Economic theory

What Kind of Ethics in What Kind of Economics?

ScalesGuest post by Yannis Papadopoulos

The re-establishment of ethics in economics—and more precisely in economic theory—is now more than eminent. It is promoted and supported by numerous philosophically intrigued economists. The claim has shifted from Wertfreiheit to teaching economics’ students the importance of moral philosophy in the development of economic theory, and how virtues and moral values do not limit the objective perception of economists by dragging them down a road of vague cogitation, but offer a more concrete understanding of human action. “What to do, then, for economics? Answer: raise ethical men and women, some of whom become economists. We are not doing so now in the education of economists.”* Yet this procedure, even though presented and understood as a leap forward and an escape from the strict mathematical and narrow-minded neoclassical economics method, could still be inadequate and one-dimensional. The question is what kind of ethics are students being taught?

There is not just one ethical theory. As economic theories have their differences, so do ethical theories. Utilitarian and outcome-based ethics are embedded in economic theory and have played a crucial role in the formation of neoclassical economics. If utilitarianism and consequentialism are the only ethical theories that should play a role in economic theory, then we should rest assured that ethics never left and therefore there is no need for their re-establishment in economic theory. Thus, the argument is not to re-establish ethics in economics, since ethical values never left the discussion. The argument is to introduce other ethical theories in economics, which have not participated so far. Utilitarianism and outcome-based ethics can be found not only in neoclassical economics, but in some branches of heterodox economics as well. Kantian and rule-based ethics, however, have been limited to discussions concerning trade and transnational agreements and some policy making processes. Virtue ethics are nowhere to be found.

Students are not in need of introductory lectures that praise the importance of ethics in economics and present ethics only form the utilitarian point of view. Students can easily apprehend the utilitarian logic behind works of great classical and neoclassical economists without being taught the importance of utilitarian ethics. Economics’ students should be given the opportunity to connect economics with a variety of ethical theories. That could lead to a generation of open-minded and ethically-integrated economists and humans in general. By pretending to reexamine economics through ethics, yet being interested only in the utilitarian perspective of ethical values, the course is definite and parallel if not the same as the one economics have followed so far.

* Deirdre McCloskey, "Conclusion: Raising Up Private Max U," in Wilfred Dolfsma and Ioana Negru (eds), The Ethical Formation of Economists (London: Routledge, 2018), pp. 164-183, at p. 177. (Preprint here.)


Yannis Papadopoulos was born in Athens in 1993 and studied European and International Relations at Panteion University in Athens. He received his Master’s degree in Political Economy from King’s College London. At the moment, he is in the final year of his doctoral thesis entitled “The Ethics of Efficiency and the Efficiency of Ethics” at Panteion University, for which he has received a scholarship from the Hellenic Foundation for Research and Innovation (H.F.R.I).

Email: ioannisjohnpapadopoulos@gmail.com


Ricardo Crespo on teaching the philosophy behind economics to economists (at Journal of Philosophical Economics)

J of phil econBy Mark D. White

In the latest issue of the Journal of Philosophical Economics (14/1-2, Spring-Autumn 2021), Ricardo Crespo (IAE) shares his reflections on "Teaching the Philosophical Grounding of Economics to Economists: A 10 Years' Experience." He describes his rationale below:

Looking at the possibilities of the new currents mentioned above – behavioural economics, neuroeconomics, evolutionary economics, happiness economics, civil economy, and the capability approach – proves highly attractive for students. This is an effective way to introduce philosophy because it is easy to understand that these plural economic approaches are supported by philosophical underpinnings, different epistemological perspectives, and views on human nature and the social world. However, a deep analysis of these new fields (which I undertook in my 2017 book) reveals that not all of them ‘escape’ from the narrow outlook that characterizes current economics. As John Davis points out (2008, p. 365),

economics, as other sciences, has regularly imported other science contents in the past, and having subsequently “domesticated” them, remade itself still as economics. In the current situation, for example, behavioral economics – a research program in economics, not in psychology – employs imports from psychology but frames them in terms of economic concerns.

