INEM2011

Helsinki

IXConferenceoftheInternationalNetworkforEconomicMethod

1‐3September

UniversityofHelsinki

THECONFERENCEISORGANISEDBY

Theinternationalnetworkforeconomicmethod(INEM)and

TrendsandTensionsinIntellectualIntegration(TINT),UniversityofHelsinki

www.economicmethodology.orgwww.helsinki.fi/tint

ScientificCommitteeJohnDavis,chairFrancescoGualaChrysostomosMantzavinosAlainMarcianoDonRossAnaSantosMargaretSchabasArisSpanos

LocalOrganizingCommittee

UskaliMäkiTillGrüne‐Yanoff

AkiLehtinenCaterinaMarchionni

JaakkoKuorikoskiPäiviSeppälä

Venue:UniversityofHelsinki,MainBuildingFabianinkatu33

EditedbyPäiviSeppäläCoverdesign:JaakkoKuorikoski

Welcomeaddress

DearColleagues,

On behalf of the Local Organizing Committee I warmly welcome you to the IXConference of the International Network for Economic Method, taking place at theUniversityofHelsinki.

INEMistheinternationalframeworkforresearchandcommunicationinthefieldofthemethodology and philosophy of economics and cognate fields, such as historical andsocialstudiesofscience.ThemostimportantvehiclesofINEMactivitiesareitsjournal,the Journal of Economic Methodology, the INEM Book Series with Routledge, and theconferencesthatareorganizedannuallyoreverysecondyear.Theimportanceoftheseforumsisamplifiedbythetrulyinterdisciplinaryandinternationalnatureoftheactivity.

A delightfully large number of paper proposals were submitted, and thework of thecommitteesresulted inaprogrammewith63papers in27sessions.Theycoverarichvarietyoftopics,givingagoodideaofwhatisgoingoninthefield.Togetherwiththreeexcitingkeynotetalks,thepapertopicsrangefromthefoundationsofchoicetheorytoissuesinmodellingandthecontemporarychallengeofdiagnosingtheallegedfailuresofeconomicsinrelationtothefinancialandeconomiccrisis,andmuchmore.Allinall,wecanbeassuredthatthefieldisstrongandthriving.

TheUniversityofHelsinkiwasfoundedin1640andisnowamongtheleadingresearchuniversities in Europewith its 35.000 or so students. Its main campus is situated indowntownHelsinki,anditsEmpire‐styleMainBuildingliesattheoldneoclassical[sic]heart of the city, next to the Senate Square, facing theCathedral and theGovernmentPalace.Builtintwostages,in1832andin1937,theMainBuildingwillserveasthesiteoftheconference.Wewillbeusingthe“newside”–butdon’tmissavisittotheoldsidewithviewstotheSenateSquare!

TheconferenceishostedbyTINTthat,sinceitslaunchin2006,hasbecomeadynamiccenterofactivity in the field.Themembersof theLocalOrganizingCommittee,drawnfrom the ranks of TINT, are to be thanked for their hard work in creating thepreconditions for a successful event.Many thanks also go to the Scientific CommitteeanditsChairJohnDavisforexpendingtheirwisdomandenergyinmakingtheselectionsout of the numerous submissions that were received. Naturally, the speakersthemselves,bypresentingstimulatingpapersandbyengaginginconstructivedebates,willmakethisarewardingandmemorablemeeting.

Bewelcometobeenlightenedandinspired!

UskaliMäki,onbehalfoftheLocalOrganizingCommitteeofINEM2011

TABLEOFCONTENTS

Program 1 KeynoteLectures 8 ContributedPapersI 10

1. Crisis 102. BehavioralEconomics,economics&psychology 123. Foundationsofchoicetheory 17

ContributedPapersII 211. Econometrics&Causation 212. ChoiceTheory 263. Economics&Sociology,performativity 32

ContributedPapersIII 361. Macroecomics 362. ExperimentalEconomics 403. Historyofthought 43

ContributedPapersIV 471. Foundationsofwelfareeconomics 472. Teampreferences,Collectiveintentionality 523. Networks 57

ContributedPapersV 631. EconomicsandEvolution 632. ModelsI:modeling&explanation 663. Measurementandeconomictheorizing 70

ContributedPapersVI 761. Philosophyofeconomics 762. ModelsII:modeling&economicexpertise 783. Economicsasascience,andtheeconomicsofscience 84

ContributedpapersVII 901. Thefirm 902. ModelsIII:modeling&policy 953. Limitsofeconomics 97

Practicalinformation 101SocialProgram 104AuthorIndex 105

PROGRAM(printedAugust9th2011)

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THURSDAY1.9.16:00‐18:00ContributedpapersI Crisis

Chair:NatalieGoldroom6

KARINASTRIDSIEGMANN&JOHNCAMERONWhydidmainstreameconomicsmissthecrisis?TheroleofepistemologicalandmethodologicalblinkersJONATHANPERRATONDéjà‐vu?TheCurrentCrisisandMacroeconomicAnalysis:The1970’srevisited?

Behavioraleconomics,economics&psychologyChair:ArisSpanosroom7

JOHNDAVISBoundedRationalityandBoundedIndividualityJAAKKOKUORIKOSKI&ALESSANDROLANTERILostinaversion:Lossaversion,endowmenteffectandmechanisticextrapolationSILVIALERNERInvarianceandExtensionalityinTheoriesofChoice

FoundationsofchoicetheoryChair:ConradHeilmannroom15

PAULFUDULUCost–SignalingTheoryofPreferenceFormationandsomeofitsimplicationsADOLFOGARCIADELASIENRAIseveryMeasurementaStructure‐HomomorphismSALIMRASHIDUnderdetermination,Multiplicity,andMathematicalLogic

18:15‐19:15KEYNOTEAlanKirman:

TheCrisisintheEconomicTheory

Chair:UskaliMäkiSmallFestivalHall

19:30Rector’sreceptionPressHall(Lehtisali)

PROGRAM(printedAugust9th2011)

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FRIDAY2.9.9:30‐10:30KEYNOTEStevenMedema:What’sinaName?TheCoaseTheorem

Chair:WadeHandsSmallFestivalHall

10:45‐12:45ContibutedpapersII Econometrics&Causation

Chair:JaakkoKuorikoskiRoom6

KEVINHOOVERCausalStructureandHierarchiesofModelsALESSIONMONETA&FEDERICARUSSOStatisticalmodelsandtheircausalinterpretationineconometricsARISSPANOSTheUntrustworthinessofEmpericalEvidenceinEconomics:Statisticalvs.SubstantiveInformation

ChoiceTheoryChair:MariamThalosRoom7

TILLGRÜNE‐YANOFFTheShapeandMeaningofDiscounting:ExchangesBetweenEconomicsandPsychologyCONRADHEILMANNFoundationsofTimeDiscountingALESSANDRABASSOTheChoiceofaDiscountFactorintheEconomicsofClimateChange

Economics&Sociology,performativityChair:JesperJespersenRoom15

EKATERINASVETLOVA&JACOBARNOLDIDoesPerformativityMatter?TheEmperor’sOldClothesJOSÉGUILLERMOPELÁEZ,GUILLERMOCAVAZOS&ARTUROLARATheFallacyofSolipsismandCartesianFallacyintheTheoreticalConstruct:towardsanewconceptionofperformativityineconomicsLEARRYGAGNÉIs“ConventionEconomics”aNewKindofEconomics,orSomethingElseEntirely

12:45‐14:00Lunch

PROGRAM(printedAugust9th2011)

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14:00‐16:00ContributedPapersIII Macroeconomics

Chair:KevinHooverRoom6

BRIANEPSTEINEconomicsandNonsupervenienceJESPERJESPERSEN‘Uncertainty’:arealmethodologicalchallengeinmacroeconomicsMINGCHIENLO&KRISTOFvanASSCHEThetamingoftheshrew:howmacroeconomistsattempttohandlethecomplexityoftheeconomy

ExperimentaleconomicsChair:FrancescoGualaRoom7

MARÍAJIMENEZBUEDO,DAVIDTEIRA&JESÚSZAMORA‐BONILLAExperimentalEconomicsandRandomizedClinicalTrials:AcomparitiveanalysisofstrategiestocontrolreactivityinexperimentswithhumansATTILIARUZZENELowinExternalValidity,HighwithExtrapolation

HistoryofthoughtChair:N.EmrahAydinonatRoom15

ADREASGEORGSTASHEITCrisisandMethod:EdmundHusserlinEconomicThoughtTILLDÜPPEWhyEconomicsBecameaScience:Suspicion,AnxietyandKnowlegdeineconomicdiscourseDANIELECKERTGuilbaud’sreadingofArrow’stheorem

16:00‐16:30Refreshments

PROGRAM(printedAugust9th2011)

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16:30‐18:30ContributedPapersIV Foundationsofwelfareeconomics

Chair:LarryA.BolandRoom6

BOGUSLAWCZARNYTheDebateontheNatureofWelfareEconomicsintheContemporaryMethodologyofEconomicsJUANCARLOSGARCÍA‐BERMEJOSet‐wisejudgementaggregationbythemajority,specialmajorityandpluralityrulesJOERGKUEHNELTShouldrationalindividualsendorsetheresultsofahypotheticalagreement?

Teampreferences,CollectiveintentionalityChair:DonRossRoom7

FRANCESCOGUALATestingCollectiveIntentionalityTheories:SharedGoals,PreferencesandCounterfactualsNATALIEGOLDTeamReasoningandSelfControlMICHIRUNAGATSUCognitiveandMotivationalMechanismsofVoluntaryCooperationinSocialDilemmas:AnExperimentalStudy

NetworksChair:PetriYlikoskiRoom15

CATERINAMARCHIONNIExplanatorystyles–modelingnetworksinsociologyandeconomicsMARIAMTHALOSNetworkeffectsindecisionsystemsBRADLEYTURNERSocialnetworksasarisingchallengeforeconomics

PROGRAM(printedAugust9th2011)

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SATURDAY3.9.10:00‐12:00ContributedPapersV Economicsandevolution

Chair:BrianEpsteinRoom6

JACKVROMENThecaseforStrongReciprocity:WhythestrategyofcontrastingStrongReciprocitywithWeakReciprocitybackfiresJANWILLEMLINDEMANSAgainsmethodologicaltotalitarianism:OntheactualroleofrationalchoiceandevolutioninexplainingcooperationDONROSSTheEvolutionofIndividualNorms

ModelsI:modeling&explanationChairTillGrüne‐YanoffRoom7

LAWRENCEA.BOLANDChoosingmodelbuildingmethodsGILHERTSHTENLearningsomethingmorefromminimalmodels:AreplytoTillGrüne‐YanoffPETRIYLIKOSKI&N.EMRAHAYDINONATModelscomeinclusters:Abstractmodelsandhow‐possiblyexplanations

MeasurementandeconomictheorizingChair:MarcelBoumansRoom15

RICARDOCRESPOTheincreasingroleofpracticalreasonintheHumanDevelopmentReportsTYLERDESROCHESOntheconceptofnaturalcapitalanditsrelevancetoeconomictheoryMARÍA&JOSÉCAAMAÑO‐ALEGREEnlargedEmpiricalEconomicsandtheQuestforValidity

12:00‐13:15Lunch

PROGRAM(printedAugust9th2011)

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13:15‐15:15ContributedPapersVI Philosophyofeconomics

Chair:AkiLehtinenRoom6

USKALIMÄKIRecentaccountsofeconomicsimperialismANDREASALANTIRigorversusrelevanceineconomictheory:Anattemptatreorientingthedebate

ModelsII:modelling&economicexpertiseChair:FedericaRussoRoom7

CHRISTIANDIECKHOFF&EUGENPISSARSKOICredibleWorlds,possibilisticforeknowledgeandpolicydecisions–acasestudyonenergyscenariosMARCELBOUMANSEconomicsasaFieldScience–TowardsamethodologyofexpertknowledgeCARLOMARTINIModelingExperts:theroleofexpertsinthemethodologyofeconomics

Economicsasascience,andtheeconomicsofscienceChair:MaríaJiménez‐BuedoRoom15

MATHIEUBALLANDONNENeweconomicsofscienceand/oreconomicsofscientificknowledge?ThecaseofPaulDavidFLORIANFOUGY‐HOUËLEconomicrationality:mechanismsofdiffusioninthescientificcommunityROGIERDELANGHETheproblemofKuhnianRationality

PROGRAM(printedAugust9th2011)

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15:20‐17:20ContributedPapersVII Thefirm

Chair:JohnDavisRoom6

AKILEHTINENOnthereferenceofthemarginalist‘firm’BEATRICEBOULU‐RESHEFAffiliationstrategiesandintrafirmcooperation:anevolutionarymodelofpersonalidentityinthefirmJORMASAPPINENEvolutionaryeconomics,contrastiveexplanation,andstrategicmanagement

ModelsIII:modeling&policyChair:CaterinaMarchionniRoom7

FRANÇOISCLAVEAUGeneralversuscontext‐spesificpolicyclaims:ThecaseoftheeconomicsofMacroUnemploymentLUISMIRELESFLORESTheoreticalperspectivesandpolicyrecommendationsineconomics

LimitsofeconomicsChair:KarinAstridSiegmannRoom15

MICHAELJOFFETheMeccaofeconomicsOLEGANANYINNorth’scritique:towardseconomicsofculturalcodesMELISSAVERGAREFERNÁNDEZTowardsamorerationalizedsetofcriticisms

17:20‐17:45Refreshments17:45‐19:00KEYNOTEDanielHausman:SomeMisconceptionsaboutPreferences

Chair:JackVromenSmallFestivalHall

20:00ConferenceDinneratRestaurantSipuli

KEYNOTELECTURES

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Thecrisisineconomictheory

ALANKIRMAN

Universitéd'Aix­Marseille

Thursday18:15–19:15SmallFestivalHall

InthispresentationIwilldiscussmodernmacroeconomicandfinancialmodelsinthelightofthecurrentcrisis.Theoryhasbeenrevealedtobe inadequate in itsexplanationof theoriginsandthenatureofthecrisis,asJean‐ClaudeTrichettheGovernoroftheEuropeanCentralbankandhis colleagues at other central banks have indicated. Basic macroeconomic models, howeversophisticatedhavecontinuedtobebasedonthesamefoundationsshowntobewantinginthe1970sandfinancialmarketmodelshavecontinuedtousethe«efficientmarketshypothesis»despitewarnings by numerousmathematicians and economists since 1900 as to its unsoundfoundations.Iwillnotdwellonthedetailsofstandardmacroeconomicmodelsbutwillsuggestsomewaysforward.Weneedtoconstructmodels,whichmaynotbeabletopredictthetimingoftheonsetofacrisisbutwillencompassthepossibilityofone.Themostpromisingcandidatesforsuchmodelsarethose,whichviewtheeconomyasacomplexadaptivesystem,mayusesomeofthetoolsofstatisticalphysicsanddonotnecessarilyusethestandardequilibriumapproach.Suchmodels put the interactions between individuals in the centre of the picture, and revealhowmajorchangesinthestatesoftheeconomycanresult,asinmanymodelsinphysicsandinbiology, from relatively minor changes in key parameters. Crises are a characteristic of theendogenousdynamicsofthesystemandnottheresultofsomeunspecifiedexogenousshocks.

What'sinaName?TheCoaseTheorem

STEVENG.MEDEMA

UniversityofColoradoDenver

Friday9:30–10:30SmallFestivalHall

TheideanowknownastheCoasetheoremhasitsoriginsinarelativelysimplepropositionfirstlaidoutbyRonaldCoasein“TheFederalCommunicationsCommission”andfleshedoutshortlythereafter in “The Problem of Social Cost.” This proposition, labeled the “Coase theorem” byGeorgeStiglerin1966,hasgivenrisetoadecades‐longcontroversywithmanyattendantfacets,runningfromcorrectness(or“proof”)torealismtoideologytowhatthetheoremactuallysays.ThisaddressexaminesthediffusionofanddebatesovertheCoasetheoremfromtheperspectiveof“theorems”—towhatextentCoase'spropositionisorisnotatheoremandtheimplicationsofthis; the evolution of this proposition and the debate over it as this proposition came to beincreasingly classified as a theorem by economists and legal scholars, including the tensionsraised;andtherhetoricalforceofthetreatmentofCoase'spropositionasatheorem.It ismy intention that this addresswill be a conversation starter rather than a conversationender.Thehistoryoftheevolution,diffusion,andcontroversyovertheCoasetheoremhasmuchto sayabouteconomists'habitsof thoughtand theirway(s)ofdoingeconomics.Thisaddress

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will touch on aspects of this subject, but I hope that subsequent conversations with theassembledmembersofINEMwillhelptofillvariouslacunaeinthisstory.

SomeMisconceptionsaboutPreferences

DANIELM.HAUSMAN

UniversityofWisconsin­Madison

Saturday17:45–19:00SmallFestivalHall

In this talk,which isdrawnfrommybook,Preference,Value,ChoiceandWelfare (forthcomingthisyearfromCambridgeUniversityPress),Iarguethatpreferencesineconomicsareandoughttobeunderstoodastotalcomparativeevaluations.Theyareconsequentlymorelikejudgmentsthan feelings, and they are notmerematters of taste. They cannot be defined by choices (asrevealedpreferencetheoristsmistakenlymaintain),andtheycannotbedefinedintermsofself‐interest or expectedbenefit. In addition, in contrast towhatmany economists believe, I shallarguethateconomicsalreadycontainsanaccountofpreferenceformation,andthat itcanandshouldsaymoreabouthowagentsformandmodifytheirpreferences.

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1CrisisChair:NatalieGoldRoom6,Thursday16:00–18.00

Whydidmainstreameconomicsmissthecrisis?Theroleofepistemologicaland

methodologicalblinkers

KARINASTRIDSIEGMANN&JOHNCAMERONInternationalinstituteofSocialStudiesofErasmusUniversityRotterdam

Thefinancialandeconomiccrisisthathitindustrialisedcountriesin2008andwastransmittedtotheglobalSouthsubsequentlyhashaddevastatingeconomicandsocialconsequences.Whilethe global economy grew at a pace of 4.8 per cent in 2010, following a contraction in 2009,labourmarketsasmoreappropriateindicatorsofsocio‐economicimpacthavenotrecovered.In2010, therewere27.6millionmoreunemployedpeople in theworld as comparedwith2007(ILO2011).Comparativeanalysisoffinancialcrisessincethemid‐1990s(vanderHoeven2011)and current projections for these indicators for 2011 (ILO 2011) give reason to fear that thehumancostsofthecrisiswillcontinuetobehighdespitemacroeconomicrecovery.Economistsfollowingneo‐classicaleconomicsepistemologyanditsassociatedmethodologydidnotforeseethis crisis. This was despite prediction being heralded as empirical testing of rigorouspropositions being the main objective of the discipline since Friedman (1953). This paperinvestigates if conventionaleconomicmethodologies, rooted in logicalpositivistepistemology,havepreventedmosteconomistsfromdetectingcuspsintheeconomy.The epistemological stance of (neo‐classical) economics has been unquestionably logical

positivist.This implies relianceon the sensoryapparatus for generatingknowledgeabout theexternalworld,logictoscrutinisetheinternalconsistencyofargumentsandfalsificationasthepathway to progress in knowledge. The aimof economic science is perceived as amovementtowards patterns of increasingly greater generality. These epistemological features have hadmethodological consequences.Hypothesis testing has become themethodological corollary offalsificationineconomics.Whileitdoesnotrequireaquantitativeapproach,appliedeconomicsresearch commonly employs analytical statistics for this purpose, based on increasinglymathematised economic theory. The significance of coefficients is used as an indicator ofwhethermodelsaresupportedorrejectedbyempiricaldata(seeMcCloskeyandZiliak1996).Quantitative or quantifiable information is required for this process, largely reducinginformation about structural processes in an economy to categorical, ‘dummy’ variables tosmoothawaytheeffectsofdifferingcontextsinotherwisecrisis‐freerelationships.Models of human agency in its economic dimension realm are commonly based on the

assumption of individual choice at the margin, underpinned by an axiomatic economicrationality(BardhanandRay2006)thatreducesthefuturetoacalculationofexpectedvaluesandrationalexpectations.Sucha‘thintheoryofhumanaction’(Taylor1988)isassumedtogiveeconomicmodels their precision, parsimony and predictive power, criteria verymuch in linewith Popperian thinking. Methodological individualism implies that macro‐events are largelyperceived as being (caused by) aggregates of individual actions with limited interactivevariables. The equally linear structure of mathematical economic models allows taking intoaccount the large number of prices, commodities, and – last but not least – agents (Debreu1991).However,neitherlinearmodelsnorthesimpleaggregationofindividualactionsmaybeappropriatetopredicttippingpoints,suchasaneconomiccrisis.In this paper, we start with a summary of the links between neo‐classical economics and

logical positivist epistemology and its associatedmethodology.We showhow this limited thepossibility to predict crises as turning points in collective economic performance. We then

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explore an alternative epistemological/methodological stancedrawingon critical realism (e.g.Downward 2003; Lawson 1997, 2009; Sayer 1992). We conclude that the mainstreameconomicsfailuretopredictcrisesisinpartduetothelimitationsofamethodologyanchoredinalogicalpositivistepistemology.Drawingonarangeofheterodoxeconomistswhocanclaimtohaveforeseenthecurrentcrisis,wesuggesttheyshareaneconomicsmethodologyinformedbya critical realist epistemology, implicitly utilising and combining epistemological andmethodological concepts of empiricist, actual and a political economy structural processesoperatingatdiffering‘levels’ofrealitywhichincreasedtheprobabilityofatimelypredictionofcurrentandfuturecrises.

ReferencesBardhan,P.andI.Ray(2008)'MethodologicalApproachesinEconomicsandAnthropology',inJ.B.DavisandW.Dolfsma(eds)TheElgarCompaniontoSocialEconomics,pp.427‐444.Cheltenham;Northhampton:EdwardElgarPublishing.

Debreu, G. (1991) 'The Mathematization of Economic Theory', The American EconomicReview81(1):pp.1‐7.

Downward, P. (ed.) (2003)Applied Economics and the Critical Realist Critique.PsychologyPress.

Friedman,M. (1953) 'TheMethodologyofPositiveEconomics', inD.M.Hausman (ed.)ThePhilosophy of Economics: An Anthology, Vol. 2. pp. 180‐213. Cambridge: CambridgeUniversityPress.

Hoeven,R.vander(2011)'FinancialGlobalization,CurrentCrisisandLabourinDevelopingCountries', inP.A.G.vanBergeijk,A.deHaanandR.vanderHoeven(eds)TheFinancialCrisis and Developing Countries: A Global Multidisciplinary Perspective, pp. 127‐143.Cheltenham,UK;Northampton,MA,USA:EdwardElgar.

International Labour Organization (ILO) (2011) 'Global Employment Trends 2011: TheChallengeofaJobsRecovery',Geneva.ILO.

Lawson, T. (2009) 'The Current Economic Crisis: Its Nature and the Course of AcademicEconomics',CambridgeJournalofEconomics33(4):759‐777.

Lawson,T.(1997)EconomicsandReality.London;NewYork:Routledge.McCloskey, D.N. and S.T. Ziliak (1996) 'The Standard Error of Regressions', Journal ofEconomicLiterature34(1):97‐114.

Sayer,A.(1992)MethodinSocialScience.(2ndedn).NewYork:Routledge.Taylor, M. (1988) 'Rationality and Revolutionary Collective Action', in M. Taylor (ed.)RationalityandRevolution,Cambridge:CambridgeUniversityPress.

Déjà­vu?TheCurrentCrisisandMacroeconomicAnalysis:

The1970sRevisited?

JONATHANPERRATONUniversityofSheffield

Although comparisons have often been made between the current crisis and the GreatDepression, there are key parallels between the contemporary crisis and the 1970s in termsbothofdevelopmentsinmajoreconomiesbutalsointhequestionsraisedoverthedisciplineofeconomics.Notonlywerebothcriseswereprecededbyaperiodof stability,bothsawstrongclaims of the emergence of a consensus in macroeconomic principles and policy. Thus,Woodford,amongstothers,arguedthatmacroeconomicshadseensignificantconvergencesincethe1970swithgeneralagreementonfundamentalsasaresultofclearprogressinthediscipline.Other proponents of this view, such as Blanchard, have retreated somewhat at least from a

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strong version of this thesis in the light of the crisis. Recent economic developments raisequestionsoverhowfarthesedevelopmentsinmacroeconomicshelptounderstandthecurrentcrisis and,more generally, how far progress has been achieved inmacroeconomics. Both thecurrentcrisisandthatofthe1970ssawquestionsraisednotjustovermacroeconomicmodelingapproaches, but strikingly similar questions more generally on economic theorizing withrecurrentdebatesover the roleof rationality, equilibriumandmathematical theorizing in thediscipline. The periodization here of course is not exact –monetarist, and even new classicalcritiques, predated the mid‐1970s “stagflation”, just as critiques of “new consensusmacroeconomics”wereadvancedonvariousgroundsbeforethecurrentcrisis.Nevertheless,theyears after the 1970s crisis are a key point of comparison as a period when fundamentalquestionswere raised about the state ofmacroeconomics, contemporary developmentsweresaidtorefuteearlierdoctrines,andtheanswersthatemergedplayedakeyroleintheemergentconsensus said to characterize macroeconomics in the years before the current crisis. As anumberofauthorshavenoted,critiquesinthelightofthecurrentcrisishaveoftenfocusedonmicroeconomictheorizing–thepotentialroleofbehavioraleconomicsandsoon–ratherthandirectly macroeconomic issues. A similar debate to the 1970s has emerged over a range ofaspectsofthedisciplineinparttoapparentrefutationofdoctrinesbyeventsfrom2008.

This paper examines the broader contemporary controversies over economics following thecrisis in the light of the fundamental debates of the 1970s and early 1980s and the apparentresolution of these that led to the (claimed) consensus during the “Great Moderation”. ThisallowssomeperspectiveonthequestionthatBlanchardnotablyraisedasto“whatdoweknowaboutmacroeconomics thatWicksell and Fisher did not?” Such a question can be updated toenquirewhatweunderstandofthegenesisofthecurrentcrisisandpolicyresponsethatwouldnothavebeenunderstoodbyeconomistsinthe1970s.Thispaperthusintendstoshedlightoncontemporarydebatesovermacroeconomicsbutsituatingtheminthecontextofkeyrecurrentthemes.

2Behavioraleconomics,economics&psychologyChair:ArisSpanos Room7,Thursday16:00–18:00

BoundedRationalityandBoundedIndividuality

JOHNDAVISUniversityofAmsterdam/Marquette

The standard Homo economicus representation of the individual suffers from two mainproblemsasanindividualconception. First, itsexplanationof individuality iscircular,sinceitmakesbeinganindividualamatterofhavingasetof ‘own’preferences. Second, itrepresentstheindividualasadistinctutilityfunction,butthisdependsuponasetofaxiomaticassumptionsregardingpreferenceswhichhavebeenshowntobeempiricallyquestionable. ThustheHomoeconomicusutilityfunctionrepresentationoftheindividualneithertellsuswhatanindividualis,nor can be said to refer to single individuals in economic life. Indeed, theHomo economicusconception has been used to refer indiscriminately to single individuals, collections ofindividuals (firms and countries), parts of individuals (in rational self‐control theory andneuroeconomics),machines, andanimals. The implicationsare that there isnothingdifferentabout these different kinds of ‘individuals’ and that there is accordingly nothing about whatbeing an individual involves in the standardHomo economicus conception. Economists and

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philosopherswhoemploythestandardHomoeconomicusconception,itfollows,areengagedinformalism, defined as logical analysis without evident application to the world. Or worse,employingthestandardHomoeconomicusinvolvesimposingaformofanalysisontheworld(forexample, throughParetopolicyrecommendationthatpresupposesthisconception)whether itoffersanyexplanationoftheworld.How, then, could one go about developing an alternative conception of individuality foreconomics?Giventheconnectionbetweenaxiomaticrationalitytheoryandtheutilityfunctionrepresentationoftheindividual,empiricaldisconfirmationsofthestandardassumptionsaboutpreferences associatedwith economics’ bounded rationality theory researchprogram suggestindividuality might also be understood as bounded. On this view, what limits there are onrationality might be associated with related limits on the space in which individuals can beexplained to function as distinct and independent beings. This paper looks at two differentviewsofboundedrationality,andassociatesthemwithtwodifferentboundariesonthescopeofindividuality. These two different boundaries, between which we speak of individuals asdistinct and independent, are the sub‐personal boundary, beyondwhich individuals break upintomultipleselves–alsocalledthe‘fissionofagency’(Wilcox,2008)–andthesupra‐personalboundary,beyondwhichindividualsdissolveintosocialgroupsandsociallife–alsocalledthemany‘fusionsofagency’(Wilcox,2008).Prospecttheoryadvancesaviewofhowrationalityisboundedusingtheideaofreferencepointsthatpertainstothesub‐personalboundaryonindividuality.Sincea“changeofreferencepointalters thepreferenceorder forprospects” (KahnemanandTversky, 1979, pp. 286), and sinceindividuals are identified according to how they order their preferences (as in the standardHomo economicus view), changes in reference points break up individuals into collections ofreference‐dependentmultipleselves,andthisboundaryonrationalityidentifiesaboundaryonindividuality.Simon’sboundedrationalitytheory,incontrast,emphasizeshowrationalityisboundedinvirtueofbeingadaptedtotheenvironmenttheindividualoccupies,wherethisenvironmentincludesinteractionwithothers.Heandotherswhofollowhimrejecttheutilityfunctionrepresentationoftheindividual,andthisallowsforthepossibilitythatthewaysinwhichindividuals‘satisfice’dependsonhowotherindividuals‘satisfice.’Boundedrationalityinthisregardratherdirectsustothesupra‐personalboundonindividuality.Thesetwoboundedrationalityviewscombinedtogetherprovideonewaytomarkoffthespacewithinwhich individualsmayberegardedasdistinctand independent. At thesametime, thetwoboundariesonindividualityhelpdefineboundariesthatoperateonrationality.Thispaperdevelops this dual viewof rationality and individuality, and thenuses it to explain individualbehaviorasbeingmotivatedtostaywithinandnegotiatethesetwoboundariesonindividuality.Ineffect,individualsaremotivatedbytheneedtofunctionasindividualbeings.ReferencesKahneman, Daniel andAmos Tversky (1979) “Prospect theory: An analysis of decision underrisk,”Econometrica47:263‐291.

