusions result. First, an entanglement thesis: the need for prediction is entangled with the methodological role of orthodox (...) economic theory. Second, a conditional predictivism: if we are not committed to orthodox economic theory, then we should demand prediction rather than accommodation – against most current practice. (shrink)

Monetary intelligence theory asserts that individuals apply their money attitude to frame critical concerns in the context and strategically select certain options to achieve financial goals and ultimate happiness. This study explores the dark side of monetary Intelligence and behavioral economics—dishonesty. Dishonesty, a risky prospect, involves cost–benefit analysis of self-interest. We frame good or bad barrels in the environmental context as a proxy of high or low probability of getting caught for dishonesty, respectively. We theorize: The magnitude and intensity of (...) the relationship between love of money and dishonest prospect may reveal how individuals frame dishonesty in the context of two levels of subjective norm—perceived corporate ethical values at the micro-level and Corruption Perceptions Index at the macro-level, collected from multiple sources. Based on 6382 managers in 31 geopolitical entities across six continents, our cross-level three-way interaction effect illustrates: As expected, managers in good barrels, mixed barrels, and bad barrels display low, medium, and high magnitude of dishonesty, respectively. With high CEV, the intensity is the same across cultures. With low CEV, the intensity of dishonesty is the highest in high CPI entities —the Enron Effect, but the lowest in low CPI entities. CPI has a strong impact on the magnitude of dishonesty, whereas CEV has a strong impact on the intensity of dishonesty. We demonstrate dishonesty in light of monetary values and two frames of social norm, revealing critical implications to the field of behavioral economics and business ethics. (shrink)

What is the correct concept behind measures of inflation? Does money cause business activity or is it the other way around? Shall we stimulate growth by raising aggregate demand or rather by lowering taxes and thereby providing incentives to produce? Policy-relevant questions such as these are of immediate and obvious importance to the welfare of societies. The standard approach in dealing with them is to build a model, based on economic theory, answer the question for the model world and then (...) apply the results to economic phenomena outside. Data come in, if at all, only in testing a limited number of the model's consequences. Despite some critical voices, economic methodology too has by and large subscribed to a "theory first" approach to applied economics. Error in Economics systematically develops an alternative to the theory-based orthodoxy. It places the methodical study of evidence at the centre of the scientific enterprise and thus provides a foundation for a methodology of evidence-based economics. But the book does not stop at the truism that claims should be based on the best available evidence. Rather, detailed studies in the areas of measurement, causal inference and policy analysis show what it means for a claim to be evidence-based in the context of a concrete case. The examples discussed concern topics as diverse as consumer price indices, radio spectrum auctions, the transmission mechanism, natural experiments on minimum wages and the evaluation of counterfactuals for policy. Error in Economics is essential reading for economic methodologists, philosophers of science and anyone interested in how claims about socio-economic matters are validated. (shrink)

From a pre-publication review by the late Austrian economist, Don Lavoie, of George Mason University: -/- "The book's radical re-interpretation of property and contract is, I think, among the most powerful critiques of mainstream economics ever developed. It undermines the neoclassical way of thinking about property by articulating a theory of inalienable rights, and constructs out of this perspective a "labor theory of property" which is as different from Marx's labor theory of value as it is from neoclassicism. It traces (...) roots of such ideas in some fascinating and largely forgotten strands of the history of economics. It draws attention to the question of "responsibility" which neoclassicism has utterly lost sight of. It is startlingly fresh in its overall approach, and unusually well written in its presentation. ... It constitutes a better case for its economic democracy viewpoint than anything else in the literature." . (shrink)

This article focuses on an area of study that may be called folk economics and that is currently not on the social science agenda. Folk economics has as its task to analyze and explain how people view the economy and how it works; what categories they use in doing so; and what effect this has on the economy and society. Existing studies in economics and sociology that are relevant to this type of study are presented and discussed. A theoretical framework (...) for analyzing folk economic issues is suggested, centered on the distinction between episteme and doxa or between scientific knowledge, on the one hand, and everyday knowledge, on the other. This is then applied to an exploratory case study of the role that folk economics played in Trump’s presidential campaign. It is shown that Trump and his voters thought in a parallel way on key economic issues, especially protectionism. (shrink)