Exploring the attitudes of economics towards these new possibilities – open or ‘colonialist’ – helps to differentiate them and to discover their philosophical roots. Thus, this analysis shows the influence of underlying philosophical notions on economic theories. (pp. 219-220)


Call for papers: "Prizes and Virtues: An Interdisciplinary Workshop" (Rome, April 10-11, 2017)

“PRIZES AND VIRTUES: AN INTERDISCIPLINARY WORKSHOP”
LUMSA University, Rome – April 10-11, 2017

To an economist, a prize, such as a golden medal, is merely a special type of incentive. Any other kind of social scientist would be perplexed by thinking of the Nobel Prize, or of the Medal of Honour, in these terms. In contemporary neoclassical economics, the concept of incentive is a primitive, similar to that of “utility”, “price”, “production” or “consumption”, that all economists use but none feels the need to define: it is a foundation, or a corner stone, of the science of economics. However, if we tried to articulate what economists mean by incentives, we would probably find that they are considered as any “motivation” for adhering to and for complying with some form of contract. Once incentives are intended in this all-embracing way, it immediately follows that prizes and awards are considered simply as their sub-set. Yet many real world prizes and awards do not follow this contractarian, consequentialist logic and cannot be understood within this framework. A more complex understanding of human motivation–we believeis needed to hold that prizes are indeed not incentives.

This search cannot ignore the history of economic and philosophical ideals. Competing theories of action and motivation were central topics of debate among eighteenth century philosophers. David Hume, Jean-Jacques Rousseau, and Adam Smith’s theories implied much more complex social and economic motivations than mere self-interest, which can be opportunely diverted through an appropriate incentive. Within the Italian school of civil economy, Pietro Verri and Antonio Genovesi elaborated on the unintended consequences of public and institutional actions on individuals’ behaviour. In the same line, Giacinto Dragonetti debated (at a distance) with Cesare Beccaria on the nature and effectiveness of punishments and awards in shaping agents’ choices, both in private and public contexts. From the mid XIX century onward, economists became those social scientists most characterized by the purest anthropology (i.e. that of a human being acting in order to maximize individual utili!
 ty), endorsing utilitarian philosophy and sacrificing previously complex understanding of human actions. In the XX century, microeconomics has continued this process of anthropological reductionism: management theory, as well as agency and contract theory, have distilled the all-embracing theory of incentives.

In the last three decades, behavioural and experimental economics are undermining from within this reductionist model of human behaviour. By taking serious account of concepts such as reciprocity, intrinsic motivation, inequality aversion, and fairness, they are making more complex interpretations of human action and motivation central again, albeit still within the utilitarian framework. In addition, there is an important contemporary philosophical stream of inquiry, the so-called virtue ethics, which competes with utilitarianism yet remains almost unknown to the economic profession. We argue that this research may provide further insights into human action, which seem otherwise intractable within the current anthropological framework, and can cast a new light on the nature and working of prizes as fundamentally different from incentives. In particular, prizes may well suit the rewarding of virtues, because incentive are known to be liable to cause motivation crowding-out.

To advance our understanding of the economics of prizes, awards and their link with virtues,we warmly invite economists, historians, philosophers, scholars in organization and management and other social scientists to answer to this call and submit an extended abstract (max 1000 words).

Keynote speakers:
– Robert Dur, Erasmus University Rotterdam (Economics)
– Bruno Frey, University of Basel (Behavioural Science)
– Ruth Grant, Duke University (Political Science)

“Pier Luigi Porta” Award:
Heirs will honour the memory of the past Heirs’ President Professor Pier Luigi Porta by a special award to the best paper presented at this conference, a stream of research strongly supported by him before dying. Heirs invites all under fourty scholars to apply for this special “Pier Luigi Porta Award”. The award consist in 2500 euro plus travel cost and accomodation for the conference. The prize will be assigned during the social dinner.

Deadline for submissions of extended abstracts (max 1000 words):
February 15th, 2017 (acceptance date: February 25th, 2017)
to: heirs.unimib@gmail.com

Organization committee: HEIRS & LUMSA University
Luigino Bruni (LUMSA), Vittorio Pelligra (U. Cagliari), Tommaso Reggiani (LUMSA),     Matteo Rizzolli (LUMSA), Alessandra Smerilli (LUMSA).