Wilcox, Nathaniel (2008) “Against Simplicity and Cognitive Individualism,” Economics andPhilosophy,24:523‐32.

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Lostinaversion:

Lossaversion,endowmenteffectandmechanisticextrapolation

JAAKKOKUORIKOSKI&ALESSANDROLANTERIUniversityofHelsinki&UniversitàdelPiemonteOriantale

Behavioural economics aims at improving neoclassical economics on its own terms – ie.,“generating theoretical insight, making more accurate predictions, and suggesting betterpolicies” (Camerer&Loewenstein2004,p.3)–bymeansofmethods inspiredbyothersocialsciences and particularly psychology. In this way, behavioural economics “increases theexplanatorypowerofeconomicsbyprovidingitwithmorerealisticpsychologicalfoundations:”increasedrealisticnessisindeeditsmainacknowledgedobjective.Thisenthusiasticrhetoricofan ever‐expanding league of behavioural economists seems justified by numerousmanifestationsofsuccess(Rabin2002,Sent2004,Bruni&Sugden2007).Thetwomostwidelycelebratedconceptsofbehaviouraleconomicsaretheendowmenteffectandlossaversion.Theyarewidely seen as exemplars of howbehavioural economics can increase the realisticness ofeconomicmodels.Weargue that thisclaim is tosomeextent inflated.This isbecause there issignificant confusionconcerningwhatexactly thediscoveredphenomenaare.Theconceptsofloss aversion and endowment effect are used loosely to attribute properties to market‐leveloutcomes,individualbehaviourandindividualpsychologicalprocesses.Thisimplicitambiguityhasmadeitpossibletoalwayspresenttheachievementsofbehaviouraleconomics inthebestpossiblelight.Experiments revealing the endowment effect are usually straightforwardly interpreted asevidenceoflossaversion.Endowmenteffecthasindeedbeenarobustfindingattheaggregatelevel, but at the individual level evidence for it has not been as strong. There are alternativeexplanations for therelevantgroup‐ormarket‐leveleffects (e.g.,PlottandZeiler2005;2007)and the arguments based on the alleged unifying power of the loss‐aversion hypothesis aresuspect.Wewillargue that the theoretical consequences,plausiblecandidates forexplanationand thekindof evidence thatwouldbe relevantdifferwith respect tohow loss aversion andendowment effect are conceptualized.Also thepromiseofmore realistic foundations remainsambiguous if theexactnatureof those foundations is leftbadlyspecified. Isrealismgainedbygiving more accurate descriptions of patterns of exchange, individual trading behaviour orchoice‐related cognitive mechanisms? Thus this practise of ambiguous concept‐use is notconducive to the original goal of providing more realistic foundations for economics andbehaviouraleconomistsshouldshowmorecareintheiruseofthecentralconceptsforthesakeofthedevelopmentoftheirownfield.Finally, we will argue that the enthusiastic embracing of the endowment effect and of lossaversion as its preferred explanation is symptomatic of behavioural economics of still being,well, too behavioural. In order to provide more realistic foundations which would actually“increaseexplanatorypower”behaviouraleconomicsshouldtakepsychologicaltheoriesofandhypothesis about cognitive processes driving the observed behavioural phenomena moreseriously.This isbecauseunderstoodaseitherobservedmarket‐leveloutcomesor individual‐level behavioural dispositions, both endowment effect as well as loss aversion areproblematically context sensitive in that there seems to bemany cases inwhich qualitativelyopposite behaviour is observed (e.g., Ert and Erev 2008; Harinck et. al. 2007). Reliableextrapolationofeitherlossaversionofendowmenteffectbeyondtheexperimentalsituationsispossible only when there is sufficient knowledge of the mechanisms underlying either theindividual‐ormarket‐leveleffect.Theassociatedexperimentsshouldbeseenasofferingcluesfor a comprehensive psychological theory of decision making, not as directly providingexplanatoryvariablesthatcouldsimplybepluggedintoeconomicapplications.Wewillusethe

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currentphilosophicalaccountsofmechanism‐basedextrapolationtooffertentativesuggestionsonhowtoproceedwiththisenterprise(Guala2010;Steel2008).ReferencesBruni, L. and R. Sugden. 2007. “The Road Not Taken: How Psychology was Removed from

Economics,andhowitMightbeBroughtBack”.TheEconomicJournal,117:146‐173.Camerer, C., and G. Loewenstein. 2004. “Behavioural Economics: Past, Present, Future”. In

Camerer, C., G. Loewenstein, and M. Rabin (eds.). Advances in Behavioural Economics.PrincetonandOxford:PrincetonUniversityPress.

Ert, E., and Erev, I. 2008. “The rejection of attractive gambles, loss aversion, and the lemonavoidanceheuristic”,JournalofEconomicPsychology29:715‐23.

Guala,F.2010.“Extrapolation,Analogy,andComparativeProcessTracing”,PhilosophyofScience77:1070‐1082.

Harinck,F,VanDijk,E.,VanBeest,I.&Mersmann,P.2007.”Whengainsloomlargerthanlosses;Reversedlossaversionforsmallamountsofmoney”PsychologicalScience18:1099‐1105.

Plott,C.,andK.Zeiler.2005.“TheWillingnesstoPay/WillingnesstoAcceptGap,the‘EndowmentEffect,’ Subject Misconceptions and Experimental Procedures for Eliciting Valuations”.AmericanEconomicReview,95(3):530‐545.

Plott, C., and K. Zeiler. 2007. “Exchange Asymmetries Incorrectly Interpreted as Evidence ofEndowment Effect Theory and Prospect Theory? ”. American Economic Review, 97 (4):1449‐1465.

Rabin,M.2002.“APerspectiveonPsychologyandEconomics”.EuropeanEconomicReview,46:657‐685.

Sent,E.M.2004. “BehaviouralEconomics:HowPsychologymade its (Limited)WayBack intoEconomics”.HistoryofPoliticalEconomy,36(4):735‐760.

Steel, Daniel 2008.Across the Boundaries: Extrapolation in Biology and Social Science, OxfordUniversityPress.

InvarianceandExtensionalityinTheoriesofChoice

SILVIALERNERUniversityofBuenosAires

Invariance is a fundamental and usually implicit assumption in any conventional theory ofdecisionmaking.Atleast,thisisthecommonlyacceptedview.Starmer(2000)andTverskyandKahneman(1986), forexample,agreeonthisposition.Theprincipleof invarianceassertsthatdifferentdescriptionsofthesamechoicesettingshouldleadtothesamechoices.TverskyandKahnemanidentify,likeArrow(1982),invarianceandextensionality,andsaythatextensionality functions like a non testable principle in ExpectedUtility Theory (EUT): “Thisprincipleofinvariance(orextensionality(Arrow,1982)),issobasicthatitistacitlyassumedinthecharacterizationofoptionsratherthanexplicitlystatedasatestableaxiom”.I shall argue that invariance is thedecision‐theoretic versionof extensionality – thedifferentnamesduetoanhistoricalreason.AndI’llshowthatinaformalizedtheory(infirstorderlogicor,atleast,inalogicthatcontainstheaxiomschemeofsubstitutionofidentity(1)),invarianceissimplyacase(aninstance)ofthisaxiom.So,itisanexplicitaxiomofthetheory.Andalogicalone.Infact,onlyininformaltheoriesinvariancecanremainasanimplicitassumption.Tested on experimental settings EUT faces persistent anomalies when interpreted as adescriptivetheoryofthedecisionsofrealhumanbeings:invariancefails.ProspectTheory(PT)accountsforthisatypicalanomalies.Thisfailurehasnotthesamestatusthatfailuresofproperaxioms of EUT like dominance, transitivity or independence. In the case of invariance, it is a

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logical axiom that is being violated. And this fact induces the strategy of a change in theunderlying logic of PT. The contradiction between theory and reality is solved changing thelogic.AnewsystemisconstructedtomodelPT.Anintensionallogicisused,thatrestrictthelogicalprincipleofextensionality.Thus,invariancedoes not arise; it drops as a consequence of the restrictions in the axiom of substitution ofidentity.Thisstrategyshowsthat,asTverskyandKahnemanwanted,extensionalityisatestable(though logical)principle,andnotanunquestionableone.But thechangeof logic leadsus tophilosophicalproblems.Thelegitimacyofthestrategyconsistinginchangingthelogictosolveanomaliescanbetracedback to Quine´s “Two Dogmas of Empiricism”. According to Quine, when facing anomaliesscientists could attempt any modification in the theoretical net (even to change logicalsentences) to restore consistencewithin the system.But our purpose of disturbing as less aspossiblethetheoreticalnetusuallyleadustorestrictthechangestothosesentencesthatbelongtotheperipheryofthesystem.This strategy, necessary to avoids undesirable consequences, results however insufficient tomodelPT;desirableconsequencescannotbeobtained,andthesystemresultsincomplete.Forthis purpose, I shall extend the domain of the theory introducing additional entities, that is,changingtheontology.(1)SubstitutionofidentityrepresentsextensionalityforthecaseofindividualsymbolsReferencesAhn,D.andErgin,H.(2010):“Framingcontingencies”,Econometrica,Vol78,pp655‐695.Bourgeois‐Gironde,S and Giraud, R. (2009): “Framing effects as violations of extensionality”,TheoryandDecisionVol67pp385‐404.

Carnap,R.(1947):MeaningandNecessity.AStudyinSemanticsandModelLogic.TheUniversityofChicagoPress.ChicagoandLondon.

Hodges,W. (1983):“Elementary Predicate Logic” enHandbook of Philosophical Logic. Vol 1. DReidelPublishingCompany.Dordrecht.,Holland.

Kahneman,D. andTversky,A. (1979), “ProspectTheory:AnAnalysis ofDecisionunderRisk”.Econometrica,Vol47,No.2.pp263‐292.TheEconometricSociety.

Quine,W.V.O.,TwoDogmasofEmpiricism,ThePhilosophicalReview60(1951):20‐43.ReprintedinW.V.O.Quine,FromaLogicalPointofView(HarvardUniversityPress,1953)

Quine,W.V.O., (1966) “Three Grades of Modal Involvement”,TheWays of Paradox and OtherEssays.RandomHouse.NewYork.

Starmer, Chris, (2000), “Developments in Non‐Expected Utility Theory: The Hunt for aDescriptiveTheoryofChoiceunderRisk”, JournalofEconomicLiterature,Vol.,XXXVIII,pp.332‐382.

Tarsky,A. (1956), “TheConceptofTruth inFormalisedLanguages, inTarski” Logic,SemanticandMetamathematics.OxfordUniversityPress

Tversky,A.,andKahneman,D.(1981),“TheFramingofDecisionsandthePsychologyofChoice”.Science,NewSeries,Vol211,No.448.pp453‐458.AmericanAssociationfortheAdvancementofScience.

Tversky, A., and Kahneman, D. (1986), “Rational Choice and the Framing of Decisions”. TheJournalofBusiness,Vol59,No.4.ppS251‐S278.TheUniversityofChicagoPress.

VonWright,G.H.(1967):Lalógicadelapreferencia.EUDEBA.Bs.As.

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3FoundationsofchoicetheoryChair:ConradHeilmannRoom15,Thursday16:00–18:00

Cost–SignalingTheoryofPreferenceFormationandsomeofitsImplications

PAULFUDULU

UniversityofBucharest

Two obstacles have barred the revelation of a mechanism of preference formation: (1)satisfactionhasbeen takingasa final endand (2)economistshave focusedon the shapingofpreferences forordinarygoods,acase inwhichcausalconnectionsarevery intricate. It is theformationofculturalpreferencesfor theall‐inclusivemegagoodsabsolutewealthandrelativepowerandlookingatpreferencesasameansforsupportingtheanti‐entropicprocessthatlifeiswhichrevealsaclearandsimplerule:preferencerankingsareformattedinverselyrelatedtotheopportunitycostsofthingsandactionsthathumansface.

Thebasic ideaof thispaper is thatpreferenceshave theroleofemotionalsignals forefficientbehaviorandthattheyeconomizeonourknowledgeandtheabilitytounderstandtheintricatecausal relationships among the phenomena that are relevant for trapping low entropy andsurvival.Inmorepreciseterms,preferencesareemotionalsignalsforthepastopportunitycostsof trapping the lowentropycontainedbydifferentcomponentsof individuals’external reality(members of the human species included) and they are formatted inversely related to theseopportunity costs. From thisperspective,becausedifferent individuals facedifferent realitiesthat are in a continuous change, in sharp contrast with Becker, preferences of differentindividualsshouldbefundamentallydifferentandincontinuouschange.

Degustibusnonestdisputandum(Inmattersoftastes,thereisnoargument)notbecausetastesdonotchangeordonotdifferamongpeoplebutbecausealltastescanbeaccountedforbasedonindividuals’differentandchangingopportunitycostsoftheactionsandobjectstheyemployin the struggle of life. This fundamental idea of preference formation does not circumvent “ageneralizedcalculusofutility‐maximizingbehavior”. Onthecontrary, it is justthemaximizingcalculusthatgoesbeyondmaximizingutilitythatexplainshowpreferencesareformatted.AsanironytoBecker’sefforts toconstructabetterexplanatorytheoryofhumanbehaviorbasedonopportunity costs and avoiding changes in preferences, this theory of preference formationprovesthatpreferencesthemselvesarefundamentallytakingintoaccountopportunitycosts.

Instatingandproving the inverserelationshipbetweenthepreferencerankingofactionsandobjectsandtheiropportunitycosts,Ididnotmainlyrelyonexamplesrelatedtoordinarygoods.Itisratherthestudiesmadebysociologistsandbio‐sociologistsonaspecialtypeofpreferences,namely cultural preferences, especially Hofstede’swork, whichweremy starting point. Thisinverserelationshipisthenemployed,asatestingofitsdescriptivepower,inexplainingatleasttwo unsolved problems: (1) the cause of the quasi‐general or systematic corruption affectingmost of the less developed countries and (2) the mechanisms by which the relative powerinequalities are inversely related to the hardship of nature and economic performance ofdifferentcountries. Incidentally, thepaper touchesupon twoother importantproblems:onebelongstoeconomicsandconsistsinthestrangeabsenceofaninstitutionalchoiceframework;theotherbelongsrathertosociologyoranthropologyandconsistsintheformationofculturalpreferences.

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IseveryMeasurementaStructure­Homomorphism?

ADOLFOGARCIADELASIENRA

UniversityofVeracruz

Therepresentationaltheoryofmeasurement(cf.LuceandSuppes2002;Michell2007)seemstoclaimthatanymeasurementinanyscientificdisciplinecanberepresentedasahomomorphismfromanempiricalsystemintoanumericalsystemofthesamesimilaritytype.Butthisthesisisambiguous.Itmaymean:(1)thatanyfundamentalmeasuringprocessmustbecarriedoutupona relational system representing the structure of the measured attributes; (2) that anymeasuringwhatsoevermustbecarriedoutuponarelationalsystemrepresentingthestructureofthemeasuredattributes;or(3)thattheresultofanymeasuringprocess,nomatterhowitisperformed, can be represented as a homomorphism from a suitable empirical system into anumericalsystem.Asamatteroffact,thefamousFoundationsofMeasurement(Krantz,Luce,SuppesandTversky2007) is aworkdevoted to fundamentalmeasurement. But noneof the authors, in particularSuppes, ever pretended that every measurement had to be fundamental; i.e. independent ofothermeasurements.Hence,noneof the thesis (2)or (3)aredefendedorevenconsidered inthatwork.Moreover,itisobviousthatthesis(2)isfalse.Theaimofthepresentprojectistoarguethatboth(1)and(3)aretrueineconomics,butalsotoaddresstheinterestquestionofwhetheranynon‐fundamentalmeasurement ineconomicspresupposessomefundamentalmeasurement.Suppes(1988,p.27)suggeststhattheanswerispositivein“developeddisciplines”:Indeveloped scientificdisciplines the roleof fundamentalmeasurement isusuallybehind thescene,sotospeak,forthefundamentalmeasurementneededhasalreadybeenestablished.Claim (3) would seem to imply that any structure representing a measurement must beaxiomatizable, but Schlimm (2008) has argued that relation‐rich domains, domains with fewobjectsandarichrelationalstructure,donotlendthemselvestoaxiomatization.Thisseemstobeaseriousobjectiontotherepresentationaltheoryofmeasurementandwillalsobeanalyzedbytheproject.ReferencesBoumans,M.,2007,MeasurementinEconomics.AHandbook,Elsevier,Amsterdam.D.H. Krantz, R.D. Luce, P. Suppes and A. Tversky, 2007, Foundations of Measurement, 3vols.,Dover,Mineola,NY.

Luce,R.D.andP.Suppes,2002,“RepresentationalMeasurementTheory”,inWixtedandPashler2001,pp.1–41.

Michell,J.,2007,“RepresentationalTheoryofMeasurement”,inBoumans2007,pp.19–39.Scheibe,E.(ed.),1988,TheRoleofExperienceinScience,WalterdeGruyter,NewYork.Schlimm,D., 2008, “TwoWays of Analogy: Extending the Study of Analogies toMathematicalDomains”,PhilosophyofScience,vol.75,pp.178–200.

Suppes,P.,1988,“EmpiricalStructures”,inScheibe1988,pp.23–33.Wixted,J.andH.Paxler(eds.),2002,Stevens’HandbookofExperimentalPsychology,vol.4,Wiley,NewYork.

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Underdetermination,Multiplicity,andMathematicalLogic

SALIMRASHIDUniversityofIllinois

Thatdatadonotserve touniquelydetermine theories,or, that therearealwaysmanytheoriesconsistentwithanycollectionofdatahas longbeenoneof themoreprovocativeandstimulatingquestions intheHistoryandPhilosophyofScience(1).This issuehastraditionallybeencalledthe ‘underdeterminationof theoriesbydata’,a labelwhich focusesattentionupondata;itisequivalenttotheclaimthat,foranygivencollectionofdata,manyexplanationsexist.As the latter version emphasis the multiplicity of possible explanations, which is of greaterinterest, I shall hereafter refer to the question as “Multiplicity”. While the discussion ofMultiplicity (underdetermination) has been conducted in both historical and philosophicalterms, Iwill argue that certain data fromMathematics, particularly fromMathematical Logic,greatlystrengthenourconfidenceinMultiplicity.Inissuesofsuchcomplexityourargumentsareseldomdecisivebutrathertrytoshiftthebalanceofplausibilityinagivendirection.TheresultsofMathematical Logicprovide adefinite tilt in favorof ‘underdetermination’ andMultiplicity.TheargumentisbasedonSciencebeingexpressedasanaxiomaticsystem;thistiltsittowardsmodernphysics,butwhatislostingeneralityisgainedinprecision.

This‘under‐determinationoftheoriesbydata’posesasevereproblemifwebelievewecanapproachtruthbythepatientiterationthatistheepitomeofscientificprogress.Multiplicitytellsusthatnomatterhowmanydataweexplainwithatheory,therearealwaysotherpotentialtheories thatwill serve to explain the samedata (2). Ifwe call the theory that explains givenempiricaldatathe'model'generatingthosedata,thentheclaimisthat"multiplemodelsalwaysexist."Thisposesaconundrum.Ifseveraldifferentmodelsareequallyexplanatoryoftheknowndata,whicharewetochoose?Whatisitthenthatledustochooseaparticularmodel?(3)Isitpolitics,philosophy,cultureoreconomics?(4)

Letustryasimplerproblemfirst.Supposewewritedowntherulesforplayingtick‐tack‐toe,alsocalled ‘noughtsandcrosses’.Thenwewandertheworldwiththeserulesinhandandask everyone and every people we meet, ‘Do you know of a game that obeys these rules?’.Supposesomeonesays‘yes’.Willthegametheypresentusbetick‐tack‐toe,exceptfor,say,theiruseof trianglesandsquares insteadofknotsandcrosses?Wecanactuallyprove that indeedeverysuchgamewillbetick‐tack‐toe.Suchmodelsarecalledcategoricalmodelsandwhentheyexistwehavegoodgroundsforsayingthatwecanuniquelymodelthephenomenoninquestion(tick‐tack‐toe in our case). When a logical system is not categorical, more than one ‘reality’satisfies the rules of the system,‐‐ the axioms (5). At least since thework of Thorlaf Skolemaround1920logicianshaveknownthatcategoricalmodelsareveryrareandscarcelyexistforanymodelofrealinterest.(6)ThepracticeofPhysics is innowayaffectedbyMultiplicitysincethemodernviewis that if itworks, it is real‐‐‐ What may be called “Science is Engineering”. However, there will besubstantial implications for Economics. Using the claim that Occam’s razor is amark of goodscience,economicshastriedhardtoprovideaparsimonioussetofassumptionstoexplaintheeconomicworld.Thedifficultywithsuchaprocedureisthat itplacesEconomics inaconstantimpasse.Considertheexplanationof sharecroppingasamethodforthe leasingof land.Sincesharecroppingisvirtuallyuniversal,thereshouldbesomerobustreasonforitsprevalence.Toderivetheconsequencesofsuchalease,economistsusedtheassumptionsof

• perfectcompetition,• completecertainty,• costlessenforcementofcontracts.

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Thereexistsgoodempiricalsupportforthefalsityofeachofthethreeassumptions‐‐‐certaintyinparticularbeingsomewhatlaughableforthecaseofagriculture.Aftersomeseventyyearsofusingsuchamodel,itwasrealizedthatthemodelwasnotconsistentwithoptimizingchoice.Atleast one of the three bulleted assumptions had to be sacrificed. But this then led to anembarrassmentofriches‐‐‐wecanderivesharecroppingasanoptimalchoicebygivingupanyoneofthethreeaforesaidassumptions.Thepracticalproblemforeconomistsisnotthefindingof a model for the empirical phenomenon, since many such models exist; the interestingquestionischoosingtheapplicablemodelfromamongthedozenthatcanbeformulated.Oncewe appreciate the prevalence and importance of Multiplicity, we see that good economicsconsistsnotintheabilitytorefineagivenmodelbuttoconstantlykeepseveralmodelsinmindand to use the most relevant one. This requires a change in our mindset about the relativeimportanceof theoryanddata,aswellasabout the importanceofunderstanding institutionaldetailinthetrainingofaneconomist.ReferencesGiere,RonaldN.,ScienceWithoutLaws;(1999);UniversityofChicagoPress.QuibriaMGandSalimRashid“ThePuzzleofSharecropping”WorldDevelopment(1984)‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐1)ThisshouldnotbeconfusedwiththeDuhem‐Quinethesis‐‐‐theclaimthattheoriescanonlybetestedasawholeandthatcrucialtestsarethereforedifficult,ifnotimpossible.2)Intermsoftherecentdiscussiononcontingencyverusinevitability,thethesisofMultiplicitydefinitelymakesourexplanationsofthephysicalworldcontingent.SeethesymposiuminStudiesinHistoryandPhilosophyofScience.EdLenaSolar(May2008)3)Iuse terms like theoryandmodel somewhat looselyherebutprovideamorecareful account in thepaper. JollyMathen has pointed out that my thesis can perhaps be more accurately described as “the Multiplicity(orunderdetermination)ofmodels.”4)Giere,(1999),237..5)The fact that therearesomecategoricalmodels iswhatmakes theclaimof thispaperdistinct fromthegenerallogicalpointdescribedbyGiere(1999),237‐241.Gieredoesnotmakeitclearwhatbasishehasforsuchawideclaim.6)FarmoreexpertlogiciansthanIcaneverpretendtobehaveaddressedthephilosophyofscience,soitiscuriousthatnoonehastakenthelineofargumentIamadopting.

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1Econometrics&CausationChair:JaakkoKuorikoski Room6,Friday10:45‐12.45

CausalStructureandHierarchiesofModels

KEVINHOOVERDukeUniversity

Economics places a high premium on completeness of explanation. Typically general‐equilibriumaccountsofeconomicphenomenaarepreferredtopartialequilibriumaccountsonthe ground that important interactions are necessarily omitted in the latter. A similarpreference formicrofoundationalexplanationsovermacroeconomicexplanationsofaggregatephenomena is grounded in similar reasoning. Probabilistic accounts of causation frequentlypresume thatgreaterdetail is superior to less. Simpson’sparadox, forexample, assumes thatfailuretoaccount fordistinctionswithinpopulationsresults in falseconclusions.Strategiesofcausal refinement – e.g., distinguishing between direct and indirect causes – are similar.However,therearecountervailingpracticesineconomics.Representative‐agentmodelsaimtocapture economic motivation but not to reduce the level of aggregation. Structural vector‐autoregressionmodelsanddynamicstochasticgeneral‐equilibriummodelswithsmallnumbersofvariablesareoftenpracticallypreferredtooneswithlargenumbers.Thedistinctionbetweenendogenousvariablesdeterminedwithinacausalsystemandexogenousvariablesdeterminedindependently of the causal system suggests a partitioning of the world into distinctsubsystems.Thispaperwillexplore this tension. IadvocateastructuralaccountofcausationgroundedinHerbertSimon’s“CausalOrderandIdentifiability”(1953),whichdefinescausewithreference to complete systems. But any workable causal epistemology must deal withincomplete systems andpiecemeal evidence. Themain formal focus of the paper is to betterunderstand the constraints that a structural account of causation places on the freedom tomodel complex or lower‐order systems as simpler or higher‐order systems. The mainepistemological focus is to understand how and to what degree piecemeal evidence can beincorporatedintoastructuralaccount.

