Reciprocity as a foundation of financial economics

This paper argues that the subsistence of the fundamental theorem of contemporary financial mathematics is the ethical concept ‘reciprocity’. The argument is based on identifying an equivalence between the contemporary, and ostensibly ‘value neutral’, Fundamental Theory of Asset Pricing with theories of mathematical probability that emerged in the seventeenth century in the context of the ethical assessment of commercial contracts in a framework of Aristotelian ethics. This observation, the main claim of the paper, is justified on the basis of results from the Ultimatum Game and is analysed within a framework of Pragmatic philosophy. The analysis leads to the explanatory hypothesis that markets are centres of communicative action with reciprocity as a rule of discourse. The purpose of the paper is to reorientate financial economics to emphasise the objectives of cooperation and social cohesion and to this end, we offer specific policy advice

Emergence and Collapse of Peace with Friend Selection Strategies

A society consisting of agents who can freely choose to attack or not to attack others inevitably evolves into a battling society (a \'war of all against all\'). We investigated whether strategies based on C. Schmitt\'s concept of the political, the distinction of a friend and an enemy, lead to the emergence and collapse of social order. Especially, we propose \'friend selection strategies\' (FSSs), one of which we called the \'us-TFT\' (tit for tat) strategy, which requires an agent to regard one who did not attack him or his \'friends\' as a \'friend\'. We carried out evolutionary simulations on an artificial society consisting of FSS agents. As a result, we found that the us-TFT results in a peaceful society with the emergence of an us-TFT community. In addition, we found that the collapse of a peaceful society is triggered by another FSS strategy called a \'coward\'.Community, Carl Schmitt, a Friend and an Enemy, Tit for Tat, Coward, Evolutionary Simulation

Rewarding Creativity: In Law, Economics, and Literature

Scientific, literary and artistic products are the outcome of what in the Western world has been called, at least since the 18th century, creative human labor, or simply, creativity. Since creativity is one of the foremost faculties of the human being, it is in the common interest to protect and encourage it. The problem seems only to be how to do it. How is it possible to make laws consonant with this sound and universal tenet? What measures should be taken? But even prior to that: how can one orient himself with confidence in these questions? In a sense, since the dawn of Western culture, these questions have raised serious discussions. However, the shape these questions have taken today is something new; it is the eventual result of a “revolution” begun two and a half centuries ago that upset the way our humankind relates to works of art and thought. This paper explores the question of what does “rewarding creativity” mean today? And what did it meant before the rise of the modern world? Questioning the principles and institutions that regulate and have regulated the rewarding of creativity in Western culture, might allow us to become better aware of our present situation as regards to art, knowledge and learning – knowing full well that this situation is so puzzling that no historical analysis as such can pretend to shed a complete light on it

Trust among Internet Traders: A Behavioral Economics Approach

Standard economic theory does not capture trust among anonymous Internet traders. But when traders are allowed to have social preferences, uncertainty about a seller's morals opens the door for trust, reward, exploitation and reputation building. We report experiments suggesting that sellers' intrinsic motivations to be trustworthy are not sufficient to sustain trade when not complemented by a feedback system. We demonstrate that it is the interaction of social preferences and cleverly designed reputation mechanisms that solves to a large extent the trust problem on Internet market platforms. However, economic theory and social preference models tend to underestimate the difficulties of promoting trust in anonymous online trading communities.

Understanding the Global in Global Finance and Regulation

A simple and statistically robust method for passive clock synchronization in sensor networks is presented. The method is not limited to passive (one-way communication) synchronization, but this scenario justifies the method. The recursive nature of the method and the targeted passive setup mean that it adds a minimum of requirements on the system in which it is used. Statistical characteristics of the method are quantified and real measurements are used to illustrate the robustness and performance gain relative to a naive Kalman filter based clock synchronization. Finally, C++ code that implements the suggested clock synchronization method, is provided in this article.QC 20140423</p

Strong Reciprocity and Human Sociality

Human groups maintain a high level of sociality despite a low level of relatedness among group members. The behavioral basis of this sociality remains in doubt. This paper reviews the evidence for an empirically identifiable form of prosocial behavior in humans, which we call 'strong reciprocity,' that may in part explain human sociality. A strong reciprocator is predisposed to cooperate with others and punish non-cooperators, even when this behavior cannot be justified in terms of extended kinship or reciprocal altruism. We present a simple model, stylized but plausible, of the evolutionary emergence of strong reciprocity.

Informal Practices in Changing Societies: Comparing Chinese Guanxi and Russian Blat

The paper defines the key features of Chinese guanxi and Russian blat networks, explores similarities and differences in the use of these networks both in communist and post-communist economies, and discovers their ambiguous relationship with the formal institutions. Having compared guanxixue and blat in detail, one should conclude that people tend to develop similar responses (as well idioms) in order to survive in state centralised economies characterized by shortages, state distribution system and ideological predicaments. Guanxi and blat networks in pre-reform China and Russia played a similarly ambiguous role in these economies: on the one hand, they compensated for the defects of the formal rules thus enabling the declared principles of the economy to exist; on the other hand, they subverted them. There are also common trends in the transformation of informal practices in post-reform China and Russia. Before the reforms, both guanxixue and blat were often beneficial to ordinary people in allowing them to satisfy their personal needs and in organising their own lives, whereas now their shift into corruption benefits the official-business classes and hurts the bulk of society. Trust and social networks are vital components of both economies and will continue to exist (as elsewhere) but their implications for the transformation may differ. The post-Soviet reforms have changed the Soviet-type blat practices so much that blat has almost ceased to be a relevant term for the use of personal networks both in the state and in the new sectors of the economy. Being more culturally and historically grounded, the term guanxi has sustained and found its new use in contemporary China. There is much more discussion of guanxi and guanxi capitalism in China than ever has been on blat in Russia. The partiality of reforms in China and the communist rulership does not prevent foreign investment and economic success, and corruption is estimated as not as damaging in China as it is in Russia

Social capital, social norms and the New Institutional Economics

Douglass North (1990) describes institutions as the rules of the game that set limits on human behavior, now a universally-accepted definition. North and others especially underline the crucial role of informal social norms. They predict that, like all rules of the game, social norms should affect the economic prosperity enjoyed by individuals and countries – that they should have a crucial impact, for example, on economic and political development. In fact, substantial evidence demonstrates that social norms prescribing cooperative or trustworthy behavior have a significant impact on whether societies can overcome obstacles to contracting and collective action that would otherwise hinder their development. Much of this evidence comes from outside the new institutional economics, emerging instead from scholarly research in the field of “social capital.” A review of this evidence, and its implications for our understanding of the role of social norms and institutions, is therefore the focus of this chapter.social capital, norms, institutions, institutional economics

Globalization, NGOs and Multi-Sectoral Relations

This paper seeks to make sense of the impact of globalization on nonprofit, nongovernmental organizations. We argue that globalization processes have contributed to the rising numbers and influence of NGOs in many countries, and particularly in the international arena. International NGOs and NGO alliances are emerging as increasingly influential players in international decision-making, and we discuss some of the roles they can be expected to play in the future. We consider whether the emergence of domestic and international NGOs as important policy makers strengthens or weakens the future of democratic accountability, and we suggest several patterns of interaction among civil society, government and business in future governance issues.This publication is Hauser Center Working Paper No. 1. The Hauser Center Working Paper Series was launched during the summer of 2000. The Series enables the Hauser Center to share with a broad audience important works-in-progress written by Hauser Center scholars and researchers