Contacts:
heirs.unimib@gmail.com


Dan Hausman on the limits of economics (in The New York Times)

Mark D. White

HausmanIn today's installment of The Stone in The New York Times, Gary Gutting interviewed philosopher of economics Daniel Hausman about the role of economics in public policy and the media. Hausman usefully points out the limitations of economics in predicting the outcome of real-life crises (such as the current Greek crisis):

Speaking of the predictive power can be misleading. Scientists (and I include economists) are not fortunetellers. Their theories only allow them to predict what will happen if initial conditions are satisfied. Elementary physics enables us to predict how long it will take an object to fall to the ground, provided that gravity is the only force acting on the object. Predicting how long it will take a leaf falling from a tree to reach the ground or where it will land is a much harder problem.

The problems that we want economists to help us solve are more like predicting how leaves will fall on a windy day than predicting how objects will fall in a vacuum. Economic phenomena are affected by a very large number of causal factors of many different kinds. The Greek economic crisis is extraordinarily complex, and it has as many political causes as economic ones. Standard economic theory provides useful tools, but it focuses on a very limited range of causal factors — mainly the choices of millions of consumers, investors and firms — which it simplifies and assumes to be governed entirely by self-interested pursuit of goods or financial gain. When one recognizes all the other factors that affect economic outcomes, from government policies to the whims of nature, it is easy to see that economists cannot predict the economic future with any precision.

When Gutting asks what help economists can provide in debates over public policy, Hausman's answer places economics much closer to philosophy than physics: "They tell us which are the right questions to ask... Knowing what to ask is enlightening even when it is hard to find the answers." In other words, economics provides focus to help policymakers choose the means that will best further their ends, wherein both means and ends are ethically loaded concepts as well as economic ones.

(Hausman also highlights the biases of economists as well as the journalists that write about them, and deftly resists Gutting's attempts at the end to goad him into going political or condemn some economic theories as having "no scientific support.")

Hausman ends by saying:

There are cognitive limits to what can be learned about such a complicated system as a modern market economy, and there are practical and political limits to our ability to make use of what can be learned. Within these limits, economics can be of use. I fear this is faint praise.

I don't think that's faint praise at all; rather, it reflects appropriate humility toward a realm of study that is often called upon to decide issues that are outside its purview. And it leaves tremendous room for economics to contribute to—but not determine—the choices of policymakers

As Hausman recognizes, economics can be of invaluable use to policymakers in terms of analyzing aspects of a problem that relate to prices, output, and simple measures of well-being, and it can often predict many significant outcomes of alternative policies to inform policymakers. But economics cannot dictate policy choices that are, by their nature, inherently moral or political choices as long as it refuses to acknowledge and either embrace or question its moral and political foundations.


Economics After the Crisis

Irene van Staveren

Irene bookA year after the fall of Lehman Brothers, The Economist's headline proclaimed the end of modern economics. What has happened since? Well... almost nothing.

Mainstream and near-mainstream economic textbooks still sell like before. And INET has supported some initiatives that eliminate the rough sides of neoclassical thought and neoliberal policy advice. Very laudable initiatives, with, for example, Wendy Carlin's work on developing a new undergraduate curriculum CORE. But students of economics are not satisfied with these minor changes, so many years after the start of the financial crisis. Their Rethink Economics petition demands more fundamental changes to textbooks.

As a supporter of every single petition, pamphlet, op-ed, and plea for pluralism in economics before and after the crisis, I decided three years ago that I should practice what I preach. The result is Economics after the Crisis, a pluralist introductory textbook published by Routledge in January 2015. It offers a tool to understand the basics of economics from four theoretical perspectives either for use in the classroom or for self-study alongside a standard course book. The theories are presented in every chapter, micro and macro. And from interdisciplinary and close to real-world experiences to mathematically in an idealized world of perfect markets and agents following the single ethical guide of utility maximization. The book presents social economics, institutional economics, post Keynesian economics, and neoclassical economics and thereby shows that almost no economic concept or tool is theory-neutral. If only this message gets across, the book will have accomplished already more than I could hope for.