This was the first cross-over book into the history of science written by an historian of economics. It shows how 'history of technology' can be integrated with the history of economic ideas. The analysis combines Cold War history with the history of postwar economics in America and later elsewhere, revealing that the Pax Americana had much to do with abstruse and formal doctrines such as linear programming and game theory. It links the literature on 'cyborg' to economics, an element missing (...) in literature to date. The treatment further calls into question the idea that economics has been immune to postmodern currents, arguing that neoclassical economics has participated in the deconstruction of the integral 'self'. Finally, it argues for an alliance of computational and institutional themes, and challenges the widespread impression that there is nothing else besides American neoclassical economic theory left standing after the demise of Marxism. (shrink)

Revolutionary developments in economics are rare. The conservative bias of the field and its enshrined knowledge make it difficult to introduce new ideas not in line with received theory. Happiness research, however, has the potential to change economics substantially in the future. Its findings, which are gradually being taken into account in standard economics, can be considered revolutionary in three respects: the measurement of experienced utility using psychologists' tools for measuring subjective well-being; new insights into how human beings value goods (...) and services and social conditions that include consideration of such non-material values as autonomy and social relations; and policy consequences of these new insights that suggest different ways for government to affect individual well-being. In Happiness, emphasizing empirical evidence rather than theoretical conjectures, Bruno Frey substantiates these three revolutionary claims for happiness research. After tracing the major developments of happiness research in economics and demonstrating that we have gained important new insights into how income, unemployment, inflation, and income demonstration affect well-being, Frey examines such wide-ranging topics as democracy and federalism, self-employment and volunteer work, marriage, terrorism, and watching television from the new perspective of happiness research. Turning to policy implications, Frey describes how government can provide the conditions for people to achieve well-being, arguing that a crucial role is played by adequate political institutions and decentralized decision making. Happiness demonstrates the achievements of the economic happiness revolution and points the way to future research.Bruno S. Frey is Professor of Economics at the University of Zurich, Visiting Professor at the Swiss Federal Institute of Technology, and Research Director of CREMA. He is co-editor of Economics and Psychology: A Promising New Cross-Disciplinary Field. (shrink)

Geographical economics (also known as the ‘new economic geography’) is an approach developed within economics dealing with space and geography, issues previously neglected by the mainstream of the discipline. Some practitioners in neighbouring fields traditionally concerned with spatial issues (descriptively) characterized it as—and (normatively) blamed it for—intellectual imperialism. We provide a nuanced analysis of the alleged imperialism of geographical economics and investigate whether the form of imperialism it allegedly instantiates is to be resisted and on what grounds. From both descriptive (...) and normative perspectives, our conclusion is: yes and no. (shrink)

More Heat Than Light is a history of how physics has drawn some inspiration from economics and also how economics has sought to emulate physics, especially with regard to the theory of value. It traces the development of the energy concept in Western physics and its subsequent effect upon the invention and promulgation of neoclassical economics. Any discussion of the standing of economics as a science must include the historical symbiosis between the two disciplines. Starting with the philosopher Emile Meyerson's (...) discussion of the relationship between notions of invariance and causality in the history of science, the book surveys the history of conservation principles in the Western discussion of motion. Recourse to the metaphors of the economy are frequent in physics, and the concepts of value, motion, and body reinforced each other throughout the development of both disciplines, especially with regard to practices of mathematical formalisation. However, in economics subsequent misuse of conservation principles led to serious blunders in the mathematical formalisation of economic theory. The book attempts to provide the reader with sufficient background in the history of physics in order to appreciate its theses. The discussion is technically detailed and complex, and familiarity with calculus is required. (shrink)

This paper takes a phenomenological perspective regarding the difficulties encountered in daily life by man in prehistory. I argue that the economics of beingnecessarily establishes man as a being that must make choices. Of these, man must eventually arrive at the realization that higher, rather than lower choices will safeguard human survival, well being and allow for prosperity. The economics of being is a form of identifying economic choice-making as a natural disposition of man’s. It is the latter condition that (...) makes man act in the world. However, even though man must act, action cannot be blind. Instead, human action is motivated and guided by man’s sense of interiority. That is, man’s existential capacity for self-reflection is also what can deliver us to autonomous rule. This form of reflective choice-making is a creative act. The paper attempts to trace this aspect of the human condition back to prehistory, in order to demonstrate that societies, institutions, invention, technology, artistic creation and economic responsibility come about as the result of human industriousness. None of the aforementioned are creations of modern man. (shrink)

