This paper identifies the major failings of mainstream economics and the rational choice theory it relies upon. These failures were identified by the four figures mentioned in the title: economics treats agents as rational fools; by the time the long … More ›.

This paper examines issues of ontology and methodology in behavioral economics: the attempt to increase the explanatory and predictive power of economic theory by providing it with more psychologically plausible foundations. Of special interest is the epistemological status of neoclassical economic theory within behavioral economics, the runaway success story of contemporary economics. Behavioral economists aspire to replace the fundamental assumptions of orthodox, neoclassical economic theory. Yet, behavioral economists have gone out of their way to praise those very assumptions. Matthew Rabin, (...) for example, writes that behavioral economics “is not only built on the premise that [orthodox] economic methods are great, but also that most mainstream economic assumptions are great.” These apparently contradictory attitudes toward neoclassical theory raises the question of what, exactly, its epistemological status within behavioral economics is. This paper argues that the paradox can be resolved, and the question answered, by thinking of the epistemological status of neoclassical theory within behavioral economics in terms of Max Weber’s ideal types: analytical constructs that are not intended to be descriptively true of anything but which nevertheless can be used for a variety of theoretical purposes. The analysis is consistent with many of the insights from the philosophical literature on models in science and has important implications for the practice of economics—behavioral and neoclassical—as well as for the very nature of rationality. (shrink)

In traditional decision theory, utility is regarded as a mathematical representation of preferences to be inferred from agents hedonic experiences. Some go as far as to contend that utility is literally computed by specific neural areas and urge economists to complement or substitute their notion of utility with some neuro-psychological construct. In this paper, I distinguish three notions of utility that are frequently mentioned in debates about decision theory and examine some critical issues regarding their definition and measurability. Moreover, I (...) provide various empirical and conceptual reasons to doubt that economists should base decision theoretic analyses on some neuro-psychological notion of utility. (shrink)

This analysis maps the deepening global crisis and the principles of its resolution by life-value analysis and method. Received theories of economics and justice and modern rights doctrines are shown to have no ground in life value and to be incapable of recognizing universal life goods and the rising threats to them. In response to this system failure at theoretical and operational levels, the unifying nature and measure of life value are defined to provide the long-missing basis for understanding the (...) common interest, human rights and social justice—that is, the universal life necessities of humanity across cultures and the evolving civil commons infrastructures to ensure them. In contrast, the treaty-imposed corporate rights system miscalled “globalization” is structured to predate life means and support systems at all levels with no accountability beyond itself. Only the logic of life value, human rights and life-protective law, it is concluded, can comprehend or govern this inherently life-blind and cumulatively eco-genocidal regime. (shrink)

Societies need markets, so just as trustworthy professionals are needed in fields such as healthcare, law and education, modern societies need trustworthy market managers, including corporate officers and directors. But in its screening of candidates, U.S. corporate business has lagged behind fields such as medicine and law, which in the nineteenth century addressed their need for screening by upgrading professional education and establishing licensing of individual practitioners. Corporate business, by contrast, has been too tolerant of problematic executives, particularly executives of (...) a type shown by recent research in psychology to exhibit a set of personality traits including below average concern about bad effects of their actions on other people. Over-representation of this problematic type has cost corporate business the trust and respect it could earn by resting fully on a time-honored alternative foundation already espoused by many trustworthy teachers and practitioners of business. Society needs these trustworthy people of business to work together to establish screening of candidates for high level corporate positions by upgrading MBA education and establishing licensing for these positions. For reasons again based on current findings in psychology, screening candidates for the MBA could be significantly strengthened by requiring historical studies, particularly history of the corporate legal structure in the U.S. and history of the MBA itself. Upgrading the MBA and establishing correlated licensing could open the way toward corrections in the legal form of the corporation to bring it into line with hospitals, law courts and universities as places where responsible professionals pursue their callings on behalf of society. (shrink)

This paper presents an overview on the concept of cardinal utility in its relations with the literature since the beginning of the XVIIIth century (Part I); an estimate of the cardinal utility function for its negative values, thus completing the estimate of this function for its positive values given in my 1984 Venice paper (Part II); and finally different applications to the theory of choices in the presence of risk and to the wealth transfer and tax questions (Part III).