Causalmodelsandtheircausalinterpretationineconometrics

ALESSIOMONETA&FEDERICARUSSOMaxPlanckInsituteofEconomicsJena&UniversityofKent

Researchinempiricaleconomicsmakesextensiveuseofstatisticalmodelsinordertoestablishcausal relations. The question arises as to what guarantees the causal interpretation of suchmodels. The issue has been hotly debated both in the econometric and in the philosophicalliterature.Yet,asnoconsensusasbeenreach,thequestionisstillopenandworthdiscussing.Inthis paperwe advance the view that causalmodels are ‘augmented’ statisticalmodels in thatthey incorporate important information contributing towards their causal interpretation.Moreover,interpretingastatisticalmodelincausaltermshastobeunderstoodasanepistemicactivitywherebycausaltalkbecomesalwaysrelativetoamodelofreference.Economists and philosophers alike will promptly agree on a broad distinction betweenassociationalmodelsontheonehandandcausalmodelsontheotherhand.While‘associationalmodels’ simply aim at making claims about associations and about conditional distributions,‘causal models’ go further in aiming at uncovering causal relations. It is worth noting thatassociationalmodelsgobeyondtheso‐called‘descriptive’statisticsandmakeuseof‘inferential

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statistics’ as well: they aim to establish whether the data is a representative sample of atheoreticaldistribution(ordatageneratingprocess)andmakeinferencesaboutthepropertiesof thisdistribution fromthedata.However, theseclaimsexclusively refer toassociations (i.e.,theyinferstatisticaldependencies)andaboutconditionaldistributions.Notwithstandingthelargeagreementonthisissue,moreneedstobesaid.Whatisatstakeisinfacttospecifythefeaturesofassociationalmodelsandofcausalmodelsinordertounderstandhow causal models, under certain conditions, can draw causal inferences from statisticaldependenciessuchascorrelations,whileassociationalmodelscannot.Inthepaper,wepresentassociationalmodelsandcausalmodels,pointingatdifferencesat three levels: (i)backgroundknowledge,(ii)assumptions,and(iii)methodology.Furthermore, we elaborate on the meaning and import of statistical and causal informationconveyed by associational and causal models. In a nutshell, whilst associational models onlyconveystatisticalinformation,causalmodelsalsoconveycausalinformation.Weareaddressingthefollowingquestions:Whatisthedifferencebetweenstatisticalandcausalinformation?Andmostly,is‘causalinformation’introducingaviciouscircle?Oncewehavegivenmethodologicalargumentsaboutthekindofassumptionsandtheamountofbackground knowledge needed in order to make the step from an associational to a causalmodel,wemovetomorephilosophicalconsiderationsaboutwhatitisto‘interpretastatisticalmodelcausally’.Traditionally,oneofthetasksofphilosophyofcausalityistoprovideanaccountofwhatmakesacausalclaimtrue.Thatis,thetaskistoestablishtheconditionsunderwhichanagentwouldbepreparedtoacceptaclaimofthetype‘AcausesB’astrue.Therecentliteraturehaspolarisedaroundtwomainsolutions.Ontheonehand,inmechanisticaccountstheclaim‘AcausesB’ is true in virtue of there being amechanism linking the two.On the other hand, in‘difference‐making’ accounts the claim ‘A causes B’ is true in virtue of there being someappropriatedifference‐makingrelation(probabilistic,counterfactual,ormanipulation)betweenAandB.Notably,RussoandWilliamson(2007)developanargumenttoshowthatthemistakedone ineachoftheabove‐mentionedaccountsistoreducetheconceptofcausationtoeithertheconceptofmechanismorof(anappropriate formof)difference‐making.RussoandWilliamson(2007)gooninarguingthatthemainproblemistheconfusionbetweentheveryconceptofcausation,andtheevidenceneededinordertoestablishacausalclaim.Causalclaims,intheiraccount,areestablished on the basis of evidence ofmechanisms and of difference‐making. The concept ofcausation is instead provided by the ‘epistemic theory’, according to which, simply put,causation has to dowith the (causal) inferenceswe are allowed tomake on the basis of theavailable evidence, background knowledge, and methods. The causal inferences we areinterested in typically concernexplanation,prediction, andaction suchaspolicy intervention.Causation, in other words, is not a physical object existing out there in the world but is anepistemic category that we, the agents, use to chart the world in order to make successfulinferences.Here, we endeavour to support the causal interpretation of statistical models through this‘epistemic’ way, along the lines of Williamson (2005, 2006). The reasons to endorse theepistemicaccountarethefollowing.Ontheonehand,reducingtheconceptofcausationtotheconceptofmechanism,ofdifference‐making,orofsomecombinationofthetwodoesnotsolvetheproblemofestablishingwhatcausationis.Infact,manycounterexamplescanbeconstruedtounderminemechanistanddifference‐makingaccounts.Sofar,instead,nocounterexamplehasbeen provided to undermine the epistemic theory. On the other hand, andmost importantly,providing an account of the conditions under which we are entitled to interpret a statisticalmodelcausallygoesbeyondthenarrowertaskofprovidinganaccountofwhatmakesacausalclaimtrue.Causalmodelscannotinfactbereducedtosimpleclaimsoftheform‘Smokingcauses

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lungcancer’.Standardapproachesinphilosophyofcausalityjustfocusonthenarrowquestionofwhatallegedlymakesacausalclaimtrue,neglectingthatinterpretingacausalmodelcausallyinvolvesmuchmorethanfindingatruthmaker:itinvolvesdecidingwhetherthecausalmodelisvalidornot.Thedecisionis,orsoweshallargue,anepistemicactivity.Inanutshell,wesupporttheviewthat interpretingastatisticalmodelcausally isanepistemicactivity. This means that causality has to do with making successful inferences rather thanfinding truthmakers of causal claims. In particular, the causal interpretation of a statisticalmodeldoesnotmerelydependofthephysicalandobjectiveexistenceofmechanisms.Instead,mechanisms are involved in causal modelling in terms of what Machamer et al. (2000) call“mechanismschemata”,thatisabstractdescriptionsofrealmechanisms.Thus,mechanismsdonotmakecausalconclusionsdrawnfromcausalmodelstrue,butarewhatepistemicallyconveysexplanatorypower to thosemodels.Moreprecisely,opening the ‘blackbox’ serves the roleofconferring explanatory power to the causal model because it is only by describing themechanism thatwe answer ‘how’ questions. Truthmakers of causal claims should instead beseenasevidentialcomponentsthatsupportacausalinterpretation.Amainconsequenceof thisview is thatcausality is relative to themodel: therecanbecausaltalkonlywithina(valid)causalmodel.FollowingWilliamson,causalityisanepistemiccategoryaccording towhichwe interpret the observed reality rather than a physical relationbetweentwoobjects‘outthere’intheworld.Thus,‘augmentation’ofstatisticalevidence(associations)isacausal interpretationof thereality framedinamodel.Butcausalclaims ineconometricsaremodel‐dependent inanother, lessdirect,way.Statistical evidence,onwhich firstassociationalmodelsandthencausalmodelsarebased,isrelativetothestatisticalmodel,becauseisinferredin its frame. This simple fact renders causal claims (when inferred in the framework of anaugmentedstatisticalmodel)inafurthersensemodel‐dependent.Thedependenceofstatisticalevidenceonthestatisticalmodelhassometimesbeenneglected,asdataareoftenviewedasiftheywerealreadystatisticalevidenceandnotasampleofanunobservedorhypotheticaldatageneratingprocess.Thisneglectisapparentinempiricalworksinwhichcorrelationsorlinearregressionfunctions,whichinvolvepreciseassumptionsaboutthedatageneratingprocess,areestimated before testing any feature of the data generating process, so that onemay get badsampleestimatesofpopulationvaluesparameters(cfr.Spanos1990).Thisdoublemodel‐dependencehas twocorollaries.The first is that the inferredcausalclaimsshould be always considered fallible and open to revision, once more reliable backgroundknowledge becomes available. The second is that the statistical evidence upon which causalclaimsarebasedshouldalsobeconsideredfallibleandopentorevision:itisalwaysconceivablethatamoreappropriateformalisationofthedatageneratingprocess(perhapsduetoprogressin statistical methods) delivers a more accurate statistical model and hence a more validstatisticalevidence.

TheUntrustworthinessofEmpiricalEvidenceinEconomics:

Statisticalvs.SubstantiveInformation

ARISSPANOSVirginiaTech

The paper discusses the difference sources of error in econometricmodeling, but focuses onhowthetraditionaltextbookapproachtoeconometrics,byconflatingstatisticalandsubstantiveinformation, has contributed significantly to the mountains of untrustworthy evidenceaccumulatedoverthelastcentury.Inanutshell,theproblemisthatwhenone’sfavoritetheory

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isfoistedonthedata,theendresultisinvariablyanempiricalmodelwhichisbothstatisticallyandsubstantivelymisspecified,butonehasnoway todisentangle the twosourcesoferror inordertodrawreliableinferences.It is argued that ignoring statisticalmisspecification, and focusingexclusivelyongoodness‐of‐fit/prediction, substantive and other pragmatic criteria for the evaluation of the statisticalmodels, has proved a disastrous strategy for learning from data. Moreover, the traditionaltextbookstratagemsoferror‐fixingdesignedtoalleviatestatisticalmisspecificationoftenmakemattersworse.Using the Linear Regression (LR) as the quintessential statistical model in econometrics, thepaperillustrateshowtheconfusionbetweensubstantiveandstatisticalassumptionspermeatethe traditional textbook econometric modeling and gives rise to all kinds of misleadinginferences.Theproblemsraisedareillustratedusingthesocalledomittedvariablesproblemineconometrics,wherethesearchforsubstantivelysignificantexplanatoryvariableswilloftenbeled astray by unreliable inference procedures due to statistical misspecification; see Spanos(2006).ThepaperarguesthatsomeoftheconfusionsareintroducedintoempiricalmodelingbythePre‐EminenceofTheory(PET)perspectivethathasdominatedmodelingineconomicssincetheearly19thcentury.Thesemodelingproblemsarenotuniquetoeconomics.Theyalsoariseinthe context of the Akaike‐type model selection and Cross‐Validation procedures which seemdifferentbecausetheyaremorestatisticallyoriented.Itturnsout,however,thattheirprimarydifference is that they often rely on alternative forms of substantive information, includingmathematicalapproximationtheory;seeSpanos(2010).Thereluctancetovalidatethestatisticalpremisesineconomicsistracedprimarilytoattributinga subordinate role to the data and conflating the statistical and substantive premises ofinference.Thisconfusionalsopervadeslocutionslike‘allmodelsarewrong,butsomeareuseful’usedtoquestiontheroleofstatisticaladequacybecauseoftheinevitabilityofmisspecification.Thepapercallsintoquestionsuchlocutionsbyshowinghowitconflatestwodifferentaspectsofempiricalmodeling(Spanos,2009):(a) the realisticness of the substantive assumptions (Maki, 2000) comprising the structuralmodel(substantivepremises),vis‐a‐visthephenomenonofinterest,with(b) the validity of the probabilistic assumptions comprising the statistical model (statisticalpremises),vis‐a‐visthedatainquestion.It is fair to say that, in addition to the PET perspective, the current state of affairs ineconometrics isalsotheresultofsomeseriousneglect inmodernstatisticsoftheproblemsofmodelselectionandvalidation.Asarguedbyoneofthepioneersofmodernfrequentiststatistics:“Thecurrentstatisticalmethodologyismostlymodel‐based,withoutanyspecificrulesformodelselectionorvalidatingaspecifiedmodel.”(C.R.Rao,2004,p.2)Theerrorstatisticalapproach(Mayo,1996),describedinthispaper,addressestheseproblemsby proposing specific rules for model specification and validation that differ markedly fromother criteria used by traditional approaches like theory‐driven modeling and Akaike‐typemodelselectionprocedures.

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In Error Statistics, the sole criterion for securing the reliability of inference is statisticaladequacy [the assumptions of the statisticalmodelMθ(z) are valid for data z0]. Goodness‐of‐fit/predictionisneithernecessarynorsufficientforthat(Spanos,2007):MisspecifiedMθ(z)⇒invalidlikelihoodL(µ;z0)⇒wrong‘fit’measure.Statisticaladequacyensuresthattherelevantactualerrorprobabilitiesapproximatecloselythenominalones.Thepresenceofstatisticalmisspecificationinducesadiscrepancybetweenthesetwoerrorprobabilities.Thesurestwaytoleadaninferenceastrayistoapplya:05significanceleveltestwhenitsactualtypeIerrorprobabilityiscloserto:99.Thissituationisalotmoretypicalthanmostmodelersthink!Unlessthestatisticalpremises(M?(z))underlyinganyformofinductiveinferencearevalidatedvis‐a‐visdataz0,theresultsarelikelytobeuntrustworthy,derailinganylearningfromdata.Inerrorstatisticsmodelvalidationplaysapivotalroleinprovidinganobjectivescrutinyofthereliability of inductive procedures; objectivity in scientific inference is inextricably bound upwiththereliabilityofitsmethods.ObjectivitydoesnotstemfromthemerefactthatoneassumesastatisticalmodelMθ(z).Instead,itstemsfromestablishingasoundstatisticallinkbetweentherealworldphenomenonofinterestthatgaverisetodataz0andtheprespecifiedthestatisticalmodelMθ(z).Errorstatisticsproposesamethodologyonhowtospecify(Specification)andvalidatestatisticalmodelsbyprobingmodelassumptions (Mis‐Specification(M‐S) testing), isolate thesourcesofdepartures,andaccountfortheminarespecifiedmodel(Respecification)withaviewtosecurestatistical adequacy; seeMayoandSpanos (2004). Sucha statistically adequatemodel is thenusedtoprobethesubstantivehypothesesofinterest.ThepaperalsodefendsM‐Stestingagainstchargeslike:(a)infiniteregress,(b)circularity,(c)illicitdouble‐useofdata,and(d)erroneousdiagnosis?References[1]Maki,U. (2000), “ReclaimingRelevantRealism,” JournalofEconomicMethodology,7:109‐

125.[2] Mayo, D. G. (1996), Error and the Growth of Experimental Knowledge, The University of

ChicagoPress,Chicago.[3] Mayo, D. G. and Spanos, A. (2004), “Methodology in Practice: Statistical Misspecification

Testing,”PhilosophyofScience,71:1007—25.[4] Rao, C. R. (2004), “Statistics: Reflections on the Past and Visions for the Future,” Amstat

News,327:2‐3.[5] Spanos, A. (2006), “Revisiting the omitted variables argument: substantive vs. statistical

adequacy,”JournalofEconomicMethodology,13:179—218.[6] Spanos, A. (2007), “Curve‐Fitting, the Reliability of Inductive Inference and the Error‐

StatisticalApproach,”PhilosophyofScience,74:1046—1066.[7]Spanos,A.(2009), “ThePre‐EminenceofTheoryversustheEuropeanCVARPerspective in

Macroeconometric Modeling,” Economics: The Open‐Access, Open‐Assessment E‐Journal,Vol.3,2009‐10.http://www.economicsejournal.org/economics/journalarticles/2009‐10.

[8] Spanos, A. (2010), “Akaike‐type criteria and the reliability of inference: Model selectionversusstatisticalmodelspecification,”JournalofEconometrics,158:204‐220.

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2Choicetheory(discounting)Chair:MariamThalosRoom7,Friday10:45‐12:45

TheShapeandMeaningofDiscounting:

ExchangesBetweenEconomicsandPsychology

TILLGRÜNE‐YANOFFRoyalInstituteofTechonology,Stockhom

Behaviouraleconomicsreferstosocial,cognitiveandemotionalfactorsinordertounderstandindividualeconomicdecisionsandtheireffectsonprices,returnsandallocations.Intertemporalchoice is one of its most prominent fields. Behavioural economics argue that peoples’preferencesforasmallergoodvs.agreaterbutmoredelayedgoodoftenchangesasafunctionofthetimethechoiceismade.Morespecifically,itassumesthatobjectsaresteeplydiscountedforrelativelysmalldelays,butthatadditionallongerdelaysarediscountedlesssteeply,sothatthe shape of the discounting function is hyperbolic. This is the core of the so‐calledhyperbolicallydiscountedutility(HD)model.It is widely believed that behavioural economics integrates insights from psychology withneoclassicaleconomictheory. Inthispaper, I investigatewhatexactlytheconnectionbetweenpsychologyandeconomicsforthecaseoftheHDmodelis.Idefendthreemaintheses:First, the introduction of the HD model is the result of a genuine interaction betweenrepresentatives of different disciplines. This genuine interaction starts with Ainslie’s (1975)endeavourtoemploypsychologicalandeconomictoolstoanalyseanimalchoicedata,inwhichhe also laid the groundwork to make previous results formulated within the reinforcementframeworkcompatiblewithutilitymaximisationtheory.Itcontinuedthroughthecollaborationof psychological and economic authors, and interdisciplinary publication activity, up to theendeavourstomeasurehumandiscountingrates.ThegenuineinteractioncametoanendwhentheaxiomatisedversionoftheHDmodelarrivedintheeconomicmainstream,andwasusedfortheexplanationofeconomicphenomenainthelate1990s.Atthatpoint,psychologistsexpresseddoubts about the clear separation of motivational and behavioural factors, and economistsstoppedciting theunderlyingpsychological literature.Theexchangesbetweeneconomicsandpsychology thus take on the shape of a pair of scissors, with the blades representing therespectivedisciplinesandthepivottheirtemporalinteraction.Second, the described exchange thus differs from other kinds of interdisciplinary exchanges.Unlike economic imperialism (Lazear 2000, Mäki 2009), the discussed exchange involved asubjectthatbothdisciplineshadaninterestinandaclaimto;itengagedresearchersfrombothdisciplines; and these researchers expressed recognitionof theirmutual contributions.Unlikemodel or method transfer (cf. Grüne‐Yanoff 2011), both disciplines were involved in theexchange, and both come away from it changed. Unlike parallel development (Marchionniforthcoming), it was fuelled by different starting points, and involved exchange at a relativematurestateofresearch.Itmaybeappropriatetocharacterisethisexchangeasa“tradingzone”Galison(1998).Duringthetimeofgenuineexchange,ahybriddisciplineandtheorydeveloped,whit a rudimentary hybrid language that allow for interaction without straightforwardextensionof anyparties’original languageor framework.This tradingzonewas separateandtemporal:economistsreturnedfromittothecoreoftheirdiscipline,presentingthewarestheyacquired from the exchange and building them into the core. Yet the trading zone itself wasnever incorporated into economics, and ceased to exist (or at least faded) as economists

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withdrewandpsychologistsbecamescepticalabouttheaxiomatisedfromoftheHDmodel.Third,theendproduct(seenfromaneconomists’pointofview)ofthisexchange–theHDmodel–wasnotamereimport.Rather,itsistheproductofacomplexinteractionbetweeneconomistsandpsychologists,whereeconomistswerewillingtoengagewithpsychologicalresearchresults,adoptmeasurementandexperimentationtechniquesfromthem,butatthesametimekepttheirconceptual and methodological framework intact. What was ultimately incorporated in theirmodel was more of a reinterpretation of the psychologists’ results, and at times a result ofcollaborationwiththem;butitneverwasastraightforwardintegrationofpsychologicalinsightsintoeconomics.ReferencesAinslie,G.1975.SpeciousReward:ABehavioralTheoryofImpulsivenessandImpulseControl.Psych.Bull.82:4,pp.463‐96.

Galison,P.1998.ImageandLogic.Chicago:UniversityofChicagoPress.Grüne‐Yanoff, T. 2011. Models as Products of Interdisciplinary Exchange: Evidence fromEvolutionaryGameTheory..StudiesinHistoryandPhilosophyofScience,DOI:

10.1016/j.shpsa.2010.12.004.Lazear,E.P.2000.Economicimperialism.QuarterlyJournalofEconomics115:99‐146.Mäki,U.2009.Economicsimperialism:Conceptandconstraints.PhilosophyoftheSocialSciences39(3),September2009,351‐38

Marchionni,C.Forthcoming.Playing(with)networks:Howeconomistsexplain.Mimeo.

Foundationsoftimediscounting

CONRADHEILMANN

EIPE,ErasmusUniversityRotterdam

1IntroductionTimediscountingisahighlycontentiousconcept.Indeed,theoriesoftimediscountingareattheheart of many current controversies in economics. Debates in these fields emphasise thedivergentnatureof theoriesof timediscounting. Incontrast, thispaperdemonstrates inwhatsense different approaches to time discounting share certain features, gives commonfoundations for them, and discusses their implications. Crucially, this discussion proceedswithout assuming any specific valuational framework, such as ex‐ pected utility theory, orutilitarianism.Rather,weestablishwhatkindsofclaimsanyaccountoftimediscountingwillbecommittedto,irrespectiveofthevaluationalframeworkthatoneadopts.In order to do so, we provide a generalised reconstruction of the formal content of timediscountingtheories.Wefirstsuggestageneraldefinitionofatimediscountingfunctionwhichcapturesmostofthediscountingfunc‐tionsthatareendorsedintheeconomicsliterature.Inasecondstep,weprovea representation theorem for suchageneraldiscounting function.Twoclaimsregardingtheinterpretationoftherepresentationtheoremarethendefended.Firstly,theclaimthatitshowsthattimediscountingtheorieshaveanumberofcommonfeatures.Secondly,theclaimthatitshowsthatthescopeofapplicabilityoftimediscountingislimitedbytheformalrequirementsoftherepresentation.Thepaperproceedsasfollows. InSection2,wegiveageneraldefinitionofatimediscountingfunctionofwhichmosttheoriesintheeconomicsliteratureareaspecialcase.InSection3,weprovidegeneralfoundationsforsuchafunction.InSection4,wediscusstheimplicationsofthisresult, both in terms of common properties of time discounting functions and in terms ofconceptualandpracticallimitationsoftheoriesoftimediscounting.

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2TheoriesofTimeDiscountingInordertogiveageneralreconstructionoftheformalcontentoftimediscountingtheories,westartfromtheideathatmostofthesetheoriesentailsomeversionofthepropositionthattime‐indexedweightscanbeattachedtoevaluationsoffutureoutcomes,tomakethemlessvaluablethan present ones. Moreover, most time discounting theories in economics postulate timediscountingfunctionsthatspecifythevaluesoftheweightsthatareassociatedwitheachtimepointunderconsideration.We showwhat kinds of properties of time discounting functions are commonly agreed uponacrossawiderangeoftheories,namelythatitisadecreasingfunctionfromasetoftime‐pointsto a real interval, such that the present is assigned the unit weight. These properties arecaptured in the definition of a general time discounting function of which most discountingfunctionsintheliteratureareaspecialcase.Thisgeneraltimediscountingfunctionservesasatargetintherepresentationalexerciseofthispaper. Informally, we are engaging in ‘backwards engineering’ of foundations for timediscounting,asthetargetoftherepresentationisalreadysuggestedbywayofsharedfeaturesofawiderangeoftimediscountingtheories.3AGeneralRepresentationTheoremforTimeDiscountingThissectionprovesarepresentationtheoremfortimediscountingtoanswerthequestion:howcan a general time discounting function be constructed? We show that in order for timediscountingtheoriestobewell‐founded,tworequirementshavetobemet:

• MeasurementRequirement.Ameasurementrequirementhas tobe fulfilled thatensuresthat thenumericalvaluesof timediscounting factorsaremeaningful: theweights thattime discounting functions assign to points in a time‐index have to be numericalrepresentationsofsomequalitativeconcept.

• Correspondence Requirement. The representation has to be compatible with acorrespondence requirement that ensures the desired regularity of a decreasingdiscounting function, relative to an external time‐index: the weights are decreasingrelativetothetime‐index.

Inordertoestablishthemeasurementrequirement,weprovideanumericalrepresentationofordinal distance in a framework of the representational theory of measurement. Themeasurement theorem can be interpreted as giving conditionswhose interpretation capturesthe exact sense inwhich timedistance is relevant. For instance, dependingonwhat theory isendorsed,timedistanceisrelevantbecauseoftheimpatience,uncertainty,productivitygrowth,or preference changes that it is associated with. Upon such conceptions satisfying ordinaldistance,theycanbeexpressednumerically,andtransformedintodiscountingfactors.In a second step,we need to ensure that the discounting factors correspond to an externallygiven time‐index in a suitableway, such that the timediscounting function is decreasing. Forthis, we show that given a number of correspondence conditions are satisfied, there is anincreasingfunctionfromthesetofexternallygiventime‐pointstothenumericalrepresentationofordinaldistance.Ifthatisthecase,thenthereexistsafunctionthattransformsthenumericalrepresentationintoaweightssuchthatitisatimediscountingfunction.Tosumup,therepresentationtheoremshowsthatageneraldiscountingfunctioncanbegiveniff two regularity conditions are satisfied, namely the measurement requirement and thecorrespondence requirement. This result has been obtained independently of any valuational

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framework,suchasexpectedutilitytheory,orutilitarianism.4CommonPropertiesandCommonLimitationsThe framework renders transparent the formal and conceptual commitments inherent intheories of time discounting. We discuss two claims related to foundational questionsconcerning timediscounting theories: Firstly,we can interpret the representation theoremasidentifyingaspectsoftimediscountingthataresharedamongawiderangeoftheories,suchthattheresultmakesafirststepinamoreunifiedapproachtothem.Secondly, thegeneralrepresentationtheoremmakestransparenttherequirementsanytheoryof timediscountinghasto fulfil inameasurement‐theoretic framework.Theresultshowsthatthe conceptual interpretation of time distance is sub ject to two rather strong regularityassumptions. More specifically, note that fulfilling these equirements does not directly implydescriptive or normative plausibility with regards to, for instance, discounting utility inintertemporaldecisions. Indeed, theaboveresultsuggeststhat timediscountingtheories formonlyonepossible,andlimited,procedurefortheevaluationofintertemporalprospectsbywell‐founded time‐indexed weights. Hence by no means should time discounting theories beexpectedtogiveanencompassinganalysisofallintertemporalaspectsofvaluationalexercises.5ConclusionsInconclusion,thispaperdefendsfourclaims:

1. The claim that the general definition of a time discounting function captures salientfeaturesofawiderangeoftimediscountingtheories.

2. Arepresentationtheoremshowingthattheorieswhichfallunderthegeneraldefinitionoftimediscountingarewell‐foundedifftheysatisfytworegularityconditions,namelyameasurementrequirementandacorrespondencerequirement.

3. The claim that the representation theorem suggests that time discount‐ ing theorieshave common foundations which allow us to compare their conceptual and formalcommitments.

4. Theclaimthat thegeneral foundationsof timediscounting implythat theoriesof timediscounting are restricted in their analysis of intertemporal decisions, as jointlyendorsing the correspondence and representation requirements entails strongregularityproperties.

Jointly, these claims establish general foundations of time discounting and point towards aunifiedformaltreatment,thatgoesbeyondtheconfinesofspecifictheoriesoftimediscounting.This,inturn,willallowustobetterunderstandboththeshortcomingsandthepotentialoftimediscounting.

TheChoiceofaDiscountFactorintheEconomicsofClimateChange

ALESSANDRABASSO

LondonSchoolofEconomics

The problem of assigning a value to the discount factor used in the cost‐benefit analysisconcerning climate change has recently been discussed in the debate that arose after thepublication of the Stern Review on the Economics of Climate Change. The assessment of thisproblem involves proper economic analysis, policy‐making issues, as well as delicate ethicalquestions. Among the different dimensions of the debate, one general requirement emergesfrom the point of view of the policy maker: the economic and ethical analyses should offer

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guidance for the decision‐making process. On closer inspection, thought, the requirements ofpolicy‐makingpullintwodifferentdirections:ontheoneside,theneedofcomparingdifferentpolicies or alternative investment’s perspectives calls for a standardized value, which can beemployed in different situations. On the other hand, the exceptional character of the policyunder consideration1 calls for the choice of a valuewhich is specific to the purpose of beingemployedinthecost‐benefitanalysisunderconsideration.Thispaper investigates the extent towhich three alternativewaysof assigning a value to thediscount factor respond to the contrasting tendency between standardization and purpose‐specificity.Thethreedifferentkindsofvaluesthataretakenintoconsiderationare:theethical‐basedvaluesdefendedbytheSternReview,themarket‐basedvaluesdiscussed,amongothers,byM.WeitzmanandW.Nordhaus,andtheexperimentalvaluessupportedbytheClimateEthicsSurvey(asurveyofstatedpreferencesconducedonasampleofmorethan3500peoplefrom92differentcountries2).i.ThecallforstandardizationWith respect to the call for standardization, the ethics‐based values employed by the SternReview seem to be quite exceptional rather than standard. The way in which the reviewersdefend thesevalues iscontingent to thespecificcost‐benefitanalysispresented in theReport.However,itmightbepossibletosettleoneethical‐basedvaluewithsomedegreeofgenerality:for instance a value to be used in every analysis of long‐term social investments or in everyanalysisconcerninginvestmentsonclimateprotection.Thechoiceofthedegreeofgeneralityofsuchavaluewouldinvolveagainatradeoffbetweenstandardizationandpurpose‐specificity.Incontrast,themarket‐basedvaluesofferapre‐quantifiedstandard,whichiscurrentlyemployedinanumberofdifferentcircumstances.Theexperimentalstudiesontimediscountingfailedtoconvergeonanyagreeddiscountfactor(andneitherdotheyagreeonapreciseformofdiscounting).Onepossibleexplanationforthisisthat the experiments often assume that the different reasons for discounting future valuesconverge in a single discount factor. The Climate Ethics Survey disentangles three differentconceptualcontentsofthediscountfactor(risk,inequalityoverspaceandinequalityovertime)andprovides evidence thatpeopledonot see these three concepts as identical.However, theSurvey’sresultsdisplaya largedegreeofheterogeneityoneachof the inquireddimensionsoftimediscounting.Additionally, theresultsshowthatpeople’spreferencesvarywithrespecttotheir gender and their country of residence. All in all, it appears that a standard value of thediscountfactorisfarfrombeingachievedinthecontextoftheexperimentalelicitationoftimepreferences.ii.Thecallforpurpose­specificityInordertoassesshowthedifferentvaluesrespondtothecallforpurpose‐specificity,thispaperexplorestheconceptualcontentofthedifferentvaluesandattemptstoevaluatetheadequacyofthecontenttothespecificcontextofthecost‐benefitanalysisreportedintheSternReview.Thevalues’ conceptual content is investigatedwith respect to threemain aspects: the justification(whydiscounting?),thesubject(whosediscounting?)andtheobject(thediscountingofwhat?).As regards the first aspect, the conceptual justification of the ethic‐based values is explicit: itincludes uncertainty (only as risk of extinction) and equality between generations. Thejustificationofmarket‐basedvalues, instead, is not completely transparent, but themain ideaseems to be that of an opportunity cost. Lastly, the experiments of the Climate Ethics Surveystudied people’s preferences with respect to risk, equality between generation and equalitywithin generation. Another important consideration that seems relevant for assessing thejustificationof timediscounting is the information onwhich the choiceof thevalues isbased.The values of the Stern Review are based on the information contained in the Report. TheClimateEthicsSurveyprovidedthetesterswithsomeinformationaboutthedangersofclimate

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change.Themarket‐basedvalues,instead,ariseinacontextofprivateeconomicbehavior,whichmaybedetachedfromconcernsaboutclimatechange.The second aspect of the analysis concerns the subject of discounting. The subject of thediscounting in theSternReview isambiguous: thevalueshavebeenchosenby the reviewers,buttheyhavebeendefendedbymeansofwidespreadmoralviews.Itisthereforecontroversialtoestablishwhoissupposedtoendorsetheethicalstance,andthereforethevalues,chosenbythe reviewers. The market‐based values, in contrast, are assumed to covey directly thepreferences of all the people who enter the markets. However, there are some significantworrieswith thisassumption: first,market‐values captureonly theactionsof thepeoplewhoenterthemarketandtotheextenttowhichtheyenterthemarket(thosewhoconsumemore,have more influence); second, externalities and other forms of market failures may createbiases; and third, doubts can be casted on the correspondence between market‐revealedpreferencesandpeople’sactualpreferencesaboutclimateprotection.Finally,thesubjectsofthediscountingelicitedbytheSurveyarethepeopleinthesample.Thepotentialexternalvalidityoftheexperimentalresultsneedsfurtherevaluation.Moreover,furtherdiscussionisnecessaryforassessingtherelevanceofpeople’sstatedpreferencesforthiskindofsocialdecisions.Lastly, theobject ofdiscounting canbe controversial to assess, but inverygeneral terms it ispossibletoclaimthattheReview’svaluesandthemarket‐basedvaluesareintendedtodiscountfutureconsume;whereasthequestionsintheSurveyaredesignedtoelicitpeople’spreferenceswithrespecttonationalaverageincome,whichcanbedeemedtorepresentwell‐being.iii.ConclusionsTheanalysisoffered in thispaper ismeant toshowtheadvantagesanddisadvantagesofeachdifferentway of assigning a value to the discount factor. Drawing together the results of thedifferentareasofinvestigation,itcanbeconcludedthatnoneofthediscussedmethodsisclearlysuperior to theotherswithrespect to thepolicy‐making’srequirement.At thesametime, thisinvestigationhopestothrowintorelieftheimportanceofstandardizedvaluesforpolicy‐making,aswellastherelevanceoftheirconceptualimplicationsforthedebate.Theexplicitdiscussionoftheconflictingtendencybetweenstandardizationandpurpose‐specificitymightbebeneficialtothedebateonthevalueofthediscountfactor.1Thinkforinstanceofthenoveltyandtheglobalrelevanceofclimateprotectionpolicies,orofthehighdegreeofuncertaintythatcharacterizestheestimationsoffutureenvironmentaldamagesandpotentialeffectsofthepolicy.2TheClimateEthicsSurveywasconducedbyJ.HelgesonandH.SælenunderthesupervisionofC.Hepburn.ReferencesK. Arrow, (1995), ‘Intergenerational Equity and the Rate of Discount in Long‐Term Social

Investment’.PaperpresentedattheIEAWorldCongress,December,Tunis,Tunisia.G. Atkinson, S. Diets, J. Helgeson, C. Hepburn, H. Sœlen, (2009), ‘Siblings, not triplets: social

preferences for risk, inequality and time in discounting climate change’, Economics e­journal.

