The Moral Trial: Economists and the Socratic Problem

Most people believe economists are more selfish than noneconomists. The reasons for such belief and for the related moral condemnation of economists remain confused. Both charges and evidence are insufficient to support substantial judgements. Further elaboration would be welcome before drawing implications from the current charge (i.e. economists are more selfish than noneconomists), further investigations into the causes of this phenomenon (self- selection or training) are required for blaming economists and suggesting corrections, and further evidence needs be gathered to sustain the charges. Alternative explanations (beyond selfselection and training) are also suggested, which might lead to different implications, charges, and corrections.Economics, Experiments, Moral Trial, Self-Interest, Socratic Problem

The Economic Ethics of Ezra Pound

The poet Ezra Pound (1885 – 1972) was a moralist who regarded economics as key to understanding human society, and thereby to solve most social problems. He became a prolific writer of economic texts, in which he espoused the ideas of two heretic economists: Major Clifford Douglas’ social credit and national dividend, and Silvio Gesell’s perishable currency. Pound’s economic thought has long been neglected, but in times of financial crisis his crusade against bankers and his utopian visions might make a timely come back. It is therefore unfortunate that, of Pound’s economic lessons, the morally most compelling are also those less economically sound.Basic Income; Ezra Pound; Major C. Douglas; Silvio Gesell; Social Credit; Stamp Scrip; Usury.

A note on the Trolley Problem and Three Weaknesses of Economic Theory

The trolley problem is a moral dilemmas in which human lives are in danger and some, but not all, can be saved by direct intervention of a decision-maker. This article discusses three weaknesses of microeconomics with respect to individual conduct in the trolley problem: (i) it cannot make predictions; (ii) after observing the conduct of participants in an experiment, it cannot explain their decisions; (iii) it cannot suggest policies that ensure the maximization of aggregate welfare, nor can it suggest laws that endorse the prevailing observed conduct.experiment, moral dilemma, trolley problem,

What is Behavioural Economics Like?

Behavioural Economics’ milestones, Endowment Effect and Loss Aversion, have been recognized as ‘well documented,’ ‘robust,’ and ‘important’ even by the critics. But well documented, robust, and important what? Are these stylized facts, theoretical constructs, or psychological truths? Do they express genuine preferences or are they judgement mistakes? We discuss the problems with the nature of these claims in the lights of the goals of Behavioural Economics: to improve economics’ realisticness and to be considered mainstream. We argue that, under sensible interpretations of Loss Aversion and Endowment Effect, Behavioural Economics is neither more realistic than, nor part of the mainstream.Behavioural Economics, Decision-Making, Endowment Effect, Loss Aversion, Uncertainty

Beauty Contested. How much of Keynes’ remains in Behavioural Economics Beauty Contests?

In one of the most famous passages of economic literature, John Maynard Keynes (1936, p.156) likens the stock market to a beauty contest in which the winners are those who anticipate the average opinion. Recently there have been attempts at investigating the BC experimentally (Nagel 1995, Duffy & Nagel 1997, Ho et al. 1998, Bosch-Domenech et al. 2002, Güth et al. 2002). In Experimental Beauty Contests, participants choose a real number from a closed interval, e.g. I [0,100]. Whoever picks the number closest to p times the average (usuallywith p = 2/3) is the winner of a monetary reward. An experiment like this is dominance solvable: the process of iterated elimination of dominated strategies leads to the unique and stable equilibrium at which every player chooses zero, and every player wins. Keynes’ metaphor, on the other hand, referred to a situation in which not all participants can win, so that the goal of individual investors and speculators must be “to outwit the crowd” (p. 152). Despite the differences, the Keynesian theory of decision under uncertainty tallies with the behaviour observed in Experimental Beauty Contests.Beauty Contest, Behavioural Economics, Keynes, Reasoning.

Individual learning: theory formation, and feedback in a complex task

We present an experiment for the study of learning in a complex task which requires both memorisation and the ability to process several pieces of information. The outcome of an action, for which immediate feedback is given, depends on the context (i.e. one of thirty-two sequences of three features) which is know and visible to the subjects. Subjects develop some theories of the experimental world, which result in the stable repetition of some actions in response to certain conditions. These theories are modified after feedback, however mistaken answers are repeated and correct answers abandoned. During the game, theories become more effective (i.e. they afford more correct answers and a higher score), yet the improvements slow down. The theories follow from only a portion of the available information and when they become successful (i.e. towards the end of the experiment) the subjects start refining them to include a larger subset of the information, this causes more stable mistakes.cognitive economics; complexity; experiments; feedback; learning; theory formation; Heiner

The beauty of the contest: A novel approach to experimental beauty contests.

We introduce a novel beauty contest experiment to study the gap between individual preferences and beliefs about collective preferences of physical attractiveness. In the first round, participants vote their 3 favorite ladies in the second round they vote the 3 ladies they believe were the most voted in the first round.Unlike other beauty contest experiments, our setup does not investigate depth of reasoning in a cognitively intense task. Instead, it is meant to investigate the existence of shared definitions of physical attractiveness, and whether these may be successfully employed as focal points.Our results show that most participants hold mistaken beliefs about collective preferences and overestimate and underestimate how well liked certain ladies are. Regardless of these mistakes, the winning portraits win by a wide margin in both rounds. Moreover, our participants are better at predicting the portraits which will not be the most voted than those which will.Beauty

Economists think Trump harmed the world economy, but not that of their country

On November 8th 2016, I was in Mexico City having dinner with a group of people

Credit shocks and equilibrium dynamics in consumer durable goods markets

This article studies equilibrium dynamics in consumer durable goods markets after aggregate credit shocks. We introduce two novel features into a general-equilibrium model of durable consumption with heterogeneous households facing idiosyncratic income risk and borrowing constraints: (1) indivisible durable goods are vertically differentiated in their quality and (2) trade on secondary markets at market-clearing prices, with households endogenously choosing when to trade or scrap their durables. The model highlights a new transmission mechanism for macroeconomic shocks and successfully matches several empirical patterns that we document using data on U.S. car markets around the Great Recession. After a tightening of the borrowing limit, debt-constrained households postpone the decision to scrap and upgrade their low-quality cars, which depresses mid-quality car prices. In turn, this effect reduces wealthy households’ incentives to replace their mid-quality cars with high-quality ones, thereby decreasing new-car sales. We further use our framework to evaluate targeted fiscal stimulus policies such as the Car Allowance Rebate System in 2009 (“Cash for Clunkers”)