The alliance of pure market economies with democratic polities has traditionally been a problematic one. It is argued that orthodox theoretical conceptualizations of market behaviour and the application of such theory to our communal lives have entrenched an incoherent alliance. In particular, the reductive mechanism characteristic of both neo-classical economic theory and its deployment in our socio-economic order has severely undermined the telic agency required for the autonomy or self-rule definitive of an authentic democratic order. Such reduction is observed to (...) function through the disabling of the cognitive capacity of consumers and by disempowering the agency of workers such that coercion is misconceived as freely agreed contract. (shrink)

“Utility,” in plain English, means usefulness. In Australia, a ute is a useful vehicle. Jeremy Bentham specialized the meaning to a particular sort of usefulness. “By utility,” he said, “is meant that property in any object, whereby it tends to produce benefit, advantage, pleasure, good, or happiness or to prevent the happening of mischief, pain, evil, or unhappiness to the party whose interest is considered”. The “principle of utility” is the principle that actions are to be judged by their usefulness (...) in this sense: their tendency to produce benefit, advantage, pleasure, good, or happiness. When John Stuart Mill spoke of the “perfectly just conception of Utility or Happiness, considered as the directive rule of human conduct,” he was using “Utility” as a short name for this principle. “The greatest happiness principle” was another name for it. People who subscribed to this principle came to be known as utilitarians. (shrink)

Francis Ysidro Edgeworth’s unduly neglected monograph New and Old Methods of Ethics (1877) advances a highly sophisticated and mathematized account of social well-being in the utilitarian tradition of his 19th-century contemporaries. This article illustrates how his usage of the ‘calculus of variations’ was combined with findings from empirical psychology and economic theory to construct a consequentialist axiological framework. A conclusion is drawn that Edgeworth is a methodological predecessor to several important methods, ideas, and issues that continue to be discussed in (...) contemporary social well-being studies. (shrink)

The history of economic thought witnessed several prominent economists who took seriously models and concepts in physics for the elucidation and prediction of economic phenomena. Econophysics is an emerging discipline at the intersection of heterodox economics and the physics of complex systems, with practitioners typically engaged in two overlapping but distinct methodological programs. The first is to export mathematical methods used in physics for the purposes of studying economic phenomena. The second is to export mechanisms in physics into economics. A (...) conclusion is drawn that physics transfer is often justified at the level of mathematical transfer but unjustified at the level of mechanistic transfer. (shrink)

Suppose you want to do as much good as possible. What should you do? According to members of the effective altruism movement—which has produced much of the thinking on this issue and counts several moral philosophers as its key protagonists—we should prioritise among the world’s problems by assessing their scale, solvability, and neglectedness. Once we’ve done this, the three top priorities, not necessarily in this order, are (1) aiding the world’s poorest people by providing life-saving medical treatments or alleviating poverty (...) itself, (2) preventing global catastrophic risks, such as those posed by nuclear war or rogue artificial intelligence, and (3) ending factory farming. These claims are both plausible and striking. If correct, they should prompt a stark revision of how we approach our altruistic activities. However, the project of determining how to do the most good—as opposed to say, whether we should do the most good—has only recently, within the last ten years, become the subject of serious academic attention. Many key claims have not yet been carefully scrutinised. This is a cause for concern: are effective altruists doing good badly? In this thesis, I critique and develop some of the latest claims about how individuals can do the most good. I do this in three areas: the value of saving lives (preventing premature deaths), how best to improve lives (making people happier during their lives), and cause prioritisation methodology (frameworks for determining which problems are the highest priorities). In each case, I raise novel theoretical considerations that, when incorporated, change the analysis. Roughly speaking, my main conclusions are (1) saving lives is not as straightforwardly good we tend to suppose, may not be good at all, and is not clearly a priority; (2) happiness can be measured through self-reports and, based on the self-reported evidence, treating mental health stands out as an overlooked problem that may be an even more cost-effective way to improve lives than alleviating poverty; (3) the cause prioritisation methodology proposed by effective altruists needs to be moderately reconceptualised and, when it is, it turns out it is not as illuminating a tool as we might have thought and hoped. (shrink)

There are long-standing doubts about whether data from subjective scales—for instance, self-reports of happiness—are cardinally comparable. It is unclear how to assess whether these doubts are justified without first addressing two unresolved theoretical questions: how do people interpret subjective scales? Which assumptions are required for cardinal comparability? This paper offers answers to both. It proposes an explanation for scale interpretation derived from philosophy of language and game theory. In short: conversation is a cooperative endeavour governed by various maxims (Grice 1989); (...) because subjective scales are vague and individuals want to make themselves understood, scale interpretation is a search for a focal point (Schelling 1960). A specific focal point it hypothesised; if this hypothesis is correct, subjective data will be cardinally comparable. Four individually necessary and jointly sufficient conditions for cardinal comparability are specified. The paper then argues this hypothesis can be empirically be tested, makes an initial attempt to do so using subjective well-being data, and concludes it is supported. Numerous areas for further research are identified including, at the end of the paper, how certain tests could be used to ‘correct’ subjective data if they are not cardinal. (shrink)