The window of opportunity to reform economic teaching is almost shut. Banks pass stress tests in Europe and the US while still being too big to fail. Nobel Prizes are awarded to economists who show no effort at all in rethinking economics. And economic policies ignore the danger of continuously increasing private and public debt, while shifting the consequences of such myopia on disadvantaged groups and whole populations.

If it is not now, we may have to wait for the next crisis to change economic thinking and teaching. I truly hope that the combined efforts of critical economists, activist students, and courageous teachers will help to make the change. We cannot afford to standby any longer.


Jonathan Wight's 2014 Presidential Address to the Association for Social Economics

Mark D. White

WightBecause he's too bashful to tell you, I'll tell you that Jonathan Wight's 2014 Presidential Address for the Association for Social Economics, delivered at January's ASSA meetings, has just been published in the Review of Social Economy, and the link has been posted to the ASE blog.

The title is "Economics within a Pluralist Ethical Tradition":

Ethical pluralism is the recognition that multiple ethical frameworks operate in social settings to solve problems of moral hazard. In particular, non-consequentialist considerations of duty and virtue operate to restrain self-interest and lower transaction costs in exchange, such as when asymmetric information exists. Positive economics has tended to rely exclusively on a behavioral model that assumes utility maximization, but this approach fails to give credit to the neglected foundations of duty and virtue. Consequences, duties, and virtues all play a role in sustaining businesses, for example, and in promoting the search for truth within the economic research community. Normative welfare economics can also benefit from understanding vertical and horizontal pluralism.


Does economics need religion?

Mark D. White

Thanks to my globetrotting co-blogger Jonathan Wight, who emailed me about this: a symposium in Econ Journal Watch titled "Does Economics Need an Infusion of Religious or Quasi-Religious Formulations?", anchored by Robin Klay's article "Where Do Economists of Faith Hang Out? Their Journals and Associations, plus Luminaries Among Them" and featuring seventeen short responses from people such as Ross Emmett, Dan Finn, David George, Mary Hirschfeld, Eric Rasmusen, and Andrew Yuengert. Bless tham all.


Call for abstracts: Conference, "Economics and Psychology in Historical Perspective"

Mark D. White

Conference call for contributions

Economics and psychology in historical perspective

(from 18th century to the present)

Paris, December 17th - December 19th 2014

Organized by Mikaël Cozic (UPEC, IUF & IHPST, France) and Jean-Sébastien Lenfant (U. Lille 1, France)

 

IMPORTANT DATES:

Notification of interest: June 10th 2014

Deadline for abstract:  July 10th 2014

Notification of acceptance: August 31th 2014

Full paper: December 1st 2014

 

SCIENTIFIC COMMITTEE:

Erik Angner (George Mason university, USA), Richard Arena (Université de Nice Sophia-Antipolis), Laurie Bréban (Université Paris 8, France), Luigino Bruni (Università Lumsa a Roma, Italy), Annie L. Cot (Université Paris 1, France), Agnès Festré (Université de Picardie Jules Verne, France), Till Grüne Yanoff (Royal Institute of Technology, KTH, Sweden), Alessandro Innocenti (Università di Siena, Italy), Ivan Moscati (Insubria University, Italy), Annika Wallin (Lunds Universitet, Sweden).

CONFIRMED INVITED SPEAKERS:

Philippe MONGIN (CNRS & HEC Paris, France), Floris HEUKELOM (U. Nijmegen, Netherdlands), Robert SUGDEN (University of East Anglia, United Kingdom).

CALL FOR CONTRIBUTIONS

“Psychology is evidently at the basis of political economy and, in general, of all the social sciences. A day will come when we will be able to deduce the laws of the social science from the principles of psychology” (Pareto, Manual of Political Economy, 1909, II, §1)

Neoclassical economics was built upon a theory of rational behavior that pretended to be independent from psychological foundations. Actually, Pareto, who has been instrumental in laying the foundations of modern utility and rational choice theory, uphold that economics and psychology needed to develop separately and that the hopes for reconciling psychology, economics and sociology in the social sciences “still remain some way off”.