G.W.Bohrnstedt,N.M.Bradburn,N.D.Cartwright,H.Cooper,R.M.Hauser,R.Pollak,B.Schneider(2011),Theimportanceofcommonmetricsforadvancingsocialsciencetheoryand

research:aworkshopsummary,RoseMariaLi(rapporteur),Nationalacademiespress.J. Broome (2007), ‘Climate Change: Why Economics Requires Ethics’, The Knox Lecture,

UniversityofStAndrews.J.Broome(1994),‘Discountingthefuture’,PhilosophyandPublicAffairs,232,pp.128‐156.P.Dasgupta (2006), ‘Commentson theSternReview’sEconomicsofClimateChange’,National

InstituteEconomicReview.

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N.Cartwright(2010),‘Evidence,externalvalidityandexplanatoryrelevance’,inThephilosophyofPeterAchinstein,GregoryJ.M.(ed),OxfordUniversityPress.

T.CowenandD.Parfit, ‘AgainstthesocialDiscountRate’, inPeterLaslettandJamesS.Fishkined.,Justicebetweenagegroupsandgenerations(NewHeaven:YaleUniversityPress,1992),pp.144‐61.

F.Guala(2005),Themethodologyofexperimentaleconomics,CambridgeUniversitypress.W.D.Nordhaus(2007), ‘AReviewofthe"SternReviewontheEconomicsofClimateChange"’.

JournalofEconomicLiterature.2007;45(3):686‐702.J.Reiss(2008),Errorsineconomics,chap1‐4,Routledge.N. Stern (2008), ‘The Economics of Climate Change’, American Economic Review: Papers and

Proceedings2008,98:2,1‐37.M. Weitzman (2007), ‘The Stern Review of the Economics of Climate Change’, Journal of

EconomicLiterature45(3),703‐24.

3Economics&sociology,performativityChair:JesperJespersenRoom15,Friday10:45–12.45

DoesPerformativityMatter?TheEmperor’sOldClothes

EKATERINASVETLOVA&JACOBARNOLDI

KarlhochschuleInternationalUniversity&AarhusSchoolofBusiness

In our paper, we will critically discuss the performativity concept which was suggested byMichelCallon(1998)andDonaldMacKenzie(2003;2006).Performativityisathesis,whichhascreatedquitesomeattentioninsocialstudiesoffinanceandeconomicsociologyinrecentyearsand which also is spreading into organization studies, accounting, and management studies.Eventhoughithascometoenjoyapositioninitsownright,theperformativitythesisremainsfirstandforemostanelementinActorNetworkTheory(ANT).Performativityhascometothefore inthetransitionwhichANTscholarshavemadefromthestudyofthenaturalsciencestoother fieldsof scienceand technologysuchasstudiesof financeoreconomics.This transitionhas created some debate about the merits of Actor network theory applied to purely socialphenomena(Fine(2003),Mirowski(2007))andwetowardsendofthisarticlepickupthreadsofthiscritique.Becauseperformativity tracesback toANTand the justmentioned transitionwithinANT,wewillinthefollowinginvariablydiscussnotjustperformativitybutalsoANTmoregenerallyandANTappliedtothestudyofeconomicsandfinance.Ourmainfocus,however,istheapplicationoftheperformativitythesistofinance.Westart thearticlebygivingsomeexamplesofempiricalmaterial contradicting (someof thepremisesof)theperformativitythesis.ThediscussionwillbebaseduponempiricalstudiesthatwereconductedintheGerman,SwissandChinesefinancialmarkets.In the nutshell, we could not find evidence for the Barnesian (strong) performativity in themarkets, namely the evidence that financial theories and models, while widely believed andused,shapeeconomicreality;however,wecollectedalotofsupportforthegenericandeffectiveperformativity.We explain those findings by suggesting thatmodels do not explain or causeanythingby themselves.Byanalyzingattitudes towardsmodelsandnuancesof theirpracticaluses in the financial markets, we demonstrate that models miss the performative power,especially if one seeks to trace this power solely to self‐reference. The shared skepticismtowardsformaltheoreticalmodelsaswellastheprevalenceofthesubjectiveoverrulingbytheir

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usepreventmodelsassuchfromshapingthemarketreality,i.e.,fromperformingmarketsintheBarnesian(strong)sense.At the same time, we find many examples of indirect or tentative usages of models in themarkets, i.e., examples of generic or effective performativity in the sense of the MacKenzie’sterminology.Thisgenerallysuggeststhattheroleoffinancialknow‐howisratherlessdirectandpowerful thanconceptssuchasperformativityandagancementcould leadone tobelieve.Butdoes it make sense to use the term “performativity” then? What does it contribute to ourunderstandingofmodeluseanditseffectonthemarkets?Wearguethattheperformativitythesiscontainsseveralaspectswhichareself‐evidenttruismsrather thannewconceptual insightsandwe inparticularargue that someof thepropositionsembeddedintheperformativitythesisaremoreeasilyandmoreextensivelyexplainedbyothertheories, for example, institutional theory. A closer theoretical examination of performativityandespeciallyperformativityinitsstrongestformcanelucidatethis.In the course of this analysis, we arrive at a general focus on social structure, power andauthority which are highlighted in Barnes work generally. Barnes – and the strong programwhich he formulated – generally stresses the importance of social causes in the analysis ofscienceand technology (Barnes,1974:69‐73;1977;Barnes,Bloor,&Henry,1996:118‐9).Bystressingthisargument,wegainalotofdistancefromthesocialconstructionist,self‐referential,aspectsofperformativity.Weseethatperformativespeechacts(ormodels)donotchangetherealitywhichtheyclaimtodescribethankstoanyinherentproperties(thatwouldbefullself‐referenceof the sortwhichBarnes carefullydistanceshimself from),but rather thanks to theplace,roleandfunctiontheyhaveinthereproductionofsocialhierarchiesandinstitutions.Thus, the question is if the focus on social context, institutional setting (and changes andhistorical rupturesof these) is extensiveenough inperformativity theory?Weargue that it isnot.Onereasonforwhyperformativityhindersthisfocusmightbe,asalreadymentioned,thatideas or speech acts do not themselves in any way possess properties which make themperformative. Their self‐reference does not extend far enough for that. Their transformativepotential(insofartheyhaveany)lieswiththeinstitutionsofwhichtheyareproductsundertheconditions that these institutions themselvesmay have enough power for their products andpracticestoimpactonsociety.Performativity theorymay in thissensebeaccusedofputting toomuchemphasison theself‐reference of speech acts (and of overdramatizing Barnes’ account of self‐reference in speechacts).Anothercauseofperformativitytheory’slackingfocusonsocialcontextclearlystemsfromtherelationshipwithActorNetworkTheory(ANT).ANTisaboveallanattempttopartiallyreversethearrowofcausationbetweenknowledgeandsocietywhichBarnesandtheStrongProgramargued for. Rather than explaining knowledge with society, ANT wants to let knowledgeexplainingsociety.Thelatterambitionisthecornerstoneofperformativity.However,wecannotemphasize enough that ANT never attempts to reduce society to knowledge or only letknowledge be themain causal factor of any social development.Nevertheless this theoreticalprogramcaneasilygotoofarandendinsuchapitfallandweindeedarguethatthisiswhathashappened to performativity. Rather than focusing on recursive causal relations, the causationhasnowbeenreversedandisagainflowingmoreorlessunidirectionally.WemayaddthatANTinspiredanalyseswhichseeminglyareatriskofdoingthisoncetheyloseafocusonmaterialobjects.Andeventhoughperformativitytheoriesroutinelytrytoshowthematerialaspectsofmodels,modelsremainmainlysymbolicproductsforthem.Just asLatourdramatically accuses theStrongprogramof reductionismanddeclares that thesocialcannotexplainanything,wemaystatethatpeformativityisreductionistandthatfinancialmodels do not explain (do not cause anything). Or rather, models do not explain or causeanythingbythemselves.Theyareasmuchcausedbyvariousinstitutionaldevelopmentsastheythemselvescausethem.

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TheFallacyofSolipsismandCartesianFallacyintheTheoreticalConstruct:

towardsanewconceptionofperformativityofeconomics

JOSÉGUILLERMOPELÁEZ,GUILLERMOCAVAZOS&ARTUROLARAUniversidadAutónomaMetropolitana

Thisessayanalyzestheroleoftwomethodologicalfallaciesusedinbuildingeconomictheory,towit:«fallacyofsolipsism»and«Cartesianfallacy»,whoseconsequencesare,ontheonehand,theassumption of disconnection between theory and economic facts, and on the other hand, theassumption according with this axiomatic method is a necessary and sufficient condition toguaranteethescientificnatureofeconomicknowledge.Thosefallacieshaveledtoasimplifiedpresentationofempiricalfindings:theideaofstylizedfacts.However,theconsequencesofthosemethodological fallacieswould imply thatnowadays, thegreatpioneereconomists likeSmith,Ricardo, Marx, Keynes, Schumpeter, etc., should be excluded as serious economic theorists.Withinthisframework,thisessaydiscussestheconcomitantimportanceofeconomictheoryandthe object of study, with regard to the link between positive and normative economics andbetweennormative logic andpositive science, aswell as troublesofHume’sGuillotine in thismatter. From the seminal work of Michel Callon (1998), the concept of performativity hasbecome important in economics. This concept refers to the relationship between economictheoryanditsobjectofstudy,andthewayinhoweconomictheorynotonlydescribes,explainsor predicted the occurrence of events and economic phenomena, but the way how varioustheoreticalpropositionschangeeconomicreality.Thismeans,inotherwords,thewayhowthetheorychangesandevencreatesitsownobjectofstudy.Thebestexampleoftheperformativityof economic theory is the great growth of financialmarkets from the theoretical proposal ofBlack&Sholes forvaluing financialoptions.Thus, therelationshipbetweentheoryandrealityassumedby thepositivist conceptionof economicshas changed, so that theoretical proposalsandresultsarenotonlycontrastedorfalsifiedempirically,butnowtheyarehelpingtochangetherealitywithwhichsoughttobeconfirmed. In this Paper, it is showed that those two fallacies, «the fallacy of solipsism» and«Cartesian fallacy», enable to modify the idea of «performativity», in order to suggest therequirementforsuitablylinking“externalreality”andabstractknowledge,aswellasthestudyof complementariness betweenboth elements.Wepropose that, due to the fact that dynamicnatureof“economicreality”isuncertain,andbecauseitchangescontinuously,data(economicstatistics) are an inter‐mediator between the reciprocal influence that exists in mutualmodification,ofthetheorybythefactsandthefactsbythetheory.

Is"ConventionEconomics"aNewKindofEconomics,orSomethingElseEntirely?

LEARRYGAGNÉ

UniversityofAlberta

The French school of Convention Economics (CE) was slowly established in the 1980s andgained traction in the 1990s, when it latched on the (equally French) Pragmatic Sociologymovement inspired by Boltanski and Thévenot's seminalworkDe la justification (1991). Themain goal of Pragmatic Sociology is to describe social situations as realistically as possible,taking into account the agents' own actions and vocabulary in transactionwith one another.BoltanskiandThévenotwere interested indiscoveringhowcouldagents coordinatewithoneanothernot throughmodels likerepeatedplay ingame theory (which they foundway too farfrom observed reality), but through a common grammar of justification drawn from one orseveral of six "worlds", one of them being the "market world" of economic transactions, theothershaving todowithequality, reputation, efficiency, etc.Another important statedgoalof

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PragmaticSociologywastomovebeyondthe(strict)individualism‐holismdebate,bytakingupthe viewpoint of the agent as influenced ‐‐ and influencing ‐‐ "objective" social entitiesunderstoodasoverarching social agreements (the six "cities"derived from the corresponding"worlds").ConventionEconomicswill followthat lead,mainlybypayingattention tohowactorsactuallybehave in interaction (asopposed todeducingbehaviour fromabstractmodels),andallowingothermotivationsthanjustmaximizationofwealthorutility.ItmustbesaidattheoutsetthatCEisfarfrombeingauniformtheory;asayoungschool,therearemanyauthorssayingmanythings and going in all directions. One of the objectives of this paperwill be to sort out thiseclectic literature and attempt to uncover the common ground. CE will thrive on a series ofcritiques of Standard Economics : it is too abstract; rationality reveals only one aspect ofbehaviour;therealityofincompletecontractsanduncertaintyaboutthefuturerendersrationalcalculationbyagentsnearlyimpossible;institutions(especiallyfirms)arenotpurelyexogenousbut constantly reformed by its members, etc. Proponents of CE will attempt to solve theseproblemswithatheoryofconventions,asextra‐rational,"justified"agreementsstabilizingwhatwouldbeunstableanduntenablerelationsinpurerationality.Inessence,ConventionEconomicsispresentedasanovelwaytodoeconomics,andasabonafidealternativetostandardmodelsasdemonstratedby itsname, thetargetof itscritiques, itsextensive use of methodological individualism and rationality, and its choice of economicsjournalsforpublication.ThemaingoalofthispaperwillbetoevaluatewhetherCEisatheorythat can fit comfortably within the economic field alongside standard theories (the way, forexample, thatNeo‐Institutionalismremains largely compatiblewith standardmodels), or, andthat will be the working hypothesis, that it reveals itself to be much closer to sociology(especiallysociologyofscience)thaneconomics,andnotimmediatelycompatiblewithstandardmodels.TheresearchwillfocusonseveralaspectsofvariousCEmodels.Wewillfirststudyitsuse of traditional economics concepts (rationality, institution, equilibrium, ...) and see ifmeanings remain compatible; we will see that CE resorts to an "intrepretive" version ofrationalitythatexplicitlygoesbeyondinstrumentalrationality.Wewillthenattempttouncoveritsgeneralepistemologicalgoals;atfirstglanceitappearsthatCEmovesawayfromexplanationandpredictiontofavouramoredescriptive/understandingapproach.Finally,wewill focusonthetheoriesofconventionsonoffer,asamaximallyrealisticsolutionsto incompletecontractsandmistrustbetweenpartners,andseeiftheycouldfitwithmorestandardeconomictheories.Our early claim is that CE, being a sociological theorymore than anything else, is not readilycompatiblewithstandardeconomics,butitcanbeveryusefulinpaintingadetailedpictureofanorganization under study, which would then influence the choice of models and exogenousvariablesbyeconomists.

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1MacroecomicsChair:KevinHooverRoom6,Friday14:00–16:00

EconomicsandNonsupervenience

BRIANEPSTEINTuftsUniversity

Since Robert Lucas’s 1976 critique of macroeconomic policymaking, much effort has beendedicated to the development of “microfoundations” formacroeconomics. In recent years, anumberofpreviouslyindependentstreamsofmicroeconomicmodeling–e.g.,modelsofriskandincompleteinformation,incompletemarkets,monetaryphenomena,priceandlaborinflexibility,and departures from rationality – have begun to converge. Among these newly integratedmodelsarerealbusinesscyclemodels,newKeynesianmodels,andothersnowfallingundertherubricofdynamicstochasticgeneralequilibrium(DSGE)theory.Theseadvanceshaveseemedto many people to hold great promise in delivering genuine microeconomic models ofmacroeconomicproperties.Nonetheless, there remains a good deal of skepticism among philosophers of economicswithrespecttothemicrofoundationsproject.Themostcommoncriticismshavebeenleveledagainstthe use of “representative agents” in these models. Representative agent models have beencriticized by a number of economists and philosophers, including Kirman, Nelson, Janssen,Hartley,Kincaid,andHoover.Criticismofrepresentativeagentmodelsisoftenpartofalargercritiqueofmicrofoundations aswell. Manyphilosophers and economists arepluralists aboutexplanation, anddoubt theutility ornecessity ofmicrofoundations. It is not universally heldthat useful or robust or explanatory macroeconomic models do require microfoundations,despiteLucas’sarguments.A stronger critical stance is to doubt the possibility ofmicrofoundations formacroeconomicsaltogether.Thissortofskepticismisoftenbasedonsimilarconsiderationsasskepticismaboutreduction in other special sciences. Arguments against reducibility of a high level domain(“domainA”)onalow‐leveldomain(“domainB”)typicallyholdthatthereisagapbetween(1)theontologicaldeterminationofentitiesandpropertiesindomainAbyentitiesandpropertiesindomainB,and(2)theexplainabilityoridentificationofeventsorgeneralizationsindomainAinterms of those in domainB. It is commonly conceded, for instance, that chemical propertiessuperveneon thoseofphysics,but thatnonetheless theremaybebarriers to thereductionofchemicalpropertiestothepropertiesofphysics.Arguments for the compatibility of supervenience with non‐reducibility are by now familiarenoughthattheyhavebecomethedefaultrouteforskepticismaboutreduction.Itisrareeventobotherassessing the claim thatdomainBeitherexhaustivelydeterminesor supervenesondomain A. As applied to economics, it is almost universally held thatwhile the provision ofmicrofoundations for macroeconomics is difficult in practice if not impossible in principle,nonethelessthesupervenienceofmacroeconomicphenomenaonmicroeconomicphenomenaistrivial.Thisisheldbyreductionistsandanti‐reductionistsalike.Typically,theclaimisimplicitin theorizingabout the relationofmacroeconomics tomicroeconomics,butKevinHooverhasexplicitlyarguedforitinafewplaces.My aim in this paper is to argue that this supposed triviality is in fact false. Microeconomicpropertiesfailtoexhaustivelydeterminethemacroeconomicproperties.Inmanyways,thecruxoftheissueisfiguringoutwhatthemicroeconomicpropertysetis–thatis,the“supervenience

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base” on which macroeconomic properties are taken to supervene. If the microeconomicpropertysetistoobroadlyunderstood,thenitcanevenbestretchedsofarastotrivializeanyreduction claims. If it is too narrowly understood, on the other hand, then a supervenienceclaimwillfailwithoutbeinggivenafairchance.Weoften speakof the supervenienceof a scientific fieldonanother scientific field, suchasofpsychologyonneurology,orchemistryonphysics. Tobeprecise,however,supervenienceisarelationnot between theories or sets of theories, but between sets of facts or properties andother sets of facts or properties. This becomes a complicationwhenwe dealwith a field orapproachorsortoftheorylikemicroeconomics,whosedomainisnotwellspecified.Thetaskofdeterminingwhetheronedomainsupervenesonanothercomesdown,inlargepart,tothetaskofunderstandingwhatproperty set is the implicitdomainof the fieldor approachorkindoftheory.To determine which are the microeconomic properties, we must of course look to actualmicroeconomic theories, as they are built and used. By examining the implicit ontologies ofmodelssuchasNewKeynesianandDSGEmodels,Iproposeabroadconstrualofmicroeconomicproperties.I then turn to showing that macroeconomic properties depend on properties outside of thisdomain, using standard supervenience tests. The failure ofmacroeconomics to superveneonmicroeconomics doesnotmean thatmacroeconomics is ontologically “free‐floating” or that itinvolvesadualisticontologyorsomeHegelianspirit‐world. It is simplyaconsequenceof thedifference in the explanatory goals of the respective fields, which implicitly carve out themicroeconomicpropertysetinsuchawaythatitunderdeterminesmacroeconomicproperties.This is not a shortcoming, but a reasonable outcome of the implicit design principles behindmicroeconomics. Clarifying thedifferent goals ofmicro‐ andmacroeconomics,we shouldnoteven expect macroeconomics to supervene on microeconomics, even though of course bothsuperveneonphysics.

‘Uncertainty’:arealmethodologicalchallengeinmacroeconomics

JESPERJESPERSENRoskildeUniversity

For long it has been obvious that the real difference between neoclassical/mainstreammacroeconomicsandthemacroeconomicsofKeynes(andmostpost‐Keynesianeconomists) istheperceptionofuncertainty.Mainstreammacroeconomistsusuallyconsideruncertaintyasaphenomenonwhichanalyticallycanbehandledasasub‐branchofconventionalstatistics.‘Letusassumethattheexpectedmeanis zero and the variance stable’ – then according to the lawof large numbersmicroeconomic(independent)randomnessdisappearsinmacroeconomicanalysis.If anything the financial crisis followed by the economic crises has demonstrated that‘uncertainty’willnotgoawayorcancelout.Uncertainty,asKeynestoldus,seemstobepresenteverywhereatthemicrolevelandatthemacrolevelwithmutualinterferenceand(presumable)alargeimpactonthemacroeconomicdevelopment.But,what todoanalytically?Weneedamethodologicaldiscussionofhowuncertainty canbehandled analytically in a scientific way. It is not satisfactory just to claim that uncertainty isimportantbecauseitdoesnot‘obey’usuallylaws/assumptionsofconventionalstatistics.

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ReadingthroughthemaincontributionsofKeynes(ofcourseATreatiseonProbabilityisaveryimportantdocument at themicro level), there is in facthardly anyguide, how to incorporateuncertainty into the macroeconomic analysis. He gives the reader (especially in The GeneralTheory) a vast number a cases, where uncertainty has made an impact, especially when hedescribes ‘effective demand’. But, fundamental uncertainty, which among many others PaulDavidson (1973 and later) has emphasised over and over again, is hardly made operationalwithin post‐Keynesian literature. G. E. Shackle (with his partly Austrian background) is alsoillumination,whenuncertainty is discussed at themicro level.Noone canobject having readShackle’scontribution,thatuncertaintyisaninescapablepartofordinarylife–but,howdowecomefromthisobservationtoacoherentmacroeconomicmodelwithuncertaintyincorporatedinarelevantway?In my bookMacroeconomic Methodology: a Post­Keynesian perspective I have pointed at thismethodological challenge in a number of areas: Unemployment, profitability, finance,environmental impactetc.But Iwasnotable togiveaconstructivecontributionhowtomakeuncertaintyanintegratedandsignificantpartofmacroeconomicanalysis.Myintentionwiththispaper is topresent further and constructive thoughtson this topicofuncertaintydrawingonrecentcontributionbyamongotherprofessorDavidSpiegelhalter,UniversityofCambridge(1),whereasItakeamorecriticalviewonNassimTalebandhisdiscussionof‘BlackSwans’(2).Itismyideatocombinethe‘open‐system’analyticalapproach,seeJespersen(2009)chapter4‐6withsomeoftheabovementionedideasofbehaviourtowardsuncertainty.Howdoesindividualact andprotect themselves against unforeseeable events?And further on,what kind of socialinstitutionsmightreducemacroeconomicuncertainty?(3)Obviously,conclusionswillbevague.Literature:Backhouse,R.E.2010,ReviewofJesperJespersen’sMacroeconomicmethodology:apostKeynesianperspective.Cheltenham(MA):EdwardElgar,2009,272pp.,ErasmusJournalforPhilosophyandEconomics,Vol.3,Issue2,Autumn2010,pp.119­127

Davidson,Paul,1973MoneyandtherealWorld,London:MacmillanJespersen,J.,2009,Macroeconomicmethodology:apostKeynesianperspective.Cheltenham(MA):EdwardElgar,2009

Shackle, G.L.S., 1972, Epistemics & Economics: A Critique of Economic Doctrines. TransactionPublishers

Taleb,N.N.(2010)TheBlackSwan,SecondEdition,Penguin­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­

(1) http://understandinguncertainty.org/node/58:‘Welcometothesitethattriestomakesenseofchance,risk,luck,uncertaintyandprobability.Mathematicswon'ttelluswhattodo,butwethinkthatunderstandingthenumberscanhelpusdealwithourownuncertaintyandallowustolookcricicallyatstoriesinthemedia´.

(2) Taleb'sblackswanisdifferentfromtheearlierphilosophicalversionsoftheproblem,specificallyinepistemology,asitconcernsaphenomenonwithspecificempiricalandstatisticalpropertieswhichhecalls,"thefourthquadrant".(http://en.wikipedia.org/wiki/Black_swan_theory)

(3) RecenteventsinJapancomeintomind

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Thetamingoftheshrew:howmacroeconomistsattempttohandlethecomplexityoftheeconomy

MINGCHIENLO&KRISTOFVANASSCHE

St.CloudStateUniversity

The 2007‐2009 Great Recession has prompted a debate on whether the dominant dynamicstochasticgeneralequilibrium(DSGE)approachhasofferedanythingvaluabletopolicymakersand the society ingeneral.While it isnotpossible togeneralizeall theargumentsagainst theparadigmentirely,criticstendtofallintothefollowingcampsthatproposedifferentmethodsofinvestigation:

1.Agentbasedcomputationaleconomic(ACE)modeling(e.g.Colanderetal,2010) 2.Empiricalmacroeconomictime‐seriesanalysis(e.g.Hooveratal,2010,LoandMorley,

2011) 3.Partialequilibriummodeling(e.g.Caballero,2010)

Thispaper consistsof twoparts. In the firstpart,ourdiscussionof thedebate focuseson the2010 testimonies to the U.S. House Subcommittee for Science and Technology writtenindividually by Chari, Colander, Page, Solow andWinter, and various published andworkingpapers by methodologists and macroeconomists who are increasingly aware of themethodological issues. The center of the debate is the degree of complexity of the economy.ProponentsofDSGEarguethatexistingframeworkisontherighttrackandbettermodelscanbebuilt on this foundationwithmore complex components.ProponentsofACEargueagainstthis approach because of its limitation and argue for an entirely different method ofinvestigation. Others do not tackle the issue of complexity directly; instead they argue forrefocusing on the relationships ofmacroeconomic aggregates that have their own ontologicalstatus using empirical macroeconomic time‐series models, or appreciating knowledge fromincompletepartialequilibriummodelsandnottakingambitiousgeneralequilibriummodelstooseriously.Inourpaper,wearguethattheseattemptsofformalmodelingdonotaddressadeeperlevelofcomplexityoftheeconomywhichinvolvesanever‐changinginformalsystem.Macroeconomists,whether they are involved in academic research or policy making, are detached from themicroscopicbehaviorof individuals inhouseholds, firmsandgovernments.More importantly,individuals often react to changes in policy instruments (e.g. interest rates), economic shocks(e.g. the global saving glut) and institutions (e.g. deregulation of financial markets, housingpolicies, etc.) inanunpredictableway that cangenerateanaggregateoutcome thathasneverbeenseenbefore.Becausetheeconomyisalwaysoneormorestepsaheadofeconomicanalysts,evengenuineattemptstocapturetheinteractionoftrulyheterogeneouseconomicagentssuchas theACE approachmay be fruitless because forecasts from computer simulation cannot gobeyondwhateconomistscanassumed,whichisalwaysmuchmorelimitedthanrealitiesare.Inthesecondpartofthepaper,weanalyzeanaudiodocument“AGiantPoolofMoney”madebytheNationalPublicRadiotoillustrateourpoint.Althoughmanyfactors—alowinterestrate,alargeappétitoftheglobalsavings,etc.—wereinplaceformanyyearspriortothefinancialcrisis,the drastic erosion of banking and accounting standard in the industries in just two or threeyearswasrarelynoticedatthetime.Onlyafterthefact,economistsplaytheMondaymorningquarterbacksandinternalizethisintotheirmodelsofasymmetricinformation.