There is a striking contrast between the significance of Harold Hotelling’s contribution to industrial economics and the fact that his location model was invalid, unrealistic and non-robust. It is difficult to make sense of the explanatory value of Hotelling’s model based on philosophical accounts that emphasize logical validity, representational adequacy, and robustness as determinants of explanatory value. However, these accounts are misleading because they overlook the context within which the explanatory value added of a model is apprehensible. We present Hotelling’s (...) model in its historical context and show why it is an important and explanatory model despite its apparent deficiencies. (shrink)

This paper presents considerations on altruism and prosocial behaviour formulated on the basis of some experiments with the ultimatum game. In the first part it will discuss relations between expected utility theories, the characteristics of homo oeconomicus and a modern understanding of altruism. It will focus in particular on conceptual differences, indicating that we can find more than one definition of altruism in modern literature. The second part of the text will provide an overview of selected behavioural theories of prosocial (...) behaviour. It will also present the manner in which needs, social determinants, norms, and individual psychological features affect the propensity to behave in a prosocial fashion. (shrink)

In economics, thought experiments are frequently justified by the difficulty of conducting controlled experiments. They serve several functions, such as establishing causal facts, isolating tendencies, and allowing inferences from models to reality. In this paper, I argue that thought experiments served a further function in economics: facilitating the quantitative definition and measurement of the theoretical concept of utility, thereby bridging the gap between theory and statistical data. I support my argument by a case study, the “hypothetical experiments” of the Norwegian (...) economist Ragnar Frisch (1895-1973). Frisch aimed to eliminate introspection and a subjective concept of utility from economic reasoning. At the same time, he sought behavioral foundations for economic theory that enabled quantitative reasoning. By using thought experiments to justify his set of choice axioms and facilitating the operationalization of utility, Frisch circumvented the problem of observing utility via actual experiments without eliminating the concept of utility from economic theory altogether. As such, these experiments helped Frisch to empirically support the theory’s most important results, such as the laws of demand and supply, without the input of new empirical findings. I suggest that Frisch’s experiments fulfill the main characteristics of thought experiments. (shrink)

Harsanyi claimed that his Aggregation and Impartial Observer Theorems provide a justification for utilitarianism. This claim has been strongly resisted, notably by Sen and Weymark, who argue that while Harsanyi has perhaps shown that overall good is a linear sum of individuals’ von Neumann–Morgenstern utilities, he has done nothing to establish any connection between the notion of von Neumann–Morgenstern utility and that of well-being, and hence that utilitarianism does not follow. -/- The present article defends Harsanyi against the Sen–Weymark critique. (...) I argue that, far from being a term with precise and independent quantitative content whose relationship to von Neumann–Morgenstern utility is then a substantive question, terms such as ‘well-being’ suffer (or suffered) from indeterminacy regarding precisely which quantity they refer to. If so, then (on the issue that this article focuses on) Harsanyi has gone as far towards defending ‘utilitarianism in the original sense’ as could coherently be asked. (shrink)

Liberals have often been attracted by contractarian modes of argument— and with good reason. Any system of social organization requires that some constraints be imposed on individuals' freedom of action; it is a central problem for any liberal political theory to show which constraints can be justified, and which cannot. A contractarian justification works by showing that the constraints in question can be understood as if they were the product of an agreement, voluntarily entered into by every member of society. (...) Thus, no one is required to give up his freedom for someone else's benefit, or in the pursuit of someone else's conception of the social good. (shrink)

Abstract:This paper investigates the broad ideological conflict between world views on corporate culture. Two views are identified: one encompassing standard liberal economic philosophy; the other taking broader notions of corporate culture from ethics theory. The conflict that surrounded the World Trade Organization meeting in Seattle is used as an illustration of the current conflict between these views. The writings of Alasdair MacIntyre are employed as a means of elucidating and reconciling these two world views.

In the first section of this paper I review Measurement Theoretic Semantics – an approach to formal semantics modeled after the application of numbers in measurement, e.g., of length. In the second section it is argued that the measurement theoretic approach to semantics yields a novel, useful conception of propositions. In the third section the measurement theoretic view of propositions is compared with major other accounts of propositional content.