Over thirty years or so, an important part of economics has been oriented towards realizing Pareto’s prophecy that a day would come when economics and psychology would benefit from reconciling each others, opening the way for a better understanding of individual and collective behaviors. This reconciliation comes after a period of time during which economics has developed its tools and principles away from psychology (or so the standard narrative argues), on the mere assumption that rational behavior could be described satisfactorily with a well-behaved utility function. For many economists, the offspring of this collective effort is called “behavioral economics”, and it is sometimes viewed a new paradigm in economics, providing tools and principles that may be applied to different fields of economic inquiry (finance, development economics, game theory, etc.).

Basics of behavioral economics are now part of any curricula in economics. The advent of behavioral economics has often been associated with a story-telling argument about its early development in the 1970s and its establishment, focusing on three main points: 1) the legitimization of experimental methods in economics; 2) the usefulness of concepts and ideas borrowed from psychology to increase the explanatory or predictive power of the theory of rational behavior; 3) the advent of a renewed view of human behavior and hence of new ideas in normative economics.

Actually, Pareto’s opening quotation reminds us also that psychology (in different guises) has been a fundamental issue for economists even since 18th century, if only because economists have usually grounded their own theory of economics on some ideas about human nature, and especially on human desires and beliefs.

In recent years, historians of economic thought and theoreticians have shown an interest in understanding the ins and outs of the behavioral turn in economics, and more broadly, on the introduction of psychological elements in economic explanations. Some have focused on recent history, enhancing the different trends of behavioral economics. Others have dealt with the nascent of behavioral economics and the early collaboration between economists and psychologists in the 1950s. Still some others have tried to understand how the marginalist school of thought had relied on the experimental psychology of its time—namely psychophysics—and how it had progressively been expelled out of the realm of economics, at least temporarily, with Pareto and Fisher. However, those contributions have not been coordinated and we are far from having a comprehensive overview of the complex history of the relationships between economics and psychology.

The aim of this conference is to gather contributions from historians of economics and historians of psychology (including cognitive sciences), and also from historically-oriented researchers and philosophers of these disciplines. The overall ambition is to understand the way economics has dealt with psychological arguments, methods and concepts throughout history and to highlight the main debates between economists and psychologists that have fostered and are still fostering behavioral economics. It is hoped that these will pave the way for an overall vision of the history of the relationships between economics and psychology and of the methodological transformations of economics as a discipline.

The organizers wish to limit the number of contributions so that most of the conference will take place in plenary sessions. Interested contributors are asked to indicate their interest in participating to the conference to A COMPLETER. The deadline for submitting an abstract is July 10th 2014. It is hoped that the contributions to the conference will in turn lead to the publication of a comprehensive reference book with short versions of papers and to thematic issues in journals.

Below is a non-exhaustive list of topics, authors and schools of thought:

  • Psychology in economics before the marginalist revolution (Hume, Smith, Condillac, Quesnay)
  • Psychophysics, psychology and the (pre)marginalists (Gossen, Jevons, Walras, Marshall, Edgeworth, Pareto and Fisher, psychology in the Austrian tradition)
  • Psychologists, economists, and the birth and development of experimental psychology (1850-1950)
  • Psychology in the institutionalist and Keynesian schools of thought (Veblen, Mitchell, J.M Clark, Keynes, Duesenberry, Post-Keynesian school).
  • How psychologists came to study decision and choice after World War II (Edwards, Davidson, Luce, Suppes, Siegel, etc).
  • The role and importance of ‘mathematical psychology’ and of the ‘representational theory of measurement’
  • Allais’s paradox and other decision paradoxes from the point of view of economics and psychology.
  • National traditions in the development of “economic psychology” (in relation with social psychology) and early behavioral economics in the USA (Katona, Simon), France, Germany, England, Italy, etc.
  • How psychologists have been involved in the development of behavioral economics and alternative paradigms to study economic behavior (e.g. Kahneman, Tversky, Slovic, Gigerenzer)?
  • Did economics borrow concepts and laws from psychology or did they rather borrow methods?
  • What has been the influence of behavioral sciences, marketing and business studies on the development of behavioral economics?
  • What have been the effects of behavioral economics on public policy? Which role played public policy in the development of behavioral economics?
  • What have been the after effects of behavioral economics on the representation of utility and welfare? (Pigou, Boulding, Scitovsky, Easterlin, Happiness economics)
  • How has behavioral economics come into different fields of economics (finance, development economics, health economics, social choice, public economics, normative economics)?
  • The historical development of neuroeconomics and its links with psychology.
  • The role of normative considerations in the development of behavioral economics, and the links between normative and behavioral economics.