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Wearguethatotherscientificmethodsofinvestigationinsocialscienceshaveanimportantrole.Input fromthecomplexity theoriesdeveloped in thesocial sciencesandhumanities,and theirempirical applications, can benefit economicmethodology in severalmanners. Social systemstheory,forinstance,isapowerfultooltolinkmicroandmacropatternsofbehavior,toconceiveof the linkages between politics, law and the economy and lastly to articulate themyriad ofrelationshipsbetweenformalandinformalinstitutionswithoutslidingintoamereassertionofunpredictability. One concept, derived from the complexity theory of Niklas Luhmann, thatseems very promising to tie several of these insights together, is the concept of autopoiesis.Autopoiesis is the reproduction of a social systems entirely based on the elements andstructuresofthesystem.Notonlyeconomicorganizationsbutalsothefunctionsystemsoflaw,politicsandeconomyareautopoieticsystemswherepeopleparticipatein,withoutbelongingtothem. This entails that path dependence and interdependence will govern the evolution ofeconomic systems without making their behavior predictable to economic agents and policymakers.Thus,patternsofbehaviorcangounnoticed,andshifts thatareavoidableand largelypredictable,materializeasunavoidableandlargelyunpredictable.We will explore the possibility of incorporating social system theory to analyze the truecomplexityof theeconomicsystemasacomplementtoanyformalmodelof theeconomy.Wewill also speculate what specific research and investigative methods can be useful for bothacademiceconomistsandpolicymakers soas toavoidbeingcompletelyblindsidedby formalmodels.

2ExperimentaleconomicsChair:FrancescoGualaRoom7,Friday14:00‐16:00

ExperimentalEconomicsandRandomizedClinicalTrials:Acomparativeanalysisof

statregiestocontrolreactivityinexperimentswithhumans

MARÍAJIMÉNEZBUEDO,DAVIDTEIRA&JESÚSZAMORA‐BONILLAUNED

The paper presents a comparative study of the standard treatments regarding experimentalbiases regarding the subjects expectations vis‐à‐vis the treatment in two different contexts:experimentaleconomicsandrandomizedclinicaltrialsinmedicine.Inmedicine,thisbiasmainlyappearsinthetestingofnewtherapiesanditisusuallydiscussedinrelationwiththeso‐calledplaceboeffect. Itwas firstdocumented in18thcenturyFrance,asrelated to the testing of animal magnetism (also known as mesmerism). The history of thetechniquestocontrolforthebiastheplaceboeffectintroducesinexperimentalresultsisequallyold:drawingonhisexperienceinchemicalexperiments,Lavoisierimplementeddoubleblindingin order to factor out the effect of the expectations of both the experimenter and theexperimentalsubjectanddistinguishthesefromtheactualefficacyofthetherapy.Itshouldbenotedthatthedoubleblindingprocedurewasproposeddespiteanexplicitmentiontoalackofknowledge regarding the mechanisms that sustained the workings of the placebo effect.Surprisingly little is stillknownabout themechanismbywhich thesubjects’ expectationscanconstitute a confound in RCTs, yet blinding procedures are, as it is well known, almostuniversallyimplemented.Moreover,andincreasinglyso,blindingprocedureshavebeguntobequestionedbypatients’associationonnormativegrounds,astheydenypatientsinthecontrolgroupsofthebesttreatments.

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In experimental economics, in turn, this phenomenon is often referred to as the Hawthorneeffect,whichisoftendefinedastheprobleminexperimentswherebysubjects’knowledgethattheyareinanexperimentmodifiestheirbehaviourfromwhatitwouldhavebeenwithouttheawarenessofbeinganexperimentalsubject.AlthoughtheHawthorneeffectisoftenmentionedin themethodologicaldiscussionsof social scienceexperimentersand invirtuallyall researchdesigntextbooks, thenotion isoftenunsatisfactorilydepicted,wherecontradictorydefinitionscanbefoundintheliterature.Inourpaper,wereviewthecommonstandardmethodologicalstrategiesofexperimenters fordealing with the participant’s reactivity both in medicine and the social sciences, comparingtheirjustificationandtheirrelativeefficacy.Ourargumentisthat,despitetheirlimitedsuccess,andalongtheargumentsofGyoraHonandAllanFranklin,debiasingruleslikethoseimplementedineconomicsexperimentsandRCT’sareneverthelessnecessary:wearguethatdespitetheoftenreportedfailuresoftheblindingdevicesinmedicine,andtheintrinsiclimitsof“obfuscating”techniquesinexperimentaleconomics,weneed to implement them inorder tomake the results credible to thirdparties.Our argumentthus draws on and spells out, for both the case of medicine and economic experiments, thestrategic interactionbetween (a) theparticipants in theexperiment (b) theexperimenterand(c)theaudienceoftheexperiment.Giventhisinteractionwearguethatdebiasingrulesarekeytothecredibilityoftheresultsfromtheperspectiveofacontractarianepistemology.

LowinExternalValidity,HighwithExtrapolation

ATTILIARUZZENE

EIPE,ErasmusUniversityRotterdam

TherelevanceofextrapolationasascientificpracticehasrecentlybeenstressedbyDanielSteelinAcrosstheBoundaries(Steel2008).Eveniftheissueiscertainlynotnewtophilosophersandsocial scientists, Steel’s book contributed to anupsurgeof interest andgavenewvigor to theexistingdebate(seeproceedingsfromPSA2010).Extrapolationisnowfirmlyunderstoodasaform of analogical reasoning throughwhich results are borrowed from a given study‐context(themodelsystem)andusedtodrawconclusionsinadifferentcontextofwhichknowledgeisscarce(thetargetsystem).Forthepurposeofthepresentpaper,thenotionofmodel‐systemisunderstoodbroadly.Allstudiesthatofferresultssupposedlyvalidalsointhetargetsystemaremodels for extrapolation, be they experiments, mathematicalmodels, econometricmodels orethnographicstudies.There are several reasons that justify a pluralistic stance on extrapolation; that is, an openattitudeastotheresearchdesignsthatcanconstituteagoodmodelforextrapolation.Firstofall,extrapolation is extremely relevant to our purposes. It certainly is relevant to our epistemicpurposes:weextrapolatefromamodeltoexplainphenomenainthetarget,ortoderivecausalconclusions about the latter. It is often the case, however, that epistemic purposes are anintermediatestepinthewaytoaction.Policymakingrequiresknowledgeofcontextswhichweoften cannot easily access; in these caseswe borrow knowledge frommodel systems toplaninterventionsinthetarget.Ontheotherhand,extrapolationisaconstrainedpracticebecausethesearchforgoodmodelsisoftenboundedbyethical and temporal constraints. Sometimes, even ifweknowwhat a goodmodel for the target system is,weareprevented fromusing it due to ethical constraints. Forinstance, the normal testing procedure imposed by FDA (Food and Drug Administration)consists of three steps, or phases. Inparticular thedrughas tobe testedon ahuman samplebeforebeingapprovedandusedinthetargetpopulation.WithcertainpathogenssuchasEbola,however, experimentation on human sample is banned for obvious ethical reasons. In other

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casesextrapolationservesurgentneedsincircumstancesinwhichdecisionsandactionshavetobetimely.Thecaseofpandemicscomesagaintothefore.Inthesesituationstheamountoftimetotakedecisionandinterveneisnotunlimited.Evenifinterventionsinthesocialrealmarenotas urgent as blocking a pandemic is, decisions about educational programs, developmentprojects,socialplanninghavetomeettemporalconstraints.Givenitsepistemicandpracticalrelevanceandtheseveralconstraintstowhichitissubject,weshouldmakethebestuseoftheknowledgewehavewhendealingwithextrapolationsoastoactin the most efficient and effective possible way. In particular, recommendations as to whatmodelsaregood for the target systemof interest shouldbe informedbyanopenlypluralisticview. A pluralistic stance has recently been adopted in the health science. A new set ofprescriptionsbyUSgovernmentrecommendsFDA(FoodandDrugAdministration)tofindnewmethods and tools that can help FDA reach judgmentsmore quickly such as biomarkers andteamsofexpertsthatstartworkingearlywithscientists. I thinkasimilar ideashouldapplytothe social science and to economics in particular. Even if decisions and actions in the socialrealmarenotasurgentasinthehealthscience,theirrelevanceisarguablythesame.Ahurdlestands, however, on theway to a pluralistically informed view on extrapolation in the socialscienceanditfollowsfromthesefacts:

1. Extrapolation is used in the philosophical literature (and in common philosophicaldiscourse)asasynonymforexternalvalidity(Guala2005,Steel2008).

2. Social scientists treat external validity as a property of scientific findings and of theresearchdesignsinwhichthefindingsareobtained.

3. It follows from 1 and 2 that research designs that are regarded as poor in terms ofexternalvalidityarealsoconsideredpoormodelsforextrapolation(andviceversa).

InthispaperIwillarguethat3isamistakenanddetrimentalconclusion.It issimplynottruethatresearchdesigns thatareconsidered low inexternalvalidityarenecessarilypoormodelsforextrapolatingfindingstogivencontexts.Similarly,itisnottruethatresearchdesignsthatareusuallyregardedashighinexternalvalidityarealwaysthebestmodelforextrapolation.Socialscientists generally regard the experimentalmethod and ethnographic research (case studies,narratives andqualitative researchmore in general) as poor in external validity.At the sametime, theyregardtheeconometricmethodandtheoreticalmodelingasunambiguouslyhigh inexternalvalidity (GoertsandLeCompte1982,Lucas2003,GeorgeandBennett2004,Gerring2007).Iwillexamineacaseindevelopmenteconomicsinwhichtheeconomicperformanceofan African country is explained by using causal results about mechanisms of developmentborrowed from other country narratives. In this particular case, in addition, the previousattempttousetheoreticalgrowthmodelsandeconometricregressionstoexplaintheoutcomeof the country of interest resulted unsuccessful, and for this reason, the authors decided toborrow causal knowledge from case studies instead. In this case, thus, the research designactuallyusedforextrapolationisnottheonetraditionallyregardedashighinexternalvalidity.Besidesprovingthatconclusion3ismistaken,IwillalsoexaminewhatItakeastheconceptualconfusionleadingtotheconclusionsomesocialscientistsendorsethatcertaindesignsarepoorinexternalvalidityandothersarerich.Ithinktheconfusionderivesfromtheassumptionthatresearchdesignsthatprovideresultswithahighdegreeofgeneralityalsoofferresultsthatareeasily generalizable. Hence, the confusion is between the notions of generality andgeneralizability.Myhypothesis is that these twonotionsareeither thought tocoincide,or theformerisconsideredasaverygoodproxyforthelatter.Generalityregardsthebreadthorthescopeofthescientificresult.Generalizabilityregardstheactualpossibilityofextrapolatingthatresult to a given context. Broad findings are not always easily generalizable. In particular,whetheragivenresultisgeneralizableornotdependsoncontextualfeaturesand,inparticular,oncertainfeaturesofthephenomenonobjectofinvestigation.Thetightrelationthatisassumed

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betweengeneralityandgeneralizabilityis,thus,spurious.Iwillargueinsteadthatwhatmatterstoadjudicatethecapacityofagivenresearchdesigntobeagoodmodel forextrapolationinagivencontextisthecomparabilityofthemodelsystemwiththetargetsystem.ReferencesGeorge A. and Andrew Bennett (2005). Case Studies and Theory Development in the SocialScience.Cambridge,TheMitPress.

Gerring, J. (2007). Case Study Research: Principles and Practices. Cambridge, CambridgeUniversityPress.

Guala, F. (2005). The Methodology of Experimental Economics. Cambridge, CambridgeUniversityPress.

LeCompte,M. and JudithGoetz (1982). “ProblemsofReliabilityandValidity inEthnographicResearch.”ReviewofEducationalResearch52:31‐60.

Lucas, J.W. (2003). “Theory‐Testing, Generalization, and the Problem of External Validity.”SociologicalTheory21:236‐253.

Rodrik,D.(2003).InSearchofProsperity:AnalyticalNarrativesonEconomicGrowth.Princeton:PrincetonUniversityPress.

Steel, D. (2008). Across the Boundaries. Extrapolation in Biology and Social Science.Oxford,OxfordUniversityPress.

3HistoryofthoughtChair:N.EmrahAydinonatRoom15,Friday14:00‐16:00

CrisisandMethod:EdmundHusserlinEconomicThought

ANDREASGEORGSTASCHEIT

InstituteforAdvancedStudyintheHumanities(KWI),Essen

ThroughthediscussionofthespecificrelationbetweenFriedrichvonHayek’sandAlfredSchutz’approaches to economic thought, the paper explores the influences of Edmund Husserl oneconomic methodology with particular reference to the problem of abstraction in economictheory.FriedrichvonHayek,priortopublishingAlfredSchutz’paper“TheProblemofRationalityintheSocialWorld”inEconomicainMay1943,wrotetohiscolleagueinaletterdatedDecember25,1942:“AsregardstothesubstanceIcanonlysaythatweseemtobedrivingatverymuchthesame thing, though from so different a starting point as to make it sometimes difficult tounderstand the relation between the two approaches.” (“Hayek, F. A. Correspondence”.AlfredSchutzPapers.GeneralCollection,BeineckeRareBookandManuscriptLibrary).In takingupWeberian topics fromaHusserlianperspective,Alfred Schutzhaddeveloped theconcept of relevance as a theoretical framework for a scientific understanding of the rationalstructuresofhumanaction.Itisinthiscontext,thatalmosttenyearsafterthelettermentionedabove, Alfred Schutz sends a reprint of his article “Choosing among Projects of Action” toFriedrichvonHayekonJanuary3,1952alongwiththefollowingcomment:“Asamatteroffact,myoriginalmanuscripthadasecondpartinwhichItriedtopointoutthatthebasicassumptionof economic theory consists of the transformation of open possibilities into problematicalpossibilities. I thinkalsothattheprincipleofscarcitymightbeinterpretedasaspecialcaseofpracticabilityofeconomicaction.”(ibid.)

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Toexplore therelationbetween the twoapproaches, thepresentpapergoesback toEdmundHusserl’s early work Logical Investigations (1900/1901), particularly the Investigation V “OnIntentionalExperiencesandtheir ‘Contents’”andtheSecondSectionofInvestigationVI“Senseand Understanding”, where Husserl introduces the distinction between categorial intuition[kategorialeAnschauung] and sensuous intuition [sinnlicheAnschauung].AlreadyMaxWeberhad explicitly referenced InvestigationV andVI in the essay “Roscher andKnies: The LogicalProblemsofHistoricalEconomics”,andtheinfluenceoftheearlyHusserlcanalsobetracedinWeber’slatermethodologicalwritings.FollowingthehistoryofHusserl’sworkontherevisionofInvestigationVI,whichhestartedonlyafewyearsaftertheinitialpublication,thepaperreconstructsafewlinesinthedevelopmentofHusserlian thought from theLogical Investigations toHusserls laterwork,namelyFormalandTranscendental Logic and theCrisis of the European Sciences, with particular reference to theproblemofabstractionineconomictheory.“Mydifficultyisstilltheelementofhistorismwhich,atleastinmymind,attachestotheconceptofidealtype,aconceptthattomealwayssuggestsafictitiousentityratherthananabstraction”,FriedrichvonHayekwritestoAlfredSchutzintheaboveletterdatedDecember25,1942.“Istillprefertospeakofmodels…”

WhyEconomicsBecameaScience–

Suspicion,AnxietyandKnowledgeinEconomicDiscourse

TILLDÜPPEUniversitätHamburg

In the history and philosophy of economics, one commonly focuses on explanations andevaluations of matters related to the identity of the discipline – such as theories and theirdevelopment,methodologies,epistemologicalfoundations,politicalimplications,institutions,orinter‐disciplinaryrelations.Whatismissinginthisbodyofresearchisanexplanationoftheveryexistenceofeconomicscience.Howcomethat there is the institutionofeconomics inthe firstplace?Since this question is of a particularistic rather than general nature it can only be answeredhistorically: why did this economic science that evolved during the last centuries come intobeing?Whatarethehistoricalconditionsofthepossibilityoftheexistenceofeconomicscience?What, in modern western times, gave occasion to claiming scientific authority in economicdiscourses?Andwhydidothersgrantcredibilitytothosedoingso?The approach I take in order to answer this question draws on recentwork in the historicalepistemology of science that emphasize the role of affectivity for scientific practices (see forexample the work by Paul White). Complementary to inquiring the moral character of thescientistasrepresentingthevirtuesofknowledgeIaskwhataretheunderlyingemotionsthatmakeascientistinvestintoscientificpractices.Thisapproachleadsusawayfromexplanationsof the existence of economics that refer to universal economic problems, the emergence ofmodern economic institutions, the rising complexity of societies, or the need for justifyingpoliticalideologies.Instead,itleadsustoconsiderthepersonalneedsthatepistemicpracticesineconomicdiscoursemeet.Giventhisapproach,Iarguethatepistemicpracticesinthewesternworldevolvedinresponseto a culture of suspicion. Economic science flourished in times when suspecting others forpersonalinterestsdominatedsocialdiscourse.Ad‐hominemargumentsinparticularestablishedthe need for dealing in anonymous and moreover unintelligible ways with the problem of

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persuasionregardingeconomicmatters.Inotherwords,economicscienceevolvedinreactiontothefearsfacingquestionsofthekind,‘Whoareyou,arguingthis?’Iillustratethisargumentwithreferencetotwoepisodesinthehistoryofeconomicsthatwereformativeforitsidentity:first,theestablishmentofanepistemiccultureinpo‐liticaldiscourseduring17thcenturymercantilism,andsecondthepeakofmathematicalabstractionduringtheearly Cold War years. In both cases, suspicion of being guided by special interests puteconomistsunderconsiderablepersonalpressureandestablishedtheneed forprotectionandforarelieffromaccountability.Atthesametime,duringbothperiods,economistscouldmakeastrong impression onto others by abstract reasoning that only alludes to economic contestswithouttakingconcretepositions.Thus, rather than the soberness of a matter orientation, it was the aloofness of protec‐ tivecharacters which constitutes the impression of anonymity, and thus knowledge in economicdiscourse.This accountexplains inparticular theattractioneconomists expe‐ riencedbyhighdegrees of mathematical abstraction as well as their difficult relationship with politicaldiscourse.Economicabstraction,Iconclude,shouldbeconsideredlessanexpressiveactivityofbeliefsbutasawayofdealingwithsocialanxieties.Thegreatap‐pealofeconomicscienceliesinthefactthatitisbalmforeconomists’anxietiestobeputundersuspicion.Economicsbecameascience because it allowed depicting the economy in away that protects the economist frombeingaddressedpersonally.

Guilbaud’s reading of Arrow’s theorem

DANIEL ECKERT

Karl Franzens Universität Graz

InapaperpublishedtwoyearafterArrow’sfoundationofmodernsocialchoicetheory,theFrenchmathematicianGeorgesThéoduleGuilbaudhasgeneralizedArrow’sfamousimpossibilityresulttothe “logical problem of aggregation”, thereby anticipating both the use of ultrafilters in socialchoice theory and the recent literature on judgment aggregation.Wediscuss the significance ofGuilbaud’s reading of Arrow for a better understanding of the role of mathematical logic andmodeltheoryforeconomicmodelling.Shortly after Arrow’s (1950; 1951) foundation of modern social choice theory, the FrenchmathematicianGeorgesThéoduleGuilbaud(1912‐2006)haspublishedapaperon“Lesthéoriesdel’intérêtgénéraletleproblèmelogiquedel’agrégation”(Theoriesofthegeneralinterestandthe logical problem of aggregation) , which contains two major contributions that wereindependentlyrediscoveredbyotherauthorsseveraldecades later. (The firstbeingtheuseofultrafilters [Monjardet 1983], while the second is the generalization of the problem ofpreference aggregation to the aggregation of arbitrary information expressed in a formallanguage,whichwasrecentlysystematizedintheliteratureonjudgmentaggregation[ListandPuppe2009]).Atafirstlook,theoblivionofGuilbaud’scontributioncaninbothcasesbeattributedtoamajorsourceofmultiplediscoveries,namelylanguagebarriers.It,however,turnsoutthatGuilbaud’sapproachissoclosetoArrow’sownrootsinmathematicallogicthattheoblivionintowhichithadfallencanaswellbeseenasasymptomoftheforgetfulnessoftheoriginsofArroviasocialchoicetheoryinmathematicallogic.Interestingly,Guilbaud(1952/2008)immediatelyaddressedArrow’stheoremnotsomuchasacontribution to welfare economics, but more fundamentally as an analysis “of some logicaldifficulties related to the constructionof a collectivewill” (504/3): “Thegreat contributionof

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Arrow lay in discerning a logical problem in the literature of welfare and bringing it out asclearlyaspossible”(551/34).AndGuilbaudevenaddsinafootnote:”Oncethelogicalproblemissolved, if that is possible, it is clear that this would only prepare the ground for economicanalysis”(551,n.1/34,n.79).Explicitly following the algebraic approach to logic underlying modern mathematical logic(534ff/23ff), Guilbaud formulates the “logical problem of aggregation” in the algebraicframework of binary valuations of a set of sentences in propositional logic. In particular, heconsiders“eachindividualopinionasasystemofjudgments,thatis,ofaffirmationsornegations,of acceptances or refusals, of a certain number of simple propositions” (535/23). Logicalconnectionsofthesepropositionsdirectlytranslatingintorestrictionsonthesetofadmissiblevaluations (537/25),Guilbaud identifies the logical problemof aggregation as theproblemoffinding a rule which assigns to each profile of individual opinions a logically consistent“collectiveopinion”,i.e.anadmissiblevaluation.TheoblivionofGuilbaud’s contributions to social choice theory is all themoreastonishing asArrow himself had recognized Guilbaud’s paper as a “remarkable exposition of the theory ofcollective choice and the general problem of aggregation” (Arrow 1963, 92). Indeed, a closerlookreveals thatArrow’sapproach itself isdeeplyrooted inmathematical logic,as theroleofTarskiinhisintellectualbiographyalreadysuggests:Arguably,itisTarski’s(1941)expositionofthedeductivemethodwhichstandsinthebackgroundofArrow’saxiomaticapproachtosocialchoicetheory.ThefunctionoftheaxiomaticapproachaccordingtoTarskiis,however,tomakean axiom system independent of a particular interpretation of the terms used in it, such thatdifferentinterpretationsgeneratedifferentmodelsofthesameaxiomsystem,whileontheotherhand,changesintheintendedinterpretationsmayrequiremodificationsoftheformalstructure.Guilbaud’s reading of Arrow’s theorem on preference aggregation can thus be seen as aninterpretationofArrow’sresultasaparticularmodel(inaprecisemodeltheoreticsense)whilesimultaneouslypaving theway forageneralizationof the theoryofpreferenceaggregation totheaggregationofmorecomplexrelationalstructures,alongtheparalleldevelopmentofmodeltheoryequallyinspiredbyTarski.Thus,inGuilbaud’sreading,theresearchprogramofArroviansocialchoicetheoryalreadyinvolvesaconceptionofeconomicmodellingintheprecisemodel‐theoreticsenseoftheconstructionandinterpretationofformalstructures.ReferencesArrow,K.J.(1950):ADifficultyintheConceptofSocialWelfare.In:JournalofPoliticalEconomy58,328‐46.

Arrow,K.J.(19632[1951]):SocialChoiceandIndividualValues.NewYork.Arrow, K.J. (1952): Le principe de rationalité dans les décisions collectives. In EconomieAppliquée5,469‐484.

Guilbaud,G.T.(1952):Lesthéoriesdel’intérêtgénéraletleproblèmelogiquedel’agrégation.In:EconomieAppliquée5,501‐551.

Guilbaud,G.T.(1966):Theoriesofthegeneralinterestandthelogicalproblemofaggregation.In:Lazarsfeld, P.F./Henry, N.W. (eds.): Readings inmathematical social science. Chicago, 262‐307.

Guilbaud,G.T.(2008):Theoriesofthegeneralinterestandthelogicalproblemofaggregation.In:ElectronicJourn@lforHistoryandProbability4(1).

List,C./Puppe,C.(2009):Judgmentaggregation:asurvey.In:Anand,P./Pattanaik,P.K./Puppe,C.(eds.):RationalandSocialChoice:AnOverviewofNewFoundationsandApplications.Oxford,457‐482.

Monjardet,B.(1983):Ontheuseofultrafiltersinsocialchoicetheory.In:Pattanaik,P.K./Salles,M.(eds.):SocialChoiceandWelfare.Amsterdam,73‐78.

Tarski,A.(1941):Introductiontologicandthemethodologyofdeductivesciences.NewYork.

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1FoundationsofwelfareeconomicsChair:LarryA.BolandRoom6,Friday16:30‐18:30

TheDebateontheNatureofWelfareEconomicsintheContemporaryMethodologyofEconomics

BOGUSLAWCZARNYUniversityofWarsaw

I describe the debate of economists whether welfare economics is normative economics orpositive economics. I also presentmy opinion on the subject matter of the controversy. ThediscussionstartedwithadebatebetweenEzraMishanandPieterHennipmanin1982‐1984.[Anearlier debate about the status of Paretian welfare economics involving roughly the sameargumentsasthoseofMishanandHenniplanopposedrespectivelyLionelRobbinstoGeorgeC.Archibald].AsMishanstatedinthebeginning,welfareeconomicshasanormativecharacterandis“thatbranchofstudywhichendeavourstoformulatepropositionsbywhichwemayrank,onthescaleofbetterorworse,alternativeeconomicsituations”;mosteconomistsprobablyhavethe same opinion to date. However, as a result of the debate with Hennipman, MishanabandonedthisviewandprincipallyacceptedHennipman’spositionthatwelfareeconomics ispartofpositiveeconomicsratherthannormativeeconomics.Surprisingly, thedebatebetweenMishanandHenniplanreappearedineconomicjournalsabouttwentyyearslater.

ThefirstpartofthispaperpresentstheopinionsofGeorgeArchibald,PieterHennipmannandYew‐Kwang Ng, who believe that welfare economics is part of positive economics. In theiropinionswelfareeconomicsexaminestheeffectivenessofmeanstoanendwhichise.g.aParetooptimality or the total surplus maximization. [For instance, economists studying welfareeconomics recommend tradable pollution permits instead of emission limits in order tomaximisetotalsurplusinaneconomysufferingnegativeexternalities.]Naturally,theanalysisofthenewwelfareeconomicshasbeenextendedand systematisedover thedecades.Yet, it stillconcernsmeans to an end and as such it is (logically and/or empirically) verifiable. (Welfareeconomicsinthissenseprovestobetheoreticalfoundationofeconomicpolicy.)

The second part presents the opposite opinions of Mark Blaug. Contrary to Archibald,Hennipman and Ng, Mark Blaug has for years claimed that the new welfare economics “isavowedly and unashamedly normative”. Blaug supports his positionwith various arguments.First,Blaugarguesthattheterm“Paretooptmality”is“value‐loaded”andrepresents,explicitlyor implicitly, a value judgment. Inmyopinion, by stressing the “value‐ladedness” of the term“Paretooptimality”,Blaugmeansthatthetermhasbothadescriptiveandapersuasivefunction.Second, acording toBlaug,welfare economics is normative, because it relies on three specificpostulates which are value judgments like “Pareto optimality”. These postulates are used todefine “Paretooptimality” thenusedasanevaluationcriterionof social states.Thepostulatesareinparticularasfollows:a)Everyindividualismostcompetentabouthisorherwelfare.b)Social welfare depends only on the welfare of individuals. c) Decrease in the utility of oneindividual cannot be offset by increase in the utility of another individual. Third, Blaug usesseveralauxiliaryargumentsaswell.