The fundamental postulate of sociobiology is that individuals exploit favorable environments to increase their genetic representation in the next generation. The data on fertility differentials among contemporary humans are not cotvietent with this postulate. Given the importance ofHomo sapiensas an animal species in the natural world today, these data constitute particularly challenging and interesting problem for both human sociobiology and sociobiology as a whole.The first part of this paper reviews the evidence showing an inverse relationship between reproductive fitness and “endowment” (...) in contemporary, urbanized societies. It is shown that a positive relationship is observed only for those cohorts who bore their children during a unique period of rising fertility, 1935–1960, and that these cohorts are most often cited by sociobiologists as supporting the central postulate of sociobiology. Cohorts preceding and following these show the characteristic inverse relationship between endowment and fertility. The second section reviews the existing so-ciobiological models of this inverse relationship, namely, those of Barkow, Burley, and Irons, as well as more informal responses among sociobiologists to the persistent violation of sociobiology's central postulate, such as those of Alexander and Dawkins. The third section asks whether the goals of sociobiology, given the violation of its fundamental postulate by contemporary human societies, might not be better thought of as applied rather than descriptive, with respect to these societies. A proper answer to this question begins with the measurement of the pace and direction of natural selection within modern human populations, as compared to other sources of change. The vast preponderance of the shifts in human trait distributions, including the IQ distribution, appears to be due to environmental rather than genetic change. However, there remains the question of just how elastic these distributions are in the absence of reinforcing genetic change. (shrink)

After reviewing the compelling case for separability (`social welfare is a separable function of individual utilities'), an argument is advanced for utilitarianism (defined as `social welfare is the unweighted sum of individual utilities'). Basically, a compelling individualism-type axiom leads us to (social welfare as an) unweighted sum (of individual utilities), given separability.

We expound an economic explanation of the nature, causes, and effects of moral conventions. We show, first, that systems of moral rules lead to Pareto-efficiency; second, that the efficiency they induce may be interpreted as the outcome of an exchange of courtesies; third, and finally, that moral exchange takes place whenever the costs of transaction are sufficiently low. We also explain various phenomena, including the diversity of moral rules in time and space. Finally, we give sufficient conditions for universal moral (...) rules to emerge in a sequence of agreements involving two agents only at a time. (shrink)

The relation between ethics and social science is often conceived as complementary, both disciplines cooperating in the solution of concrete moral problems. Against this, the paper argues that not only applied ethics but even certain parts of general ethics have to incorporate sociological and psychological data and theories from the start. Applied ethics depends on social science in order to asses the impact of its own principles on the concrete realities which these principles are to regulate as well as in (...) order to propose practice rules suited to adapt these principles to their respective contexts of application. Examples from medical ethics (embryo research) and ecological ethics (Leopold's land ethic) illustrate both the contingence of practice rules in relation to their underlying basic principles and the corresponding need for a co-operation between philosophy and empirical disciplines in judging their functional merits and demerits. In conclusion, the relevance of empirical hypotheses even for some of the perennial problems of ethics is shown by clarifying the role played by empirical theories in the controversies about the ethical differentiation between positive and negative responsibility and the relation between utility maximisation and (seemingly) independent criteria of distributive justice in the context of social distributions. (shrink)

To study animal welfare empirically we need an objective basis for deciding when an animal is suffering. Suffering includes a wide range ofunpleasant emotional states such as fear, boredom, pain, and hunger. Suffering has evolved as a mechanism for avoiding sources ofdanger and threats to fitness. Captive animals often suffer in situations in which they are prevented from doing something that they are highly motivated to do. The an animal is prepared to pay to attain or to escape a situation (...) is an index ofhow the animal about that situation. Withholding conditions or commodities for which an animal shows (i.e., for which it continues to work despite increasing costs) is very likely to cause suffering. In designing environments for animals in zoos, farms, and laboratories, priority should be given to features for which animals show inelastic demand. The care ofanimals can thereby be based on an objective, animal-centered assessment of their needs. (shrink)

This commentary focuses on the parts of psychological game theory dealing with preference, as illustrated by team reasoning, and supports the conclusion that these theoretical notions do not contribute above and beyond existing theory in understanding social interaction. In particular, psychology and games are already bridged by a comprehensive, formal, and inherently psychological theory, interdependence theory (Kelley & Thibaut 1978; Kelley et al. 2003), which has been demonstrated to account for a wide variety of social interaction phenomena.