If you are interested in participating in this conference, please send a notification of interest mentioning the theme of your contribution by June 10th 2014 and an abstract of approximately 1000 words prepared for blind review by July 10th 2014. Send your abstract by email at eco-psycho@rationalite.org  with the following information:

Name and surname

Affiliation

Title of your contribution

Abstract


Agency, Policy and the Future of Macroeconomics: A Summer School in Economics and Philosophy

Mark D. White

INEM/CHESS Summer School in Philosophy and Economics

“Agency, Policy and the Future of Macroeconomics:

A Summer School in Economics and Philosophy”

University of the Basque Country UPV/EHU

Donostia-San Sebastian, Spain

21-23 July 2014

The International Network for Economic Method (INEM) and Centre for Humanities Engaging Science and Society (CHESS, Durham) will be holding an International Summer School in Economics and Philosophy for graduate students and researchers.

The Summer School is part of the UPV/EHU XXXII Summer Courses and XXV European Courses and continues the series initiated by the Urrutia Elejalde Foundation (UEF).

Lecturers:

Alan Kirman, University of Aix-Marseille, France

Till Grüne-Yanoff, Royal Institute of Technology, Stockholm, Sweden

Natalie Gold, King’s College London, UK

Convenors:

Julian Reiss, Durham University, UK

Conrad Heilmann, Erasmus University Rotterdam, Netherlands

Anna de Bruyckere, Durham University, UK (Grad Student Assistant)
 
Aims:

The recent financial crisis has shattered the economics discipline like an earthquake. Whilst many economists are striving to rebuild and strengthen the structures that were hit others are taking the opportunity to open their horizons. Economists are often being blamed for having contributed to the crisis, even by prominent members of the profession: ‘the economics profession went astray because economists... mistook beauty... for truth’ (Krugman 2009); economists ‘killed America’s economy’ because of unrealistic models (Stiglitz 2009), and that the Crisis has made clear a ‘systemic failure of the economics profession’ as it had systematically disregarded key factors responsible for outcomes such as the Crisis (Colander et al. 2009).

At the same time, many economists have become at lot more open towards neighbouring disciplines. Some now regularly collaborate with psychologists to investigate to provide the behavioural foundations for choice theory. Even mainstream economists such as Greg Mankiw now urge the importance of political philosophy for their discipline. Modellers look to alternative approaches from complexity theory and agent-based modelling.

The aim of the Summer School in Economics and Philosophy is to present a variety of new insights from this exciting new work from the fringes of economics. It will bring together graduate students with scholars from economics, philosophy and neighbouring disciplines in order to exchange ideas, build a community and strengthen ‘economics and philosophy’ as an independent and diverse research field. This year’s main focus is on complex systems approaches in macroeconomics, the modelling of agency and behavioural policies.

Registration:

The Summer School is open to Masters/PhD students and other researchers at various stages of progress on their dissertation project or academic careers.

To register please send us, by June 15 at the latest, 2014, a short CV and motivation statement to Anna de Bruyckere (email: a.m.c.de-bruyckere@durham.ac.uk). We will accept applications as they come in, so to be guaranteed a place let us know as soon as possible.

Registration Fee and Bursaries:

Participation in the Summer School is free of charge. There is, however, charge a small registration fee of under €50 (with a small increase if you register after May 31) to be spent on food and beverage during the event. There will also be a bursary to help with accommodation expenses in San Sebastian. If you are interested in applying for a bursary, please let us know in your registration letter.

We would like to draw your attention to national sponsorship institutions like the DAAD (German Academic Exchange Service) in the case of Germany, who offer training course scholarships for students. Please contact your university’s international office for further information on scholarships available in your country.

We gratefully acknowledge the financial support from the International Network for Economic Method (INEM) and the University of the Basque Country (UPV).

Further information: http://chess-centre.org/index.php/chess-events/summer-school-in-economics-philosophy