ThethirdpartofthispaperpresentscounterargumentstoBlaug’sposition.Inmyopinion,MarkBlaug’s defence of the normative nature of the newwelfare economics failed (like its earlierdefence launchedbyEzraMishan). First, I believe that “Pareto optimality” is an example of a

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termwhichmayhavebeenvalue‐ladenbuthaslongbecomeethicallyneutral.Inaddition,wheredoubtsarise, it isenoughtoagreeonterminologyforthesakeoftheacademicdiscussionandaccept that the terms inquestion are treated asneutral andvalue‐free. Second, I believe thatpostulates accepted in defining the fundamental terms of the new welfare economics, like“Pareto optimality,” are not value judgments, contrary to Blaug’s claim. Inmy opinion, thesepostulateshaveadescriptive,andnotevaluative,function(afterbeingspecifiedtheycanbetrueor false).Their acceptance can contribute to creatinguseful economic theory. Inotherwords,their function in welfare economics is no different from that of similar postulates in similarcircumstancesinotherpartsofeconomics(e.g.,“thefirmmaximisesprofit”,“themarginalutilityofgoodspurchasedby theconsumerdecreases”,etc.).Likewise,Blaug’s “auxiliaryarguments”are‐inmyopinion–untanable.

Thepaperconcludeswiththehypothesisthatthedisputeinquestionmayderivei.a.fromtheambiguity of the terms “positive economics” and “normative economics”. According to thishypothesisadherentsoftheopinionthatwelfareeconomicsispartofthenormativeeconomicsrefertoJohnNevilleKeynes’sviewsonthenature ofnormativeeconnomicsandadherentsoftheopinionthatwelfareeconomicsisapartofthepositiveeconomicsrefertoMaxWeber.

Set­wisejudgmentaggregationbythemajority,specialmajorityandpluralityrules

JUANCARLOSGARCÍA‐BERMEJOAutonomousUniversityofMadrid

Thediscursivedilemma,amongotherthings, illustratestwofeaturesofthestandardapproachon judgment aggregation that are useful to consider. Firstly, the dilemma illustrates thatmajorityvoting(andsimilarjudgmentaggregationproceduressuchasthespecialmajorityandtheplurality rules)may lead toan inconsistent collectiveoutputand, therefore, isnotable toguarantee consistent collective judgments. Given that logical consistency is deemed afundamental property of collective judgments, this defect of majority voting and of similarjudgmentaggregationproceduresistheirmostemphasizedfeatureandisthemaincauseforthescepticismemergingfromthestandardapproachabouttheirfeasibilityasjudgmentaggregationprocedures.Secondly, thediscursivedilemma illustrates also that such inconsistencies are inducedby thewaythejudgmentaggregationiscarriedoutunderthestandardapproach.Insuchaframework,thecollectivejudgmentsofthegroupareobtainedbydeterminingindependentlythecollectivejudgmentoneachoftheissuesunderconsiderationasafunctionofindividualjudgmentsonit.Thisway of aggregating judgments is known as proposition‐wise aggregation. It differs fromdeterminingenblocthecollectivejudgmentsonthebasisofthecomprehensivepointsofviewofthe individual members of the group on all the issues at stake. This kind of judgementaggregationiscalledset‐wise.Infact,atthetimeofdeterminingthecollectivejudgmentsofagrouponaseriesofissues,itisfrequentpracticetoapplytheruleofmajorityenbloctotextswhichrefertoallormanyoftheconsidered issues.Forexample, the resolutionsof theUnitedNationsSecurityCouncilusuallydealwithvarious issuesbut theirapproval reliesononesinglevotingofaproposedsolution.WhenaParliamentpassesa lawasimilarprocedureisused.Thepassingofa lawdependsononesinglevotingontheproposalpreviouslyelaboratedaccordingtostatuaryprocedure.Whenacivilassociation,beitscientificorcultural,wantstomakeadeclarationpublic,theretendtobevariousproposedissues.Nevertheless,ifthegroupcollectivelypassesthetextofthedeclaration,

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itismadepublic.Obviously,itwouldnotbedifficulttocomeupwithmanyotherexamples.Thepoint is that aggregating judgments en bloc by the majority voting is a common way ofaggregatingjudgmentsinpractice.The aim of the paper is to help to explain this common practice which, under the standardapproach to judgment aggregation, may seem paradoxical. In order to achieve that aim, thepaperpresentsavariantof thestandardmodelof judgmentaggregationwhere judgmentsareaggregatedenbloc; inotherwords, amodelof set‐wise judgment aggregation ispresented. Itturnsoutthat,incontrasttothestandardproposition‐wiseapproachtojudgmentaggregation,intheset‐wisejudgmentaggregationmodelpresentedinthepaper,theset‐wisemajorityrule,theset‐wisepluralityruleandanyset‐wisespecialmajorityrulegenerateconsistentcollectivejudgmentsets,providedthatindividualjudgmentsetsareconsistent.Anothersalientfeatureofjudgmentaggregationisthattheremaybenocollectivejudgmentsetthat addresses all the points at issue.When this is the case, the standard requirement of full(logical)rationalityisviolated.Underthestandardapproach,fullrationalityistheconjunctionof consistency and completeness; in other words, a fully rational judgment aggregationprocedure has to generate without fail a consistent collective judgment set that, in addition,addressesalloftheissuesatstake.However,therequirementofcompletenesshasbeenlosingimportance to thatof consistency. Ina similarvein, thepaperaddresses thequestionofwhatlogical consistency conditions may be reasonably demanded from the set‐wise judgmentaggregation procedures, letting aside the completeness restriction. Afterwards, both theconsistencyandthecompletenessrequirementsareconsidered.Summing up. First, we review the basic lines of the standard model for facilitating thecomparisonofresultsreachedbythestandardapproachandthoseobtainedbythemodelofset‐wisejudgementaggregation.WiththissameaimandbythecharacterisationofmajorityvotingmostsimilartothatofMayandananalogouscharacterisationofthespecialmajorityrules,weillustrate the restrictive consequencesoriginating from the requirementof full consistencyonthestandardaggregationjudgementrules,includingthecasewhensuchrulesarenotrequiredtobecomplete.Afterwards,weintroducethemodelofset‐wisejudgmentaggregation,anditisshownthatset‐wise majority voting and a large class of similar judgment aggregation procedures satisfyrelevantrequirementsofconsistency.Inaddition,characterisationsofset‐wisemajorityvotingandof any specialmajority ruleareprovided.Consequently, the section leads toa conclusionoppositetothatemergingfromthestandardmodelonthefeasibilityofset‐wisemajorityvotingandset‐wisespecialmajorityrules.Finally, thepaper addresses thequestionofwhathappens in themodel of set‐wise judgmentaggregationwhen in addition to consistency requirements it is demanded from the judgmentaggregation rules that they provide a complete collective output. After some preliminaryconsiderations,thepaperfocusesonaweakervariantoftheset‐wisepluralityrule.Giventhatthis rule always leads to a complete and consistent collective output, it is shown that thepresented variant of the set‐wise plurality rule is the only one that satisfies, in addition toconsistency and completeness, a relevant set of appealing properties. In addition, a similarcharacterisationofthepluralityruleisalsoprovided.

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Shouldrationalindividualsendorsetheresultsofahypotheticalagreement?

JOERGKUEHNELTNewYorkUniversity

The idea tomodel individual behaviorwith theminimalistic assumptions of self‐interest andutility maximization has significantly contributed to the success of contemporary economictheory. TheHobbesian traditionof contract theoryuses theseminimalisticassumptions foranormativeproject:Hobbesiansuseabstractgame­theoreticmodelstolegitimizeacivilstatethatat leastprotects its citizenswithbasichumanrights.Game‐theoreticmodelsareused for twoaims: Theyhelp illustratewhy individuals inastateofnaturewouldhavetocopewithgraveproblemsofinteraction,andtheyhelpspecifyacivilstatethatismutuallybeneficialbecauseitiscapable ofefficiently preventing the problemsof a state of nature. Therefore, game‐theoreticmodels provide the foundation for the argument that a mutually beneficial state can belegitimized with a hypothetical agreement between all citizens. Due to the minimalisticassumptions of thismodel,Hobbesians claim that even amoral skeptic could approve of thislegitimization. Despite the minimalistic assumptions of their model, Hobbesians do notnecessarilyhavetoassumethatallindividualsareinfactself‐interestedutilitymaximizers;itissufficienttoshowthattheseassumptionsqualifyasaleastcommondenominator.Inmytalk,IarguethattheHobbesianapproachisgenerallyconvincingbutclaimthatithastobebasedonassumptionsthatbetterrepresenttheheterogeneityofcontemporarysocieties.Tosupportthisclaim,Idiscussthefollowingtwoquestions:First,ishypotheticalagreementsufficienttoshowthat the corresponding civil state is not onlymutually beneficial but also legitimate? Second,mustacivilstateprimarilyusepunishmenttopreventfree‐ridingorcanhypotheticalagreementmotivaterationalindividualstoendorsethelawsofthisstate?Hobbesians usemodels to show that a peaceful and productive interaction of self‐interestedutilitymaximizersinacivilstateisachievableandmutuallybeneficial.Theyclaimthatonlythelawsof a civil state can efficiently constrain individual behavior and avoid theuncoordinatedandexploitativebehavior thatoccurs in thestateofnature. Ifall citizensbenefit fromsuchacivil state, they have a rational reason to form a hypothetical agreement to legitimize it.Hypotheticalagreement,however,isonlypossibleifHobbesiansshowthateachindividualhasanet benefit, meaning that the benefits each individual gains from peaceful and productiveinteraction are greater than the costs imposed by the constraints and financial cost of a civilstate.FormyfollowinganalysisoftheHobbesianargumentIdonotquestionifahypotheticalagreementispossiblebutonlydiscusswhatcanbederivedfromsuchanagreement.The firstquestionofmy talk is related to thedifferencebetween the factual claim thata civilstate is mutually beneficial for all individuals and the normative evaluation that mutuallybeneficial institutions are legitimate. Hobbesians use game‐theoretic models to support thefactual claim that a civil state ismutually beneficial for all individuals. Based on this result,Hobbesiansclaimthathypotheticalagreementispossiblebecauseallindividualshavearationalreason to agree to amutually beneficial state. This hypothetical agreement, however, is notsufficienttosupportthenormativeevaluationthatthiscivilstateisalsolegitimate.Iarguethatit isnotpossible todirectlyderivethenecessarynormativeevaluationbecauseself‐interestedindividualsarenotdirectlyinterestedinthewell‐beingofothers,donotholdnormativevaluesand,hence,donotcareaboutthelegitimacyofamutuallybeneficialcivilstate.There are two known solutions to this problem. First, Hobbesians can reduce legitimacy torationality and self­interest. This approach, however, abandons any substantial normativeconceptionoflegitimacybyjettisoningthedemandforanormativeevaluationoftheagreement.This can, for instance, result in a hypothetical agreement that does not cover all individuals,because rational and self‐interested individuals will exclude individuals who have no or not

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sufficient bargaining power, for instance weak, old or ill individuals who cannot sufficientlycontributetotheproductivityorsafetyofacommunityorsociety.Furthermore,ahypotheticalagreement between self‐interested rational individuals is possible even if the correspondingcivilstatedoesnotprotectallindividualswiththesamebasichumanrights.Givenanunequaldistribution of bargaining power in the state of nature, self‐interested individuals will evenconsider a slavery state to be mutually beneficial if it adequately represents the bargainingpoweroftheactorsinthestateofnature.Second,Hobbesianscanpresupposethatlegitimacyhastobederivedfromthenormativevalueofrationalagreementtojustifythatlegitimateinstitutionsneedtobemutually(andsufficiently)beneficialforallindividuals,evenforindividualswhodonothavesufficientbargainingpower.This assumption, however, provokes two questions: First, why should self‐interested andrational individuals, for instance a moral skeptic, accept the constraints of this normativeconceptionoflegitimacy?Second,whyshouldlegitimacybederivedfromthenormativevalueofagreement andnot from traditional normative values like freedom orequality – a questionthatcannotbeansweredwithinthecontractarianframework?In my talk, I develop a third answer that is based on the distinction between mutual andnormativeapproval.Ithinkitisnecessarytofocusstrongerontheindividualsincontemporaryheterogeneous societies, because these individuals are supposed to endorse the resultsof thehypotheticalagreementthatissupportedbyaHobbesianmodel.First,Iassumethatindividualsincontemporarysocietiesarerationalandthat,whilesomeindividualscanbedescribedasself‐interested,themajorityofindividualsaremoral,i.e.theyholdcertainvaluesandcareaboutthewell‐beingofothers. Second, Iassumethatmostmoral individualsholdconflictingnormativevalues but share a strong interest in the value of avoidingunnecessary coercion. Given theseassumptions,Iarguethatacivilstatehaslimitedlegitimacyiftwoconditionsarefulfilled:First,everybodyhas a rational reason to hypothetically agree to a civil state because it ismutuallybeneficialforallindividuals.Second,amajorityofmoralindividualscannormativelyapproveofthisstatebecausetheysharethevaluetoavoidunnecessarycoercion.Thisapprovalisrealisticbecauseamutuallybeneficialstateefficientlyavoidsunnecessarycoercion:Ifastateismutuallybeneficial, the benefits each individual gains from peaceful and productive interaction aregreaterthanthecostsimposedbytheconstraintsandfinancialcostofacivilstate.Furthermore,this approvalwouldnot be possible if some individuals are excludedor are not protectedbybasichumanrights.Although,IthinkthatthetraditionalHobbesiananalysishastobeadjustedto find a civil state that ismutually beneficial for heterogeneous societies, I believe that it ispossibletospecifythepropertiesofsuchastate.Thedistinctionbetweenthehypotheticalagreementofallindividualstoestablishormaintainamutuallybeneficialcivilstateandtheapprovaloftheindividualswhoaresupposedtoendorsethelawsofthiscivilstatealsoprovidestheframeworkforaninterestinganswertothesecondquestion of my talk: If most individuals share the value to avoid unnecessary coercion andnormativelyapproveofacivil state that ismutuallybeneficial forall individuals, thenat leastthis majority has a strong reason to endorse the laws this civil state. Although punishmentwouldstillbenecessary toensure thestabilityofacivil state,amajorityof individualswouldendorsethelawsofthisstatebecauseoftheirnormativeapprovalandnotbecauseoftheirfearofsanctions.It may not be immediately compelling to derive legitimacy from the mutual benefit of allindividualsandthenormativeapprovalofamajorityofindividualsthatmaynotevenincludeallmoral individuals. Nevertheless, doing somay lead to a conception of legitimacy that betterrepresents the diversity of values in contemporary pluralistic societies than traditionalconceptionsoflegitimacy.

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2Teampreferences,CollectiveintentionalityChair:DonRossRoom7,Friday16:30‐18:30

TestingCollectiveIntentionalityTheories:SharedGoals,Preferences,andCounterfactuals

FRANCESCOGUALAUniversityofMilan

Theories of collective intentionality have roots in three different disciplines: group identitytheory in psychology, team preference theories in economics, and collective intentionalitytheories inphilosophy.Althoughphilosophershaveoften endorsed anaturalistic approach tocollective intentions, they have mostly focused on purely conceptual issues such as thereducibilityofcollectivetoindividualintentionalityortheexistenceoflogicallydistinctformsofcollective intention. Psychologists and game theorists, in contrast, have providedmost of theempiricaldatathatiscurrentlyavailableonthistopic.

Thisdivisionofworkisfarfromoptimal,forvariousreasons.Oneofthem–whichisthebasis of this paper – is that empirical research often promotes conceptual clarification, byoperationalizing concepts that otherwisemay remain detached from empirical reality. In thispaper Igiveanexampleaskingwhat itmeans tobecooperativeand toshareagoal,andhowsharedintentionscanbeinvestigatedinpracticeusingempiricaldata.

IbegindiscussingSearle’sargument that collective intentionality (CI) isan irreducible(primitive) concept, based on his famous “Harvard Business School” example (Searle 1990).Some scholars have pointed out that, whatever the merits of Searle’s argument, the“primitiveness” thesis has the disadvantage of leaving CI shrouded in mystery (e.g. Pacherie2008).Thisposesabigobstacle to thenaturalizationofCIadvocatedbySearle, forwithoutaminimal articulation it becomes very difficult to identify the biological basis of a folk‐psychologicalconcept. Bratman’s (1993) theory is an example of articulation of CI that provides a usefultemplate for empirical investigation. A collective or “shared” intention, in Bratman’s sense,involves a common (shared) goal and a plan to achieve it that requires interdependence ofactionamongtheindividualagents(seealsoTomaselloetal.2005).ItiseasytodemonstratethatsharingtherepresentationofagoalisnotsufficientforCI.Usingagame‐theoreticmodel(Bacharach2006),IarguethatthekeyaspectofCIisnotthe“sharedness”ofgoal‐representationbuttherobustnessofcooperationtoasetofpossibleperturbationsinthepayoffsof thegame.Themaindifferencebetweenan individualanda collective intention liesneitherinthestateofaffairsthatisjointlyrepresentedasthegoaloftheaction,norinthepathleadingtotheachievementofthatstateofaffairs,butinwhatwouldhappenifcertainchangesinpayoffs were to occur. A collective intention is robust to some manipulations of individualpayoffsthatencouragedeviationfromtheplan,inawaythatanindividualintentionisnot.

Thishastwoimportantconsequences:first,MichaelTomasello’sinsightthatcooperationandCIrequireaspecialmotivationalbasis(theassignmentofcollectivevaluestoactionsand/orstates of affairs) is vindicated. Second, experiments that test CI theories must focus oncounterfactual scenarios where payoff functions are manipulated, or role‐reversal designswheredifferentpayoffsareassociatedwithdifferentroles.Iconcludegivingsomeexamplesofresearchthatgoesinthisdirection.References:Bacharach,M. (2006)Beyond Individual Choice: Teams and Frames in GameTheory. PrincetonUniversityPress.

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Bratman,M.(1993)“SharedIntention”,Ethics104:97‐113.Pacherie,E.(2007)“IsCollectiveIntentionalityReallyPrimitive?”,inM.Beaney,C.PencoandM.Vignolo (eds.) Mental processes: representing and inferring. Cambridge Scholars Press,pp.153‐175.

Searle, J. (1990)“Collective IntentionsandActions”, ined.byP.Cohen, J.Morgan,M.E.Pollack(eds.),IntentionsinCommunication.MITPress.

Tomasello,M.,Carpenter,M.,Call,J.,Behne,T.andMoll,H.(2005)“UnderstandingandSharingIntentions:TheOriginsofHumanCognition”.BehavioralandBrainSciences28:675‐735.

TeamReasoningandSelfControl

NATALIEGOLDUniversityofEdinburgh

Itakeproblemsofself‐control,quitebroadly,tobethosewhereapersonhastoresistacurrenttemptationinordertoachievealong‐termgoal,forexample,givingupsmoking,losingweight,studying for an exam. There are similarities between the incentive structure faced by thetransient agents in problems of self‐control and the incentive structure faced by individualagentsintheprisoner’sdilemma.InthispaperIwillexplorewhetherteamreasoning,amodeofreasoningusedby individuals in teams,whichcanrecommendthecooperativesolution intheprisoner’sdilemma,canbeappliedtotheproblemofself‐control.Problemsof self‐control canbemodeledusinggame theory,where theywouldbe consideredproblems ofdiachronic inconsistency. In decision theory, themodeling framework ofdynamicchoice isusedwhenonepersonmakesasequenceofdecisionsovertime.It isconventionaltoanalyze problems of dynamic choice as if, at each time t at which the person has tomake adecision,thatdecisionismadebyadistincttransientagent,‘thepersonattimet’.Eachtransientagentistreatedasanindependentrationaldecision‐maker.Gametheoryasapplied toproblemsofdynamicchoiceshareswithstandardgametheory theassumption that actions can be explained in terms of the preferences of the actors and thestrategic interactions between them. But in dynamic choice theory, the actor is the self at aparticular time. So, in the same way that game theory can throw up problems of strategicinteraction between individuals, dynamic choice theory can throw up problems of strategicinteraction between the person at at different times. There is a problem of diachronicinconsistencywhenthechoicethatseemsbestfromthepointofviewofanearlytransientagentreliesonachoicebyalateragentthatwillnotseembestfromthelatteragent’spointofview.Sotheearlytransientagentwouldliketoimplementaplanthatshecannotrelyonherlatterselftocarrythrough.In this framework, theproblemof self‐control is a problemofdynamic consistencywhere thebestplan,asviewedfromnow,involvestakinganactioninafutureperiodthatwillnotbeseenasoptimaloncethatperiodhasarrived.Compare this to the prisoner’s dilemma. For each player,defect strictly dominates cooperate.Thus, initsexplanatoryform,conventionalgametheorypredictsthatbothplayerswillchoosedefect.Initsnormativeform,itrecommendsdefecttobothplayers.Yetbothwouldbebetteroffifeachchosecooperateinsteadofdefect.Inthesamemannerinwhichtransienttimesliceshaveself‐control,individualagentshaveaproblemofcooperation.In the same way that dynamic choice theory privileges time‐slices, standard game theoryprivileges individuals. In decision theory, it is almost universally presupposed that agency isinvested in individuals: each person acts on her own preferences and beliefs. A person’s

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preferencesmaytakeaccountoftheeffectsofheractionsonotherpeople;shemay,forexample,bealtruisticorhaveanaversiontoinequality.Still,theseareherpreferences,andshechooseswhatshemostprefers.Inthesyntaxofgametheory,eachindividualmustaskseparately‘WhatshouldIdo?”Intuitively,however,itseemspossiblefortheplayerstoaskadifferentquestion:‘Whatshouldwedo?’Theoriesofteamreasoningallowgroupsor‘teams’ofindividualstocountasagentsandseektoidentifydistinctivemodesofteamreasoningthatareusedbyindividualsas members of teams. When individuals team reason, they can reason to the choice ofcooperationintheprisonersdilemma.In thispaper, I consider the applicationof team reasoning to the self‐control,where the timeslicesaskthemselves‘whatshouldI‐over‐timedo?’andexplorethecircumstancesunderwhichthiscansolveproblemsofself‐control.

CognitiveandMotivationalMechanismsofVoluntaryCooperationinSocialDilemmas:AnExperimentalStudy

MICHIRUNAGATSUUniversityofTartu

1IntroductionThe gist of the social dilemma lies in the fact that peoplewho prefermutual cooperation asacollectiveactionhavegreaterindividualincentivestofree‐ride.Despitethedilemma,however,inmany successful groups and organizations individual members voluntarily cooperate forcommongoals.Whydopeoplevoluntarilycooperate(asmuchas theydo)?Thispaperaimstoprovideadeeperunderstandingofcognitiveandmotivationalmechanismsofthe‘groupidentityeffects’,phenomenainwhichpriminggroupmembershipsmakesindividuals’behaviourgroup‐oriented. It is known that even an arbitrarymembershipmanipulation (such as dividing thesubjects intothosewhopreferKandinskytoKleeandthosewhohavethereversepreference)often creates in‐group favouritism as well as out‐group discrimination (Tajfel etal. 1971).Althoughsocialpsychologistshavebeenwaryofpossibledangersof thegroupidentityeffects(suchasirrationalgroupthinkinganddiscrimination),theeffectscanbeusedforthecollectivegoodaswell.Forexample,creatingandpriminggroupmembershipincreasecooperationratesin social dilemma (or equivalently public goods) games. Iam specifically interested in ahypothesisregardingoneofthecausesofgroupidentityeffects,namely,thattheperceptionofcommon interests and interdependence among groupmembers will induce people to group‐identifyandact forthegroup’sgoals(Bacharach2006, the ‘interdependencehypothesis’). Iwillpropose a new experiment that can test this hypothesis in a clearmanner. In addition, Iwilltheoreticallyexaminethemotivationalunderpinningsofgroup‐orientedbehaviour,bothatthe‘proximate’ (emotional) and ‘ultimate’ (evolutionary) levels, with a behavioural experimentwhichcansupportmyposition.Finally,buildingonthesestudies, Iwillrecommendpolicythatwill not only encourage people’s public‐minded behaviour but do so while improving theirsubjectivesenseofwell‐being.2CognitionResearchersdisagreeastowhichcognitivemechanismsareimportantinvoluntarycooperation.Dopeopleframethesocialdilemmafromagroup’spointofviewandaccordinglyplaytheirpartasmembersofthegroup(teamreasoning)?Ordotheycooperatemerelybecausetheywanttoconformtoothers’expectationsand/oravoidembarrassmentoftransgression(individualsocialnorm conformity)?While both factors are likely to come into play in different contexts, myhypothesisisthatifwesufficientlyattractindividuals’attentiontotheircommoninterestswithother members, then considerations of group goals will become more prominent in theirevaluations and modify their behaviour accordingly. This hypothesis has been proposed

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byBacharach(2006), but never clearly demonstrated experimentally. Although experimentalsubjectssometimes justify theircooperativechoice insocialdilemmagamesusing the logicofteam reasoning (Gächter andThöni2007), such introspective evidenceneedbe supportedbynon‐verbalbehavioraldata. Iwill thus conduct anew, simple socialdilemmaexperiment thatcandothis.Experiment1:One­shotpublicgoodsgameamong‘like­minded’peopleTheexistingevidenceforandagainsttheteamreasoningmodel(JinandYamagishi1997;Gualaetal. 2009; Colman etal. 2008) are obtained by using eitherminimal groupmanipulations (ofKandinsky‐Klee type) or some sort of direct frame manip‐ ulation, and thus cannot test theBacharach’s (2006) interdependence hypothesis that common interests andinterdependenceper seprompt group identification. For this reason,Ipropose,in order tostimulate group identification,to categorize experimental subjects into groups based on theirtendencies to cooperate in the first stage social dilemma game, and let themplay the secondstagegamewithnewlyformedlike‐mindedgroupmembers.Althoughthismanipulation(knownas‘like‐mindedmanipulations’)isfamiliartoexperimentaleconomists(GächterandThöni2005;Burlando andGuala2005), psychologists (and economists themselves) haven’t realized that itcan be a better manipulation to test the team reasoning model. Another innovation of thisexperiment is that it lets subjects play the second stage like‐minded gameonly once,whileGächterandThöni(2005)madethisgameten‐round,allowingthemtoexplainunexpectedhighercooperationratesofindividualsinlike‐mindedgroupsintermsofthefailureofbackwardin‐ duction (Selten and Stoecker1986) and incomplete information regarding other players’motivations (Kreps et al. 1982). My experiment is more ‘crucial’ than Gächter and Thöni’s(2005)inthat,ifthecooperationratesofthelow‐contributingindividualsincreaseafterthelike‐minded manipulation, then this increase can only be attributed to team reasoning. This isbecauseintheone‐shotgamethereisnoroomforplayerstostrategicallyfeigncooperationorfail todobackward induction.Theexplanationthat theobservedhighercooperationratesaredue to thenormof cooperation isalsoexcludedbecause in thegroupof low‐cooperators it iscommonknowledgethattheytendtofree‐ride.3MotivationSecond, Iwill explore how effective different motivations are in encouraging voluntarycooperationindifferentcontexts.Althoughresearchshowsthatremind‐ingpeopleofprevalentsocial norms,e.g.,of anti‐littering,can significantly reduce anti‐social behavior (Cialdinietal.1990),we cannot exploit such conformist motivation in the contexts where there is nowidespreadexpectationforthebehaviourwewouldliketopromote(e.g.whistle‐browinginacorruptorganization).Isuggestthatencouragingvoluntarycooperationviateamreasoning,asopposed to individual norm conformity, can bemore effective in the absence of the relevantsocial norms. Iwill also argue, drawing on developmental and evolutionary psychology(e.g.,Tomasello2010),socialneuroscienceandtheeconomicsofinterpersonalrelations(e.g.,Guiand Sugden2005), that the motivation for doing things together is distinctly collective andirreducible to individual self‐interest. That is, people can be motivated towards a collectiveenterprisewithoutnecessarilybeingmotivatedtosatisfytheirindividualself‐interest;theycando it in the knowledge that they will enjoy it,but they needn’t do itin order toenjoy it,whichwould turn themotivation into distinctly individualistic. On this view, the key to solving thesocialdilemmaproblemcanbefoundinourevolutionarilyprimitivedesireforthepleasuresoffellow‐feelings,rather than in some elaborated form of individual rational calculus (cf.Sugden2002).Buildingonthisargument, Iwillalsosuggest thatprovidingand fulfillingsuchacollectivemotivationper seimproves people’s psychological sense of well‐being,independentlyfromtheinstrumentalvaluesofcooperation,suchasefficientoperationsoforganizations.Experiment2:Identifiabilityofco­playersIn the context of altruism, it is known thatwe tend to help particular individualsmore than

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statistical,representative ones (the ‘identifiable victim effect’;Schelling (1968)). Small andLoewenstein (2003) performed an experiment which separated the effect of personalinformationofvictimsandthatof their identificationperse, and foundthat it is the latter thatprimarily causes one to be more altruistic toward the victims. Interestingly, Small andLoewenstein speculate that similar effects might be present in other cases of judgment andaction towardotherswhen theothersarenotvictims,but theymainly thinkof thepossibilitythat actions by identified individuals face harshermoral judgment than those by unspecifiedindividuals.WhilenotdisagreeingwithSmallandLoewensteinonthismatter(wejustneedtoempiricallytesttheirspeculation),Iproposethattheidentifiablevictimeffectcanbegeneralizedin a different direction,namely from the context of altruistic behavior to the context ofcooperative behavior. Specifically,my hypothesis is that people tend to cooperatemorewithotherplayerswhen theothersare identified(evenwhen theyremainanonymous) thanwhenunspecified. This ‘identifiable co‐player effect’,if observed,canbeused to encourage voluntarycooperation. In particular, it may be effective in increasing cooperation in the modernorganizationalcontext inwhichan individualneeds tobemotivated tocooperatewithpeoplewith whom she has no face‐to‐face contact. Incidentally, this effect could also explain thediscrepancy between Jin and Yamagishi’s (1993) and Guala et al.’s (2009) experimental dataregardingthemechanismsofgroupidentityeffects.ReferencesBacharach, Michael. 2006. Beyond Individual Choice: Teams and Frames in Game Theory.Princeton,NJ:PrincetonUniversityPress.