In "Behavioral Law and Economics: The Assault on Consent, Will, and Dignity," Mark D. White uses the moral philosophy of Immanuel Kant to examine the intersection of economics, psychology, and law known as "behavioral law and economics." Scholars in this relatively new field claim that, because of various cognitive biases and failures, people often make choices that are not in their own interests. The policy implications of this are that public and private organizations, such as the state and employers, can (...) and should design the presentation of options and default choices in order to "steer" people to the decision they would make, were they able to make choices in the absence of their cognitive biases and failures. Such policies are promoted under the name "libertarian paternalism," because choice is not blocked or co-opted, but simply "nudged." White argues that such manipulation of choice is impossible to conduct in people's true interests, and any other goal pursed by policymakers substitutes their own ends, however benevolent they may be, for people's true ends. Normatively, such manipulation should not be conducted because it fails to respect the dignity and autonomy of persons, what some hold to be the central idea in Kant's ethical system, and which serves to protect the individual from coercion, however subtle, from other persons or the state. (shrink)

This paper challenges Mäki's argument about commonsensibles by offering a case study from contemporary microeconomics – contemporary revealed preference theory (hereafter CRPT) – where terms like "preference," "utility," and to some extent "choice," are radical departures from the common sense meanings of these terms. Although the argument challenges the claim that economics is inhabited solely by commonsensibles, it is not inconsistent with such folk notions being common in economic theory.

Monetary Intelligence theory asserts that individuals apply their money attitude to frame critical concerns in the context and strategically select certain options to achieve financial goals and ultimate happiness. This study explores the bright side of Monetary Intelligence and behavioral economics, frames money attitude in the context of pay and life satisfaction, and controls money at the macro-level and micro-level. We theorize: Managers with low love of money motive but high stewardship behavior will have high subjective well-being: pay satisfaction and (...) quality of life. Data collected from 6586 managers in 32 cultures across six continents support our theory. Interestingly, GDP per capita is related to life satisfaction, but not to pay satisfaction. Individual income is related to both life and pay satisfaction. Neither GDP nor income is related to Happiness. Our theoretical model across three GDP groups offers new discoveries: In high GDP entities, “high income” not only reduces aspirations—“Rich, Motivator, and Power,” but also promotes stewardship behavior—“Budget, Give/Donate, and Contribute” and appreciation of “Achievement.” After controlling income, we demonstrate the bright side of Monetary Intelligence: Low love of money motive but high stewardship behavior define Monetary Intelligence. “Good apples enjoy good quality of life in good barrels.” This notion adds another explanation to managers’ low magnitude of dishonesty in entities with high Corruption Perceptions Index. In low GDP entities, high income is related to poor Budgeting skills and escalated Happiness. These managers experience equal satisfaction with pay and life. We add a new vocabulary to the conversation of monetary intelligence, income, GDP, happiness, subjective well-being, good and bad apples and barrels, corruption, and behavioral ethics. (shrink)

This editorial provides a review of the current ways in which health economics is impacting on policy and reviews some of the key ethical and value-judgmental issues that commonly arise in and as a result of the work of economists. It also briefly highlights the contributions of the authors of this special issue of the journal, all of which illustrate how economists have approached ethical issues in health service policy , and some of which explore the major methodological matters that (...) arise and go on to discuss their potential as sources of conflict or harmony with other approaches to the same questions. (shrink)

In this article, we philosophically reflect on the nature of corporate governance. We raise the question whether control is still a feasible ideal of corporate governance and reflect on the implications of the epistemic insufficiency of economic institutions with regard to grand challenges like of global warming for our conceptualization of corporate governance. We first introduce the concept of corporate governance from the perspective of economics and politics. We then trace the genealogy of the concept of governance based on a (...) selective reading of Giorgio Agamben’s work, who has pointed at two interdependent paradigms of governance in the Christian tradition, and apply his categories in the context of corporate governance. We finally engage in a critical reflection on the concept of corporate governance and develop four characteristics of corporate governance that can guide future conceptual as well as empirical research in the field of corporate social responsibility of economic institutions. (shrink)

