Positive and negative feelings were central to the development of economics, especially in utility theory in classical economics. While neoclassical utility theory ignored feelings, behavioral economics more recently reintroduced feelings in utility theory. Beyond feelings, economic theorists use full-fledged specific emotions to explain behavior that otherwise could not be understood or they study emotions out of interest for the emotion itself. While some analyses display a strong overlap between psychological thinking and economic modelling, in most cases there is still a (...) large gap between economic and psychological approaches to emotion research. Ways how to reduce this gap are discussed. (shrink)

Why did Mill draw such a firm line between nature and society, and what did he mean by the claim that only permanent or necessary truths could be gleaned in nature? Why are the laws of production able to transcend the social realm and thereby attain a higher epistemological standing? Was Mill the first to make this distinction, or does it conform with a long tradition within the history of economic thought?

We identify a normative paradox of responsible management education. Business educators aim to promote social values and develop ethical habits and socially responsible mindsets through education, but they attempt to do so with theories that have normative underpinnings and create actual normative effects that counteract their intentions. We identify a limited conceptualization of freedom in economic theorizing as a cause of the paradox. Economic theory emphasizes individual freedom and understands this as the freedom to choose from available options. However, conceptualizing (...) individuals as profit-maximizing actors neglects their freedom to reflect on the purposes and goals of their actions. We build on the work of pragmatist philosopher John Dewey, who distinguishes between habitualized and creative problem-solving behaviors, conceptualizes knowledge construction as a process of interdependent scientific social inquiry, and understands actors as having the freedom to determine what kind of people they wish to be. We apply pragmatist theory to business education and suggest equipping students with a plurality of theories, supplementing neoclassical economics with other economic perspectives and views from other disciplines on economic behavior. Moreover, we suggest putting students into learning situations that require practical problem solution through interdependent social inquiry, encouraging ethical reflection. In doing so, we contribute by linking the problematic conceptions of freedom identified in economic theorizing to the debate on responsible management education. We conceptualize a pragmatist approach to management education that explicitly re-integrates the freedom to discursively reflect on the individual and societal purpose of business activity and thereby makes existing tools and pedagogies useful for bringing potential freedom back into business. (shrink)

Financial misconduct has come into the spotlight in recent years, causing market regulators to increase the reach and severity of interventions. We show that at times the economic benefits of illicit financial activity outweigh the costs of litigation. We illustrate our argument with data from the US Securities and Exchanges Commission and a case of investment misconduct. From the neoclassical economic paradigm, which follows utilitarian thinking, it is rational to engage in misconduct. Still, the majority of professionals refrain from misconduct, (...) foregoing economic rewards. We suggest financial activity could be reimagined taking into account intrinsic and prosocial motivations. A virtue ethics framework could also be applied, linking financial behavior to the quest for moral excellence and shared flourishing. By going beyond utilitarian thinking and considering alternative models, we offer a fuller account of financial behavior and a better perspective from which to design deterrence methods. (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)

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)

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).

Pope Francis argues for a shift to a new economic model that is in the service of the human life and is "more attentive to ethical principles" (LS 189). He does not endorse a specific model except that he provides conditions, principles, and frameworks by which its ethos must be grounded against. As part of his pastoral approach and his vision of a synodal Church, he invites everyone to participate and contribute to this discussion because "not all discussions of doctrinal, (...) moral or pastoral issues need to be settled by interventions of the magisterium" (AL 3). It is within this papal invitation of discoursing this new economic model where this paper aims to contribute particularly on the centrality of the anthropological criterion. The first section explores the meaning of his articulation on economics; situating it within the economic discourse of Pope John Paul II and Pope Benedict XVI. The second section focuses on the anthropological criterion as problematized by the identification of the homo economicus as self-interested. The third section draws a theoretical framework from substantivist economics in forwarding the desired economic ethos while the fourth section provides praxeological inputs and argues that homo economicus can be prosocial when the culture that is embedded in a particular economic model is put together to nurture such ethos. (shrink)

In past decades, significant work in behavioural economics has decisively revealed the limitations of the human agency model known as Homo Economicus, whereby humans are purely driven by material self-interest. These behavioural findings are, however, far from integrated in mainstream economic theory, which builds heavily on the neoclassical tradition. Unbeknown to modern economics, Bernard Mandeville and Adam Smith already proposed a richer model of human agency in which choices also depend on the desire for social approbation. The social approbation mechanism (...) complements material self-interest and provides a more diverse toolset, which is able to explain social preferences. Mainstream economic agency confines the study of human action to an artificially-limited spectrum because it reduces society to atomistic individuals who maximise one all-purpose measure of value: utility, which is often instrumented by consumption. Collective action is therefore only sustainable where material incentives are in place, as the economic agent rides for free unless financially penalised. To explain pro-social behaviour from the standpoint of self-interest, Mandeville and Smith proposed that agents also maximise social approbation, which conveys incentives to act pro-socially because the desire for others' approval encourages compliance with social norms. The upshot for collective action is that, assuming social norms represent common interests, approval from others provides an extrinsic motive for pro-social behaviour. I formalise the mechanism by proposing a simple utility function in which agents maximise social approbation as well as material self-interest. (shrink)

The so-called diet and patch models were foundational for evolutionary studies of foraging ecology. The diet model analyzed an organism’s choice between at least two different food or prey items. The patch model asked how much time a forager should invest in exploiting a resource patch that offered diminishing returns before moving on to search for another patch. Concerning sources of inspiration, however, some pioneers of optimal foraging theory explicitly denied an input from economics, others explicitly credited marginalist economics, while (...) the majority remained tacit on this issue. An inquiry into the historical sources reveal an interesting patter. As far as diet is concerned, at least two models existed. One was the, probably homegrown, so-called contingency model of diet choice, the other was imported from marginal utility theory of economics. The import could not be operationalized in a way allowing predictions about feeding behavior. It was, therefore, used as a framework for interpreting data on food choices and gaining insights about the relative value of food items. The contingency model was hypothetico-deductive instead. It allowed predictions of behavior that could be tested. It was, therefore, the more popular among the peers and the pioneering publications have become citation classics, whereas the publications importing marginal utility theory int foraging ecology are largely forgotten. The situation is different for the patch model. At face value, only one homegrown model exists that was discovered independently at least twice. A closer look reveals obscure links suggesting knowledge dispersal from marginal productivity theory of economics towards optimal foraging or mating theory, respectively, along routes of private and unpublished communications. These communications were between alma mater and student in the case of Eric Charnov and between father and son, in the case of Geoffrey Parker. This study suggests two concusions: 1. models that are operationalized in a way allowing hypothetico-deductive research are more popular among researchers than others requiring a more inductive an interpretive approach. 2. The sciences are interlinked far more closely and deeply than mere citations would suggest. Sometimes a knowledge transfer that is crucial for a discovery can occur as an informal and private communication. (shrink)