Burlando, Robert M. and Guala, Francesco. 2005.“Heterogeneous Agents in Public GoodsExperiments.”ExperimentalEconomics8:35–54.

Cialdini,RobertB.,Reno,RaymondR.,andKallgren ,CarlA.1990.“AFocusTheoryofNormativeConduct: Recycling the Concept of Norms to Reduce Littering in Public Places.”Journal ofPersonalityandSocialPsychology58:1015–1026.

Colman,AndrewM.,Pulford,BrionyD.,andRose,Jo.2008.“CollectiveRationalityinInteractiveDecisions:EvidenceforTeamReasoning.”ActaPsychologica128:387–397.

Gächter,SimonandThöni,Christian.2005.“SocialLearningandVoluntaryCooperationamongLike‐mindedPeople.”JournalofEuropeanEconomicAssociation3:303–314.

Gächter, Simon and Thöni, Christian. 2007. “Rationality and Commitment in VoluntaryCooperation: Insights fromExperimental Economics.”In Fabienne Peter andHansBernhardSchmid(eds.),RationalityandCommitment,chapter8,175–208.OxfordUniversityPress.

Guala, Francesco, Mittone,Luigi, and Ploner,Matteo. 2009. “Group Membership, TeamPreferences,andExpectations.”WorkingPaper6‐09,ComputableandExperimentalEconomicsLaboratory,Trento,Italy,ViaInama,538100Trento,Italy.

Gui,BenedettoandSugden,Robert(eds.).2005.EconomicsandSocialInteraction:AccountingforInterpersonalRelations.Cambridge,England:CambridgeUniversityPress.

Jin,Nobuhito and Yamagishi,Toshio. 1997.“Group Heuristics in Social Dilemma.” ShakaiShinrigakuKenkyu12:190–198.

Kreps,DavidM.,Milgrom,Paul,Roberts,John,andWilson,Robert.1982.“RationalCooperationintheFinitelyRepeatedPrisoners’Dilemma.”JournalofEconomicTheory27:245–252.

Schelling,ThomasC.1968.“TheLifeYouSaveMayBeYourOwn.”InS.Chase(ed.),ProblemsinPublicExpenditureAnalysis.WashingtonDC:TheBrookingsInstitute.

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3NetworksChair:PetriYlikoskiRoom15,Friday16:30‐18:30

Explanatorystyles–

modelingnetworksinsociologyandeconomics

CATERINAMARCHIONNIUniversityofHelsinki

Thestudyofnetworksandtheirinfluenceonhowagentsbehavehasalonghistoryinsociology(forahistoricaloverviewseeFreeman2004).Recentlythestudyofnetworks insociologyhassignificantlychangedthankstoadvancesincomputationalmethodsandtheincreasinginterestthat network theory has received across both the natural and the social sciences (see forinstance AAVV, 2009). In contrast, networks have only recently become a distinct object ofanalysis in economics, with an identifiable body of substantial theoretical and empiricalliterature (Goyal 2007, Jackson 2008). Nowadays the mathematical tool of graph theory (abranchofdiscretemathematics)isemployedinbothsociologyandeconomicstostudypartiallyoverlapping domains of phenomena, namely social and economic networks. In spite of thesecommonalities,however,thetwofieldsstilldevelopinrelativeisolationtooneanother.InthispaperIexaminehowsociologyandeconomicsmodelsocialandeconomicnetworks.Mymainfocusisonexplanation‐with‐networks,that is,explanatoryaccountsofhowvariationsinthestructureofsocialnetworksaffectagents’behavior.Ishowthatthetwofieldssignificantlydiffer in the way in which network theory (the application of graph theory to the study ofnetworked phenomena) is used for explanation. I also show that these differences cannot beexplainedasmerelytheresultofadaptingnetworktheorytothespecificitiesoftheirrespectivesubjectmatters.Insteadthewayinwhichnetworktheoryisadaptedandusedineachfieldhasmore to do with divergent field‐specific conventions regarding what constitutes a goodexplanation.My strategy in the paper is to compare paradigmatic examples of modeling the influence ofnetworksonindividuals’behaviorinsociologyandeconomics.Bycomparingthewayinwhichthese models are used for explanation, I distill divergent field‐specific, partly implicit,presuppositionsregardinggoodexplanation.Twoworkinghypotheseswillguidetheanalysis.Thefirst isthatscientific fieldsdiffer intheircharacteristicexplanatorystyles.PartlyinspiredbyMiller(1987),Itakeanexplanatorystyletobecharacterizedbythefollowingelements:(i)whatcountasappropriatekindsofexplanation‐seeking questions (ii)what are the appropriateways of addressing those questions, and (iii)whatmakescertainexplanationsbetterthanothers.Thesecondisthatmodelingstrategiesandexplanatorystylescorrelate:certainwaysofmodelingaremoresuitabletobeusedforcertainkinds of explanation than for others. Accordingly, different modeling strategies will bemoreprevalentinsomefieldthaninothers.Theaimofthiscomparativeexerciseistwofold.Thefirstis to identify the explanatory accomplishments and limitations of the strategies of modelingnetworksineconomicsandsociology.Thesecondmoregeneralaimistoshedlightonhowthetransfer of modeling techniques contributes, or fails to contribute, to knowledge integrationacrossthesocialsciences.ReferencesAAVV(2009)“ComplexSystemsandNetworks”Science24July2009,vol.325,Issue5939:405‐428

Freeman,L.C.(2004)TheDevelopmentofSocialNetworkAnalysis.EmpiricalPress

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Goyal,S.(2007)Connections.PrincetonUniversityPressJackson,M.O.(2008)SocialandEconomicNetworks.PrincetonUniversityPressMiller,R.W.(1987)FactandMethod.PrincetonUniversityPress

Networkeffectsindecisionsystems

MARIAMTHALOSUniversityofUtah

SomeBackgroundPrecautionisalargelyneglectedtopicinthecanonicaltheoryofdecision.Tobefair,canonicaldecision theorycontends that ithasdealtwith the issue ina singlestroke:precaution,on thecanonical conceptionof things, is simplydoingduediligenceby thedemandsof the theoryofExpectedUtility (EU), onwhich every increment of risk is to be treated like every other, andresponsetoaggregationsofriskaretreatedasproportionaltotheirsum.Fromthisperspective,nothingmoreneedbesaidaboutrisk,becausethepropersensibilityvis‐à‐visriskisneutrality—neither finding risk attractive nor shrinking from it. But Arrow (1971) tried to accountsystematically for individual differences in attitudes towards risk and precaution—inwhat isnowreferredtoas“riskaversion”—inamannerhethoughtwasstilllargelyconsistentwithEU.Subsequently Kahneman and Tversky (1974) pronounced that anyone so perverse as to becaughtviolatingtheprescriptionsofEU—withakindofriskaversionthat is inconsistentwithit—is to be chargedwith irrationality. Their empirical findings suggested that this is prettymucheverybody. Still, they failed toappreciate justhowdemandingEU’sprescriptionsreallyare—justhowirrationaltheymakeusallouttobe.

Maurice Allais, an economist and physicist with fastidious theoretical instincts, hasmaintained since the 1950’s—and reiterated in his Nobel Prize acceptance lecture in 1988—what Rabin and Thaler (2001) recently have shown (and so implicitly against the researchprogram launched by Arrow 1971): a person’s natural response to aggregations of small tomedium‐sized risks are routinely, when taken together with that same person’s naturalresponsetolarge‐scalerisk,contrarytoEU’sadmonitions.Allaisdefendedtheseinstincts,andsowill thispaper: theyare the result ofpayingattention to certainnetworkeffects,which in itsturnconstitutesarejectionoftheuniversalapplicabilityof“thinkingonthemargin.”

ThesisTodaywearemoremindfulthaneverbeforeoftheprofoundeffectsofconnection.Ofcoursewehumanshavealwaysbeensociallynetworked,butconnectiontechnologieshavebroughthomethe power of connecting, in the process of enlarging andheightening its impact. Networkingenhanced by information technology has amplified some effects while damping others: ourneighborhoodshavegrownbigger(becausewecanconnecttoalmostanyoneonthefaceoftheglobeatnear‐lightspeed)butatthesametimeourworldhasgrowntoseemsmaller(becausetheoverlapsinourneighborhoodsaresolarge).Networkconditionscanmagnifyandtelescopeeffects, or alternatively they can diminish or even totally extinguish them. But even morecrucially:whichtheywilldo(enhancingordamping)hasgottenhardertopredict. Everythingdepends on (typically invisible) architecture (“topology”) of the network—how large, howclustered, how diffuse, how ghettoized. The effects of network features are currently beinginvestigated by sociologists, ecologists, biologists, mathematicians, physicists, computerscientists and economists. From societies of living things, to planets orbiting their stars, toelectronsinaBose‐Einsteincondensate,networkeffectsareeverywhere,andtheirmathematicshasbecomealargeanddiverseindustry. Unfortunately,researchersworkinginfoundationsandapplicationsofdecisiontheory—whoprescribeforushowtoproceedwithmakingdecisions—arerelativestrangerstothetopic

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of networks. But their expertise is desperately needed. This is the rationale formy project:decisionscientistsclingtofamiliaraxioms,inthefaceofcontraindicators.TakeforinstancethetheoryofExpectedUtility(EU)—asastand‐alonetheoryofdecisionmaking.Foralmosthalfacentury nowEU has dominated public decisionmaking, in the neutral‐seeming guise of cost‐benefit analysis (CBA).According to thedoctrine of EU, to bepractically rational is simply tomaximizeexpectedutility.TodayeconomistsalmostuniversallyaffirmsomeversionofEUasthebeaconofrationality—quite frequentlyamonetisedversion;andneuroeconomicsdefer to thedoctrine,whileseekingtomodelactualbehaviorofhumans(amongotherorganisms)inrelationtoriskbyassumingthatitdeviates(byimplicationirrationally)fromthenormative“target”(seeforinstance,KalenscherandPennartz2008).Andevenscience,ithasbeenargued,measuresitstheoreticalprogressbygainsintheexpectedutilityofitstheories. EU proposes to universalize “thinking on the margin”—that form of reasoningcharacteristicofcertaineconomiccalculations(called“marginalanalysis”)basedonreasoningaboutincrementalchangestoresourcesinsteadofontotalsandlarge‐scalefeaturesofcontext.Butthisformofreasoningisemblematicofakindofmyopia:itisguiltyofneglectingissuestodowithrisksassociatedwithlarge‐scaleandaggregationsofevents.Inshort,“thinkingonthemargin”istheantithesisoftakingnetworkarchitectureandcharacteristicsseriously.Asaresult,itfailstotakeprecautionvis‐à‐viscatastrophicrisk—sinceitisignorantofhownetworkeffectscanheightenthem—whileencouragingfocusuponthelocalorshort‐termandnotenoughfocusonlong‐termandlarge‐scaleplanning. Networkeffectsaresurprisingpreciselybecausetheyviolateexpectationsgeneratedby“thinkingonthemargin”.Marginalthinkingtakesforgrantedtheprincipleofproportionalityorlinearity:smallcauseshavesmalleffects,andtheeffectsoflargecausesissimplyalinearsumofsmallones(their“parts”).Thisprincipleisnotuniversallytrue—andespeciallynotwhentherearenumerouslinksbetweentheelementsatworkinproducinganeffect. Networkeffectsarethe result of nonlinear drivers in a network—drivers whose effects are uneven ordisproportionate. And this iswhy theprevailingwisdomdispensedby conventional decisiontheory is violated in both animal andhumanbehavior: itswisdom is insufficiently attuned tohowriskaccumulates.Asimpleexamplecanillustratethispoint. InafamousarticletheeconomistPaulSamuelson(1963)reportsthatheonceofferedacolleague the favorable sideof awin$200/lose$100wagerona fair coin toss.Thecolleaguedeclinedthewager,butdeclaredawillingnesstoaccept100suchbetstogether. InthisarticleSamuelson,soontobethefirstAmericantowintheNobelprizeforEconomics,revealsthatthispairofchoicesisinconsistentwithexpectedutilitytheory,whichimpliesthatif(forsomerangeofwealth levels) a person turns down a particular gamble, then the person should also turndownanoffertoplayastringofsuchgambles.“Eachoutcomemusthaveitsutilityreckonedatthe appropriate probability; and when this is done it will be found that no sequence isacceptableifeachofitssingleplaysisnotacceptable.Thisisabasictheorem.”TokeepontherightsideofEU,onemusthaveapproximatelythesameriskattitudetowardsanaggregationofindependent, identical gambles, as towards each of the gambles taken singly. This is aconsequenceofEU’sadherencetolinearity—tomarginalthinking. Recently, Rabin (2000) proves a theorem, using the exact same assumptions asSamuelson endorsed,with the consequence that a risk­averse expectedutilitymaximizerwhoturnsdowna50‐50 lose$100/gain$200gamble is requiredALSO to turndowna50‐50 lose$200/gain$20,000gamble.“Thishasanexpectedreturnof$9,900‐withexactlyzerochanceoflosingmorethan$200.Evenalousylawyercouldhaveyoudeclaredlegallyinsaneforturningdownthisgamble.”Thepointisthis:youraversiontoanyonesinglebetshouldnotbethoughttobeanobstacletoyourtakingtheaggregatebet. Thisduetothefactthattherearenetworkeffects among aggregated individual decision or actions—I call them aggregation effects.Unfortunately,conventionaldecisiontheory is inhospitable to this insight.EU isnothing ifnotscrupulously linearprecisely in itstreatmentofrisk. Eachincrementistreatedjust likeeveryother,andtheiraccumulationisproportionalinitseffects;EUtreatstheaggregateaspurelythesumofitsparts.Butordinarypeoplerarelymakethatmistake!Andwetakeabeatingforourwisdominbehavioraleconomicsandcognitivepsychologyliterature—especiallyintheso‐called

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biasesandheuristicsworkpioneeredbyDanielKahnemanandAmosTversky.Inthisliterature,ordinarymortalsaredepictedaslackinginrationality,especiallywhenitcomestodealingwithprobabilities.ForthelastdecadeGertGigerenzer,acriticoftheworkofKahnemanandTversky,hasbeenquitepersuasivelyarguingthatheuristicsarenotirrational,butinsteadquiterationalintheirapplicationcontexts. Samuelson’scolleaguerecapitulatesAllais’wisdom:itisnotalwaysagoodideatotreataggregationsofidenticalbutindependentriskeventsassimplythesumofeachindividualeventin the aggregate. I refer to treatment of aggregations of independent events as potentiallydifferent from the (linear) sum of the individual events in the aggregate as a first­orderaggregationeffect.Adecision theory that isopen to first‐orderaggregationeffectswill fail tocomplywiththesortofconsistencyinsistedonbyEU.Networkeffects,bycontrast,involvetheaggregationofnon­independentevents,butinwhichthedependenciesbetweenanytwogiveneventsarerelativelysmall—likeweakoscillatorscoupledtogether. Aweakly‐linkedoscillatormodelproves tobe a goodmodel fordealingwithmanyreal‐lifesystemsthatdon’tlookverymuchlikeoscillators(Strogatz2000presentsanaccessiblediscussion of this idea). Iwill say that networks ofweakly‐dependent events display second­order aggregation effects. In the decision domain, good examples might be agents whocommunicate very imperfectly—perhaps only by simple vervet‐monkey‐like calls or smokesignals—areexcellentexamplesofweaklycoupledoscillators.Asdependenciesbetweeneventsgrow, coupling is likely to be such as to throw the effects into another category altogether—perhapstothepointthattheresultingsystemofmultipleinterdependenciesdeservestreatingasasinglewholeofanentirelydifferentcategoryfromitsparts. I’llrefertosuchcouplingsasNth­orderaggregationeffects—andI’llsetthesetooneside.(Forcompleteness,thinkoftheseasdecision systems where information flows unhindered, transaction costs are negligible,preferencesfluid,etc.) The current paper articulates a decision framework, suitable for use in public policycontexts, that is hospitable to treatment of aggregation effects, especially in relation to risk,without giving up the wisdom that resides within the conventional decision theoreticalframework.Iamarguingthatde‐centralizingthedecision‐makingapparatuscanpreservemanyof the desirable features of EU, but would allow us to make room for other features andcharacteristics—includingaggregationeffects—thatEUcannotreproduce. Theproposalgoingforward is toconstructamoreembracingdecisionsystem,but toembedwithin ita “module”thatwouldcomputeexpectedutilities(andsotoretainsuchwisdomasEUoffers).Thissystemwouldembodytheprinciplethatthecrystallizationofutilityisonlyoneofmultiplefeaturesofagenuinelyprecautiousdecisionmakingsystem. (The formalmodelhas featuressimilar to theconsumerchoicemodelconstructedbyLoomes,OrrandSugden2009,withpotentiallyverynicepropertiesthatmatchrealchoicebehavior.Becausewithmorevariablestoplaywith,itcanbemademuchmoreeasilytofitthedata.) Anotherverynicefeatureofade‐centralizedmodelisthatitgeneralizestoaggregationeffectsacrossdecisionmakers,soastosmooththetransitionfromindividualdecisionmakingtocollectivedecisionmaking,withoutgettingmiredinproblemsthathavebecomefixturesandso‐calledparadoxesofgametheory—forinstancetheproblemfamouslychristenedtheTragedyoftheCommons(Hardin1968). Considerahypotheticalsituation:agroupofranchersuseacommonpasture.Thelandiscurrentlyclosetocarryingcapacity.Youasaherderstartthinkingonthemargin:“IfIputthecowIjustboughtonthepasture,Iwillreapallthebenefits,whilethedamagetothecommons(fromovergrazing)willbesharedbyalltheherders.Onbalance,I’mbetteroffgrazingmynewcow(andtheothersIplanonbuyingtomorrow)thanwithholdingitfrompasture.”Indeed,EUendorses thisadvice individually toeachrancher.So if each followsEU’smarginalisticadvice,the commons is doomed. And ultimately each pays a very steep price for this bad advice.Marginalthinkinggetsthemintocollectivetrouble.Andtraditionalgametheorycan’tgetthemoutofit.

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Our understanding of networkswill help us design decision principles that are betterattunedtotherisksinherentinnetworks—aswellasthesecuritiesthatcanbehadbypaying

ReferencesAllais,M.(1998).Anoutlineofmymaincontributionstoeconomicscience.PaperpresentedattheNobel Lecture, Ecole Nationale Superieure des Mines de Paris et Centre National de laRechercheScientifique‐France.

Arrow,K.(1971).EssaysintheTheoryofRisk­Bearing.Chicago:Markham.Gigerenzer,G. (2008).Rationality formortals:Howpeoplecopewithuncertainty.Oxford ;NewYork:OxfordUniversityPress.

Hardin,G.(1968).TheTragedyoftheCommons.Science,162,1243‐1248.JuddS,KearnsM,andVorobeychikY.(2010).Behavioraldynamicsandinfluenceinnetworkedcoloringandconsensus.PNAS.

KalenscherT,&CMA,P.IsaBirdintheHandWorthTwointheFuture?TheNeuroeconomicsofIntertemporalDecision­Making.ProgrNeurobiol,84,284‐315.

Loomes,G.,Orr,S.,&Sugden,R. (2009).Tasteuncertaintyandstatusquoeffects inconsumerchoice.JournalofRiskandUncertainty,39(2),113‐135.

Nisan,N.(2007).Algorithmicgametheory.NewYork:CambridgeUniversityPress.Orosz,C.(2001).AnIntroductiontoImmuno‐ecologyandImmuno‐informatics. InA.Segel&I.Cohen (Eds.), Design Principles for the Immune System and Other Distributed AutonomousSystems(pp.125‐149).NewYork:OxfordUniversityPress.

Rabin,M. (2000a).DiminishingMarginalUtilityofWealthCannotExplainRiskAversion. InD.Kahneman & A. Tversky (Eds.), Choices, Values, and Frames (pp. 202‐208). New York:CambridgeUniversityPress.

Rabin, M. (2000b). Risk aversion and expected‐utility theory: A calibration theorem.Econometrica,68(5),1281‐1292.

Rabin,M.,&H.,T.(2001).Riskaversion.TheJournalofEconomicPerspectives,15(1),219‐232.Samuelson,P.A.(1963).Riskanduncertainty:Afallacyoflargenumbers.Scientia,1­6,153‐158.Strogatz, S.H. (2000).FromKuramoto toCrawford:Exploring theonsetof synchronization inpopulationsofcoupledoscillators.PhysicaD,143,1‐20.

Tversky, A., & Kahneman, D. (1974). Judgments under uncertainty: Heuristics and biases.Science,NewSeries,185,1124‐1131.

SocialNetworksasaRisingChallengeforEconomics

BRADLEYTURNERUniversityofChicago

Manyinacademicandpopularforumsalikehaveusedtheeconomiccrisisof2007/08to

indict the discipline of economics. Irrespective of the legitimacy of this critique, theseindictments have caused the economics approach to lose academic and social credibility andprestige.Theothersocialscienceshaveremainedrelativelyblamelessandthereforeincreasedin relative prestige. In this environment, itwould not be surprising to see foes of economicsassertthemselves.

Socialnetworkanalysismaybearising,competitivealternativetoeconomics.Itscaseisbolsteredbyitstheoreticalrichnessandmethodologicalrigor.Accordingtoanecdotalevidence,it seems tohavebeen increasing inprestige sincebefore the financial crisis. For example, lit‐review and popular‐consumption books on “Network Science” have proliferated, includingMalcolm Gladwell’s The Tipping Point (2002), Duncan Watts’ Six Degrees: The Science of aConnectedAge(2003),Albert‐LáslóBarbási’sLinked:HowEverythingisConnectedtoEverythingElse and What it Means (2003), and Nicholas Christakis and James Fowler’s Connected: TheSurprisingPowerofourSocialNetworksandHowTheyShapeOurLives(2009).Inaddition,the

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network analysis‐inspired claim that world interconnectedness is growing has becomecommonplace.And,inaMarch28,2011NewYorkTimeseditorial,DavidBrookspaidlipservicetothemantraofsocialnetworkanalysis:thewholeisgreaterthanthesumofitsparts.Whilehechampioned the study of “systems,” such as the economy, by this principle, he denigratedapproaches (read: economics) whose method is “taking apart and studying their constituentparts.”

While economics has been made vulnerable by the economic crisis, social networkanalysishasbeenvalidatedby it.Although large literaturesdocumentsocialnetworkanalysistheory and method, there is little exposition on philosophical underpinnings. Assumptionstypically include interdependence between individuals, social construction of beliefs, holism,andasynergisticconceptionofsocialgroups.Thispaperarguesthatsocialnetworkanalysisiscommensurate with ontological realist conceptions of economics, including methodologicalindividualism.However, thereare tensionsbetween theapproaches– inbothphilosophyandpractice – and social network analysis has long treated economics as its anti‐model, and viceversa.Nonetheless,althoughnetworkanalysisfirstdevelopedinsociologyandpoliticalscience,it is a cooperative project with the potential to appeal across the social sciences. This papershowscasestudiesofeconomistsusingnetworkanalysismethodsinordertodemonstrateboththetensionsandthepotentialforcomplementarity.

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1.EconomicsandEvolutionChair:BrianEpsteinRoom6,Saturday10:00–12:00

ThecaseforStrongReciprocity:WhythestrategyofcontrastingStrong

ReciprocitywithWeakReciprocitybackfires

JACKVROMENEIPE,ErasmusUniversityRotterdam

Proponents of Strong Reciprocity often try to advance their case by contrasting StrongReciprocity (SR) with Weak Reciprocity (WR, such as Reciprocal Altruism – RA – and KinSelection–KS).TheyarguethatthetypeofbehaviorexplainedbyRAisnotreallyevolutionarilyaltruistic,becauseRAcruciallyinvolvesthecompensationofthemomentarycostsforactorsbyfuture benefits resulting from reciprocating acts by recipients. They furthermore argue thatthere is no need to posit non‐selfish preferences to account for this type of behavior: actorsbehave as if theymaximize their long‐termmaterial payoffs. By contrast, SR is argued to begenuinely evolutionarily altruistic: strong reciprocators engage in costly rewarding andpunishing behavior also in one‐shot anonymous games, in which momentary costs are notcompensated by future reciprocating acts of recipients. Proponents of SR argue that it isnecessary to posit the existence of non‐selfish social preferences to account for this type ofcostlybehavior.ItisarguedinthepaperthatthisargumentativestrategyofcontrastingSRwithWRiscounter‐productive especially for those proponents of SR (such as Gintis) who insist on a revealedpreference(“asif”)typeofinterpretationofutilitytheory.Ashasbeenpointedout(Westetal.2007,Lehmann2008),insomeofthemodelsoftheevolutionofSR,SRevolvesbecauseactorsdisplayingit intheendreapfuturebenefits.Moregenerally,all theirrhetoricnotwithstandingthat theroute to theevolutionof self‐sacrificingbehaviorpresented ingroupselectiondiffersfromtheonespresentedbyRAandKS,proponentsofSRseemtoaccept thebasicpremise instandard evolutionary theory that self‐sacrificing behavior could only have evolved if actorsreapeitherdirectfitnessbenefits(asinRA)orindirectfitnessbenefits(asinKS).Inthelattercase,wecansaythatactorsareselectivelyfavoringotheractorsofthesamebehavioraltype.Ifso, there isnoneedto invokenon‐selfishpreferences(orat leastnon‐nepotisticpreferences):actorsbehaveasiftheyaresolelyinterestedinmaximizingthelong‐termmaterialpayoffseitherforthemselvesorforactorsoftheirownkind.Rather than assuming that SR is altogether different fromWR (behaviorally, psychologically,evolutionarily), it isfinallyarguedthatproponentsofSRcanservetheircasebetterbyfurtherinvestigationsoftheconditionsinwhich(atleastsome)peopleengageincostlyrewardingandpunishingbehavior,andoftheconditionsinwhichitsustainscooperationandenhancesaveragepayoffs.