Revolutionary developments in economics are rare. The conservative bias of the field and its enshrined knowledge make it difficult to introduce new ideas not in line with received theory. Happiness research, however, has the potential to change economics substantially in the future. Its findings, which are gradually being taken into account in standard economics, can be considered revolutionary in three respects: the measurement of experienced utility using psychologists' tools for measuring subjective well-being; new insights into how human beings value goods (...) and services and social conditions that include consideration of such non-material values as autonomy and social relations; and policy consequences of these new insights that suggest different ways for government to affect individual well-being. In Happiness, emphasizing empirical evidence rather than theoretical conjectures, Bruno Frey substantiates these three revolutionary claims for happiness research. After tracing the major developments of happiness research in economics and demonstrating that we have gained important new insights into how income, unemployment, inflation, and income demonstration affect well-being, Frey examines such wide-ranging topics as democracy and federalism, self-employment and volunteer work, marriage, terrorism, and watching television from the new perspective of happiness research. Turning to policy implications, Frey describes how government can provide the conditions for people to achieve well-being, arguing that a crucial role is played by adequate political institutions and decentralized decision making. Happiness demonstrates the achievements of the economic happiness revolution and points the way to future research.Bruno S. Frey is Professor of Economics at the University of Zurich, Visiting Professor at the Swiss Federal Institute of Technology, and Research Director of CREMA. He is co-editor of Economics and Psychology: A Promising New Cross-Disciplinary Field. (shrink)

Postmodernism and health economics are both concerned with questions about choices and values, risk and uncertainty. Postmodernists seek to respond to such questions in the context of a world of uncoordinated and often contradictory chances, a world devoid of clear-cut standards. Health economics seeks to respond using the constructs of modernity, including the application of reason to generate better order. In this article we present two sorts of voice. First we introduce postmodernism and those seeking to contribute to economics from (...) a postmodern perspective. Second, we consider critics of a prevalent neo-classicism within health economics both from outside that paradigm and from those more closely associated with it. It is increasingly evident that (health) economics, as presently constituted, is failing both in its descriptive powers and its prescriptive possibilities. Postmodernism offers not just an alternative theoretical approach but the possibility of both expanding the scope of health economics and grounding it more appropriately in the everyday experience of those engaging with health systems. (shrink)

The origins of testing scientific models with statistical techniques go back to 18th century mathematics. However, the modern theory of statistical testing was primarily developed through the work of Sir R.A. Fisher, Jerzy Neyman, and Egon Pearson in the inter-war period. Some of Fisher's papers on testing were published in economics journals (Fisher, 1923, 1935) and exerted a notable influence on the discipline. The development of econometrics and the rise of quantitative economic models in the mid-20th century made statistical significance (...) testing a commonplace, albeit controversial tool within economics. -/- In the debate about significance testing, methodological controversies intertwine with epistemological issues and sociological developments. Our aim in this chapter is to expound these connections and to show how the use of, and the debate about, significance testing in economics differs from other social sciences, such as psychology. (shrink)

Approximately one in six top economic research papers draws an explicitly causal conclusion. But what do economists mean when they conclude that A 'causes' B? Does 'cause' say that we can influence B by intervening on A, or is it only a label for the correlation of variables? Do quantitative analyses of observational data followed by such causal inferences constitute sufficient grounds for guiding economic policymaking? The Philosophy of Causality in Economics addresses these questions by analyzing the meaning of causal (...) claims made by economists and the philosophical presuppositions underlying the research methods used. The book considers five key causal approaches: the regularity approach, probabilistic theories, counterfactual theories, mechanisms, and interventions and manipulability. Each chapter opens with a summary of literature on the relevant approach and discusses its reception amongst economists. The text details case studies, and goes on to examine papers which have adopted the approach in order to highlight the methods of causal inference used in contemporary economics. It analyses the meaning of the causal claim put forward, and finally reconstructs the philosophical presuppositions accepted implicitly by economists. The strengths and limitations of each method of causal inference are also considered in the context of using the results as evidence for policymaking. This book is essential reading to those interested in literature on the philosophy of economics, as well as the philosophy of causality and economic methodology in general. (shrink)

Mounting evidence suggests that the human impact on the planet is reaching the point where the Earth's ecosystems will not be able to support the level of human occupation. The global economy also seems to be generating income disparities that threaten the social stability of even the most developed economies. Although both these trends are rooted in the operation of the global market economy, standard economics has surprisingly little to offer in the way of policies that might allow us to (...) survive the twenty-first century with our current social and environmental systems intact. This article examines our current predicament from the point of view of neoclassical welfare economics and the alternative framework of ecological economics. We argue that ecological economics, by placing the study of economics squarely within human society and ecosystems, can lead the way to make economics both scientifically credible and policy relevant. (shrink)

Behavioural economics has taught us that human agents don't always display consistent, context-independent and stable preferences in their choice behaviour. Can we nevertheless do welfare economics...