Againstmethodologicaltotalitarianism:Ontheactualroleofrationalchoiceandevolutioninexplainingcooperation

JANWILLEMLINDEMANS

UniversityofLeuven

Explaining cooperative behavior is dominated by two paradigms: rational choice theory and

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evolutionary theory. Ever since these paradigms came into contact, scholars have discussedsimilarities,differencesandtheir(in)compatibility(e.g.,DosiandNelson1994;Vanberg2004;Okasha2007;Khalil2009).Attheextremes,therearethoseeconomicsenthusiasts,inthespiritof Becker (1976),who seem to claim that all explanations of cooperation are rational choiceexplanations,andthoseevolutionenthusiasts,inthespiritofHodgson(1993),whoappeartobesaying that all explanations of cooperation are evolutionary explanations. What I will call‘methodological totalitarianism’ is often part of a more or less innocent rhetoric aimed atshowingtheimportanceofone’sownresearch.However,sinceitcanhaveveryharmfuleffects,aswillbebrieflyindicatedattheend,itisimportanttoshowwhyitismistaken.I try to improve thediscussionbyaskingsomebasicquestions:Whatdoes itmean toexplainsomething?Whatexactlydowewanttoexplainintermsofwhat?Iwillelaborateatypologyofexplanationsandapplyittotheexplanationofcooperation.Thiswillshowthat,althoughmostofthe ‘explanatoryheavy‐lifting’ intheexplanationofcooperationisdonebykindsofrationalchoiceexplanations,thewholeexplanationofcooperativebehaviorconsistsoftwoexplanationssuccessively:first,anexplanation(andprediction)ofinclusivefitnessmaximizationintermsofvariation, heredity and selection; second, an explanation of cooperative behavior in terms ofinclusivefitnessmaximization.I divide explanations of behavior in three types. First, mechanism explanations show howbehavioralphenomenaaretheresultofpsychologicalorphysiologicalprocessesormechanisms.SuchexplanationsareconcernedwithwhatErnstMayr(1961)calledthe‘proximatecauses’ofbehavior. Second, disposition explanations showhowbehavioral phenomenaare the result ofdispositionstobehaveincertainways.Iarguethat,mostoften,rationalchoicetheoryinvolvesakind of disposition explanation of behavior, namely one in terms of a disposition to behaverationally or to maximize something. I call this a maximization explanation. Third, selectionexplanationsshowhowbehavioralphenomenaaretheresultofselectionamongvariouskindsof hereditary behavior (‘variation, heredity and selection’). Evolutionary theory in the strictsense involves selection explanations. They are concerned with what Ernst Mayr called the‘ultimatecauses’ofbehavior,althoughIwillshowthatheconfusesselectionandmaximizationexplanations.Tounderstandthedifferencebetweenthethreekindsofexplanations,itisusefultosketchthesimplifiedcausalchain,or‘causalspiral’,inwhichbehaviorisembedded.Thenwecanpointoutwhich segment of the spiral and what aspect of the segment is relevant to which kind ofexplanation.THE CAUSAL SPIRAL: … gene1 – development‐environment – organism/agent1 –stimulus‐environment–behavior1–interaction‐environment–gene2–organism/agent2–stimulus­environment–behavior2–interaction­environment–gene3…Mechanismexplanationsofbehavior2discuss theprocessesormechanismson(somepartof)thesegmentstretchingfromgene2tobehavior2.Dispositionexplanationsofbehavior2,ontheother hand, run from agent2 to behavior2 and perhaps its (anticipated) interaction‐environment. There is thus an overlap between the domains of mechanism and dispositionexplanations. However, disposition explanations are not concerned with processes ormechanismsbutmerelywiththelogicofhowbehaviorcanbetheresultofcertaindispositions.Iviewtheconceptofdispositionasapurelybehavioralnotionwithoutanycognitivecontent.Adisposition is a ‘response function’, with response being a function of stimuli, which onlydescribesbehavior.Maximizationcanbeanaspectoftheresponsefunction.It might seem at first that disposition explanations are no explanations at all. Any kind ofbehaviorcanbeexplainedbysayingthatitistheresultofthedispositiontobehaveinthatway:

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for instance, ‘cooperative behavior is the result of a cooperative disposition’, ‘maximizingbehavioristheresultofamaximizingdisposition’.Fordispositionexplanationstobenontrivial,itisnecessarythatthebehaviorfollowsfromthedispositioninawaywhichisnotimmediatelyobvious.Thebehaviororthestimulus‐environmentmustbesufficientlycomplex,asisoftenthecase inasocialenvironmentwithsocialbehavior.Statements like ‘cooperativebehavior is theresultofaselfishdisposition’or‘behaviorwhichdoesnotseemtobemaximizingistheresultofamaximizingdisposition’areepistemicallynonempty.Suchstatementshappentobethestandardwaytoexplaincooperationnotonlyinbiologybutalso in economics. More specifically, biologists explain cooperation in terms of fitnessmaximization,economistsintermsofutilitymaximization(cf.Khalil2009).These‘maximizationexplanations’showhowphenomenawhichatfirstsightdonotseemtobeselfishorrationalareultimatelytheresultofselfishandrationaldispositions.Ineconomics,thestandardexampleisthata(Pareto)efficientallocationofresourcesattheaggregatelevelcanbeexplainedintermsofinteractionsbetweenselfishutilitymaximizers,whenpropertyrightsareenforcedandsomeotherconditionsarefulfilled.Inbiology,thestandardexampleisthataltruismcanbeexplainedin terms of selfish genes, when reciprocation depends on it and some other conditions arefulfilled.Economists sometimes introduce their maximization explanations of social phenomena asmechanismexplanationsratherthanmeredispositionexplanations,perhapssoasnottosoundtrivial: they say thatutilitymaximization is the cognitivemechanismbehindhumanbehavior.However,inthespiritofOckham’srazor,Iarguethattheexplanationofsocialphenomenadoesnotrequiregoingbeyondindividualbehavioraldispositions.Delvingintocognitivemechanismsisthetaskofpsychology.ThesewereamongthereasonsofFriedrichHayek’s(1952)defenseofmethodologicalindividualisminthesocialsciences.Thethirdpossibleexplanationofbehavior2,namelyselectionexplanation,runsallthewayfromgene1 (actually even further up the causal spiral) to behavior2. However, for selectionexplanations,thespecificmechanismsbetweengeneandbehavioraswellasthespecificlogicofhowbehaviorfollowsfromthedisposedorganismareconsidered‘blackbox’.Actually,selectionexplanations explain the existence of dispositions. In essence, natural selection explains whyorganismshave a fitnessmaximizing disposition.Note that fitnessmaximization explanationsassume fitnessmaximization while selection explanations explain fitnessmaximization. Onceevolutionarytheoryhasexplained(orpredicted)fitnessmaximization,dispositionexplanationscanassumeit(andthusbecomemaximizationexplanations).While I argue that the explanationof cooperationmainly involvesmaximizationexplanations,selectionexplanationsalsoplayarole.Evolutionarytheoryhasbeenrefinedforthepurposeofexplaining cooperation. Biologists have theoretically shown and empirically confirmed thatselectionresultsininclusivefitnessmaximization.Giventhisrefinementofevolutionarytheory,maximizationexplanationscannowassumeinclusivefitnessmaximization,whichworksbettertoexplaincooperation.Inshort,theexplanationofcooperativebehaviorconsistsofaselectionandmaximization explanation successively: first, an explanation (and prediction) of inclusivefitness maximization in terms of variation, heredity and selection; second, an explanation ofcooperativebehaviorintermsofinclusivefitnessmaximization.I end by showingwhy it is harmful to science not to recognize the different contributions ofdifferent theories in explaining behavior: first, believing old research is new because it isrelabeledas‘evolutionary’or‘economic’impliesawasteoftimefortheresearchersinvolvedinthis ‘new’research, themethodologistsreflectingon this ‘new’researchandall thereadersofthe ‘new’ results; second, dismissing research because of the (lack of the appropriate) labelblocksscientificprogress.Thenameofthe‘approach’doesnotmatter.Whatmattersiswhatatheorycancontribute to theexplanationofa specificphenomenon. In thespiritof theVienna

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Circle,alltherestismetaphysics!

TheEvolutionofIndividualisticNorms

DONROSS

UniversityofCapeTown

Thepaperreviewsevolutionaryrootsof thehumannormativevaluationof thedistinctnessofindividuals.Itarguesthatreflectiononthishistoryshouldleadustoreversefigureandgroundingame‐theoreticmodelingoftherelationshipbetweenindividualandteamagents: insteadofviewingindividualsaspriorandthenassemblingthemintogroups,itismorenaturaltofollowthecourseofphylogenyandviewindividualsasnormativelyconstructedfromgroupdynamics.Thisestablishesadirect link,hithertoneglected,betweenmodelsofthehistoricalevolutionofspecializationandexchange,andglobalgametheorymodelsofover‐coordinationandherding.ItalsosuggestsamorereasonablebasisfornormativeindividualismthanAustrian‐inspiredviewsthatdefendnormative individualismon thebasisofdescriptive individualism.An individual’sdistinctiveness isadevelopmentalachievementrather thansomethinggivenbybiology,a factwhichjustifies–inthesenseofrationallyexplaining–whypeoplegenerallyvalueithighlyanddefendittenaciously.

2.ModelsI:modellingandexplanationChair:TillGrüne‐YanoffRoom7,Saturday10:00–12:00

Choosingmodelbuildingmethods

LAWRENCEA.BOLANDSimonFraserUniversity

MacroeconomicmodelbuildersalwaysfaceachoiceofhowtogoaboutbuildingmodelsyetfartoomanyNorthAmericanmodelbuildersareunawareoftheoptions.Therearemanyreasonsfor the lack of awareness but they fall into three categories: sociological, historical andmethodological. Few graduate students are given any training in how to go about choosing amodeling method. Instead, they are encouraged to follow their teachers’ examples ofdemonstratedsuccessfulmodeling.Needlesstosay,historyofthought isno longerconsideredanessentialpartofone’sgraduatetraining;consequently,thereislittleopportunitytobecomeof aware of historical debates about the best or appropriate model building methods. Theprimary sociological reason is that beginning professors need to worry about their careers.Which modeling method is chosen will be the one that helps in obtaining tenure andpromotions. And today, too often, the criterion employed for such promotion and tenuredecisions is thequantityofpublications.So, ifonewereawareofseveralalternativemodelingmethods to choose between, clearly it would be sensible to choose the method that willmaximize thenumberofpublishedpaperswith in the timeallottedbefore thenext tenureorpromotionorevenjustthenextsalarydecision.Methodologicalcriticsofthelackofawarenessof alternatives point to themethodological issue of the unrealism of themodels created – inparticular,modelsthataretheeasiesttopublishareoftenonesthatdisregardtheunrealismofthe assumptions of the model. In other words, critics of the methods practiced in NorthAmericansaythattoooftenconvenienceisputbeforethetime‐consumingproblemofbuildingrealisticmodels.Thepaperwilldiscussa recentlypublisheddebateabout themethodologicalissues involved in the choice of model‐building methods and examine whether there are

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ideological implications that shouldalsobeconsidered. Inotherwords, criticsof themethodspracticed inNorthAmericansay that toooftenconvenience isputbefore the time‐consumingproblemofbuildingrealisticmodels.Macro‐econometricmodelsarethecaseinpoint.Thepaperwill discuss a recent published debate between two alternative econometric methods ofmodelling macroeconomics. On the one side is a method that has been promoted by someeconomists in Europe; on the other side is themethod that prevails in North America oftencalled the ‘theory‐comes‐first’ method. The technical mathematical differences of theseapproaches to modeling are not the issue here since the published debate raised moreinteresting issues regarding sociological, historical andmethodologicalbases for the choiceofmethodsandinparticularthepaperwillfocusonthereasonsforthedominanceofthemethodprevailing inNorth America. Itwill be argued that it seems clear thatmodel building can beuseful for careerpurposesbutone shouldnotblamemodelbuildingorevenmodels for theirmisuseinthisregard.Modelsareobviously indispensableinmoderneconomics.Nevertheless,thetimehassurelycomeforhonesteconomicmodelbuilderstostartbeingconcernedwiththerealismof theirassumptionsandtherelevanceof theirmodels for theeconomicsproblemsoftheday.Andifthistimehascome,itmayalsobethetimeformodelbuilderstobeinterestedinlearningaboutthemethodologyofmodelbuildingingeneral.

LearningSomethingMorefromMinimalEconomicModels:

AReplytoTillGrüne­Yanoff

GILHERTSHTENUniversityofCaliforniaSanDiego

Providinganadequateaccountofhoweconomicmodelsrelatetotheworldhasproventobenoeasymatter.Therehavebeennumerousattemptsatprovidingsuchanaccount(e.g.Maki1994,Hausman 1992, Cartwright 1999), yet they all requiremodels to be adequately ‘close’ to theworld, in one way or other, in order to be viewed as models from which something can belearned about the world. These various requirements have the implication that, followingSugdenandGrüne‐Yanoff,whatIcall‘minimalmodels’arenotviewedasrelatingtotheworldinanymeaningfulway.Suchmodelsmaybeviewedasfictions(Morgan2001)andwhetherornot,andtowhatextent,theyarescientificallyusefulremainsopen.What is clear is that economists invest a lot of time and effort in developing such minimalmodels.Itseemsreasonabletoassumethattheythinkthesemodelscanbeuseful–wecanlearnfromthemabouttheworld.Thequestionis:how?Grüne‐Yanoffarguesthatwelearnfromsuchmodelsbecausetheyshowthatsomethingthoughtto be impossible is possible. That is, by modeling a relevant possibility, they contradict ahypothesis of impossibility that had previously been held with sufficiently high confidence(2009).Accordingtohim,thisisallthatminimalmodelscanteachusabouttheworld.Inthispaper,IclaimthatwecanlearnmorefromminimalmodelsthanGrüne‐Yanoffallows.Forthe purposes of making this argument, I rely on Gabrielle Contessa’s account of a faithfulepistemicrepresentation.Accordingtothisview,themorestructurallysimilarthevehicleandthetargetare(i.e.,thestrongerthemorphismbetweenthestructuresinstantiatedbythevehicleand the target is), the more faithful an epistemic representation of the target the vehicle is(Contessa,forthcoming).Because the notion of faithful epistemic representation is a gradable notion, even aminimalmodelwillbeafaithfulepistemicrepresentationofatargettosomedegree.Thisistrueforanyminimalmodel forwhich a target is specified. Thus itwould bemistaken to claim, asGrüne‐Yanoffdoes,thataminimalmodelcanatmostpresentarelevantpossibilityandcontradictan

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impossibility hypothesis. Any model with a relevant possibility hypothesis, no matter howminimal, alreadyhas a specified target forwhich themodel presents a relevant possibility. Itfollowsthataminimalmodelcandomorethanmerelypresentapossibilityhypothesis‐itcanalsoepistemicalyrepresentsthistargetwithsomedegreeoffaithfulness.InthispaperIfirstpresentGrüne‐Yanoff’sviewandarguethatheisrightthatweactuallylearnabouttheworldfromminimalmodels.IthenintroduceContessa’saccountoffaithfulepistemicrepresentation and explain how it applies to allmodels, includingminimal ones. I argue thatwhileminimalmodelsarenotnecessarilyveryfaithfulasepistemicrepresentationsofatarget,if they present a relevant possibility hypothesis, then they are at least a minimally faithfulepistemic representationof the target athand. It follows thatwe learnmoreabout theworldfromminimalmodelsthanGrüne‐Yanoffclaims,andforsomelearningpurposesevenaminimalmodelmaybesufficient.Sinceitseemsthatforeconomists,atleastintuitively,theirmodelsdomorethanpresentpossibilityhypotheses,thisviewbetteraccommodatesthatintuition.

ModelsComeinClusters:

AbstractModelsandHow­PossiblyExplanations

PETRIYLIKOSKI&N.EMRAHAYDINONATUniversityofHelsinki&AnkaraUniversity

Highly abstract and simplified models have an important role in economics. These idealizedmodelsarebelievedtoprovideexplanatoryinsightaboutrealworldphenomena.Understandingthe epistemic value of these abstract representations is one of the key challenges for thephilosophers of science who attempt to make sense of scientific modeling. However,philosophersofmodelinghavemostlyfailedinthistask.ThispaperwillattempttocorrectthissituationbyusingThomasSchelling’sfamouscheckerboardmodelasanexample.Wewillstartwithacoupleofmethodologicalobservations.First,philosophersofmodelingoftenisolateoneparticularmodelfromotherrelated(andrelevant)models,andbasetheiraccountofmodelsonananalysisof therelationof thisparticularmodel to itsassumed target.Wearguethat models only make sense in the context of a cluster of models that is relevant to theexplanatory(orpredictive)taskathand,andonecannotmakesenseoftheexplanatoryimportofmodels ifone ignores this.Thesecondmethodologicalproblemwithexistingapproaches isthat they ignore the fact that models are used to explain only very specific aspects of thephenomenonatstake.Asaconsequence,mostphilosophersofmodelingfailtodojusticetotheperceived epistemic value of abstract models and how they could enhance scientificunderstandingoftheworld.These points are clearly illustrated by the checkerboardmodel. First, itwas presented in thecontextofothermodelsconcerningsegregationandtippingpointprocessesthatheconsideredasexamplesofmoregeneralcritical‐massmodels.Fromthebeginningthemodelwasintendedtobeanillustrationofmuchmoregeneralconsiderationsthanresidentialsegregation.Thisfacthasbeenlargelyignoredinthephilosophicaldiscussions.Similarly,themodel’srelationtoothermodelsandtheoriesconcerningethnicsegregationhasreceivedalmostnoattention.Ourclaimis that we can onlymake sense of the explanatory import of the checkerboardmodel in thecontextofthesealternativemodels.Theyprovidethenecessarycontextformakingsenseoftheepistemic importof thecheckerboardmodel.This isour first cluster thesis:modelsmakeonlysenseinthecontextofcompetingexplanationsforsimilarkindsofeffects.Second,Schelling’scheckerboarddoesnotrefertoasingleidea.‘Checkerboardmodel’shouldbeconsideredasafamilyname:itreferstoawholeclusterofmodelsthatarerelatedtoeachotherby relations of genealogical origin and similarity. The proper unit of analysis is an ongoing

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research program initiated by Schelling’s papers and the philosophical analysis shouldconcentrateonthisclusterasawholeandnotonisolatedmembersofit(asiscommon).Thisisoursecondclusterthesis:abstractmodelsonlymakesensewhenunderstoodasfamilyofrelatedmodels,notasisolatedrepresentations.These observations help to make sense of the explanatory contribution of the checkerboardmodel.‘Mildlydiscriminatorypreferences’isoneofthepossiblecausesofsegregation.Althoughthemodelisolatesawayothercausessuchasracismorwelfaredifferences,itdoesnotexcludethemaspossiblecausesofsegregation.Moreover,themodeldoesnotsuggestthatitwillproducesegregation under all conditions, or that it is themain cause of segregation in all cases. Thecentral contribution of the checkerboard model is to expand the menu of possible causes ofsegregation.Schellingdemonstratedtheexistenceofanovelkindofhowpossibly–explanation(HPE)andprovidedconceptualtoolsforthearticulationandexplorationoftheseexplanations.This exploration has a form of systematic what if –reasoning. The recent literature on thecheckerboardmodel shows that themain focus of research is on the exploration of series ofwhatif–questions.Withahelpofagent‐basedcomputersimulations,thesesocialscientistsareaskingquestionslike:•Whatwouldhappenifwechangethesizeoftheneighborhoodtheagentsobserve?•Whatwouldhappenifwechangethenumberofgroups(ortheirrelativesizes)?•Whatwouldhappenifwechangethenonlinearchoicefunctiontoalinearone?•Whatwouldhappenifwechangethesymmetricpreferencestoasymmetricones?•Whatwouldhappenifweintroduceotherfactors(wealth,socialstatus,…)?•Whatwouldhappenifweassumethatsomeagentshavepreferenceforintegration?Thesewhat if –questions representmodifications of original idea presented by Schelling andtheirpointistoseehowthechangesinfluencethesegregationoutcomesandtheworkingofthemechanism.Thecentralroleofwhatif–reasoninginmodelingactivitiesgoesalongnicelywiththe idea that understanding consists of an ability to make what if –inferences about thephenomenon.Whenoneunderstandssomething,onecanmakevariouscorrectinferencesaboutit.Inthemodel‐basedsciencesunderstandingisbasedontheabilitytouseafamilyofmodelstomake counterfactual inferences about the phenomenon. In this view, the explanatory use ofmodels does not necessarily require that models are similar to target systems or they areisomorphicwith them. It isonlyrequired that the familyofmodelsmakes itpossible tomakecorrectwhat if –inferences about the intended aspect of themodeled phenomenon. Abstractmodels are highly selective representations of the relevant explanatory dependencies. Thisapproach makes it possible to consider both the cases when the model provides realunderstandingaboutanempiricalphenomenonand thecaseswhen theunderstanding isalsoillusory.Whencoupledwithcontrastiveaccountofexplanationthisviewalsogivestoolstosaywhatthemodelexplainsaboutthephenomenon.Ourcentralclaimaboutthecheckerboardmodelisthatitscentralexplanatoryvalueisbasedonits being how possibly –explanation (HPE), not on its being an actual explanation of anyparticular fact. Its primary contribution is the expansion and the exploration of the menu ofpossible explanations. It is often suggested that HPEs explain only (simple and idealized)counterfactual situations. This view does not capture the epistemic import of highly abstractmodels such as Schelling’s. There are number of other, and more important, contributionsabstracthowpossible–modelscanmake.The first contribution is that they increase our ability to construct explanations. A model’sepistemicimportisevaluatednotonlybyitsabilitytorepresentsomeparticularphenomenon,but also by the changes it brings about in the menu of possible explanations. The point oftheoreticalmodelsistorefine,tosystematizeandtoexpandthemenuofpossibleexplanations.

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HPEmodels are not explanations of ideal or imaginary objects – their explanatory import isbasedontheircontributiontoourabilitytoconstructexplanationsfornewparticularcasesornovel phenomena. This explains (and at least partially justifies)modeler’s feeling that she iscontributingtoscientificunderstandingbycreatingandexaminingabstractimaginaryworlds.Thesecondcontributionspringsfromthefactthatthesearchforcausalexplanationshasoftenthe structure of the inference to the best – or, more properly, to the only – explanation.Explanatory hypotheses are not only confirmed by finding supporting evidence, but also byruling out competing hypotheses. A demonstration that there are unexplored, but viable,alternatives isquitedamagingtothestrategyoftheinferencetothebestexplanation.Forthisreason the knowledge about the range of possible explanations is crucial: we can only beconfident in having the right explanation if we have good reasons to believe that our list ofalternativesiscomprehensive.Thecomparativenatureofexplanatoryevaluationisalsothebasisforyetanothercontribution.AnewHPEcanincreasethechallengefortheotheralternatives.First,theevidentialrequirementsmight rise: to justify a claim about actual causal contribution one has to rule out one morecompetingexplanation.Thisforcesonetosearchformorestringentevidence.Second,thenewalternativecanmakethestandardsforallthealternativesmoredemanding.ThisisclearinthecaseofSchelling’scheckerboard:itsmaincontributioninthestudiesofresidentialsegregationhas not been in the area of explanatory claims but in the requirements for a satisfactoryexplanation.Finally,highlyabstractmodelsmay improveourunderstandingofourepistemictools.Scientistsuseexternalrepresentations, likemodelsandsimulations,as theyareunable torepresent theobjectsoftheirinterestwithoutthem.Thisismediatedunderstanding:anobjectisunderstoodviaatoolthatalsoneedstobeunderstood.Theoreticalexplorationisnot(necessarily)anidleactivity motivated by the wish to avoid hard questions about the adequacy of the modelingassumptions,butacrucialpartofdevelopingpreconditionsfortheproperunderstandingoftherealworldphenomenon.Touseamodelasarepresentationofarealworldphenomenon,onehastoknowboththepossibilitiesandlimitationsofone’sepistemictool.Thisunderstandingisoften achieved by exploring the formal properties of the model or playing around with thesimulation.Animprovedunderstandingoftheepistemictoolsprovidesabetterunderstandingof abstract model worlds which in turn makes it possible to make more correct what if –inferencesabouttherealworldphenomena.3.MeasurementandeconomictheorizingChair:MarcelBoumansRoom15,Saturday10:00–12:00

TheincreasingroleofpracticalreasonintheHumanDevelopmentReports

RICARDOCRESPOUniversidadAustral

ThispaperwillarguethatEconomicsneedstoreinsertpracticalreasonintoitsfield.ItwillusetheHumanDevelopment Index (HDI) of theUnitedNationsHumanDevelopment Program toexplorethisnecessityandhowitisactuallyaddressed.

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Firstly, itwillshowthattheHDIhasunderlyingtechnicalandpracticalassumptionswhicharenotalwaysorsufficientlyexplainedorargued.Then, itwill show that someof these shortcomingshavebeenovercomeby the2010HumanDevelopmentReport,publishedinlastNovember.IntheIntroductiontothereport,AmartyaSenmaintains that, althoughbeinga “crude” index, theHDIdidwhat itwasexpected todo: togobeyond commodities and income in the evaluation of development.He adds that “new tablescontinuetoappearinthesteadystreamofHumanDevelopmentReports,andnewindiceshavebeendevisedtosupplementtheHDIandenrichourevaluation”(UNDP2010:vi).Thepaperwillpresent the innovations introduced by this last report relevant to its purposes. They arecontainedintwonewindexes(andinasmallmodificationoftheHDI):(i). The Inequality‐adjusted Human Development Index (IHDI). This new Index remedies thelackofconsiderationof inequalitiesofpreviouscalculi.As theReportasserts, “theHDIcanbeviewedasanindexof“potential”humandevelopment(orthemaximumlevelofHDI)thatcouldbeachievediftherewasnoinequality)whiletheIHDIistheactuallevelofhumandevelopment(accountingforinequality).ThedifferencebetweentheHDIandtheIDHImeasuresthe“loss”inpotential human development due to inequality” (PNUD 2010: 87, see also 217). It is indeedinterestingtoanalyzetheselossesandtheirdifferencesamongcountriesanddimensions.(ii). The Multidimensional Poverty Index (MPI). This index takes into account multipledeprivations at the individual level in the samedimensions of theHDI: health, education andstandardof living.Thedata for this index come fromhousehold surveys.TheMPIestablishesthresholds for the three dimensions, introducing new indicators. It combines themultidimensionalheadcountratio(theproportionoftheanalyzedpopulationthatisunderthethreshold) and the intensity or breadth of poverty (the proportion of indicators inwhich thepopulation is deprived). “The basic intuition is that the MPI represents the share of thepopulation that is multidimensionaly poor, adjusted by the intensity of the deprivationssuffered”(UNDP2010:222).This index uses Nutrition and child mortality as indicators of health, years of schooling andchildrenenrolledasindicatorsofeducationandaseriesofaccesstoservicesandassets(cockingfuel,toilet,water,electricity,floor,etc.)ascriteriafordeterminingthethresholdofthestandardoflife.AlthoughtheReportdoesnotexpandonthereasonsforchoosingthenewindicatorsandtheirweights,alinkedWorkingPaper(n.38)oftheOxfordPoverty&HumanDevelopmentInitiative(OPHI)does. Ineffect,AlkireandSantos (2010)provide thecorrespondingarguments for theformulation of both the news Index and the changes of the HDI. The paper will unveil thepracticalcharacterofthesearguments.Thesearegoodnews,buttheyarenotenough.TheReportrecognizesit(UNDP2010:118):

fullyrealizingthehumandevelopmentagendarequiresgoingmuchfurther.Puttingpeopleatthecentreofdevelopmentismorethananintellectualexercise—itmeansmaking progress equitable and broad‐based, enabling people to become activeparticipants in change and ensuring that achievements are not attained at theexpense of future generations. Meeting these challenges is not only possible butnecessary—andmoreurgentthanever.

The paper conclusion trusts in a promissory future about the acknowledgement of practicalreason’s role because the relevant Institutions are conscious of the need of improving theindicatorsandtheyareworkinginthisline.

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ReferencesAlkire,Sabina,andSantos,MaríaEmma,2010. “AcuteMultidimensionalPoverty:ANewIndexforDevelopingCountries”,OPHIWorkingPaperSeries,38.

UnitedNationsDevelopmentProgram(UNDP),2010.TheRealWealthofNations:Pathways toHumanDevelopment,NewYork:PalgraveMacMillan.

OntheConceptofNaturalCapitalanditsrelevancetoEconomicTheory

TYLERDesROCHESUniversityofBritishColumbia

“Naturalcapital”hasgarneredsignificantattentioninbothneo‐classical(environmental

economics)andheterodoxcircles(ecologicaleconomics).Theconceptisdeployedasameanstoaccountforcertainnon‐marketphenomena,theso‐called“ecologicalpre‐conditions”forhumaneconomicactivity.Itisfrequentlyviewedasastockthatnaturally(withouthumanintervention)producesaflowofwelfare‐enhancing“services”.Examplesofnaturalcapitalincludeecosystemservices,thegeneralregulationofatmosphericchemicalcomposition,theoverallstabilityoftheEarth’sclimate,etc.(Costanzaetal.1997).Twokindsofnaturalcapitalareoftendistinguishedbytheir functionorusefulnessforagents.Naturalcapitalcanhave(1)directutilityenhancingfeaturesintermsofaestheticvalues,recreationalvalues,culturalvalues,etc.and(2)itgivesrisetothepossibilityofagentsviaalife‐supportfunctionthatendowsagentswiththecapacitytobewelfare‐seekingcreatures.

Neo‐classicaleconomictheory,likemostothersocialscientifictheories,ispredicatedonthe existence of a theoretical agent, the target system of which is the human organism – anevolving,self‐reproducing,physicalsystem.Ifonegrantstheassumptionthatthetargetsystemexistsinecologicalspace(notonlycommodityspace),thenexhypothesitherewouldseemtobecontingently obtaining ecological conditions for agent existence and thus, welfare‐enhancingchoice. In this paper I explore a fewphilosophically salient features of natural capital,mostlyrelating to (2) above. In particular, I will focus on two related aspects of natural capital: itsabsolutescarcityandnon‐substitutability.

Intheliterature,itisfrequentlystatedthatafundamentalcharacteristicofcriticalkindsofnatural capital is its absolute scarcity.Thispeculiarproperty ismeant to contrastwith thenormal character of economic goods and services, relative scarcity. Is natural capital reallyabsolutelyscarce?Iftrue,doesitfollowipsofactothatnaturalcapitalisnotorshouldnotbeanobject of economic science? If not, how might the absolute scarcity of natural capital bereconciledwithineconomictheory?

Giventhelife‐supportfunctionofcriticalformsofnaturalcapitalitissometimesclaimedthat(certainkindsof)naturalcapitalarenon‐substitutableorimperfectlysubstitutable.Iftakenas an empirical statement, this would imply that there are features of the universe or theenvironmentthatarenecessary–theycannotbetakenawayfromthehumanorganismwithouta real existential threat. In this paper I argue that such “sufficient and necessary” ecologicalconditionsforexistence,ifthereareany,cannotbeknownaprioriandthatthesubstitutabilityof natural capital is mainly an empirical matter. Whatever ecological pre‐conditions arespecified a posteriori, however, they will not be static because it is clear that the humanorganismand its environmentarebothevolving systems.Moreover, ecologicalpre‐conditionsforhumaneconomicactivityinanygivencontextwillobviouslydependuponman’singenuity,his technological know‐how, and, in the end, his adaptive capacity to the ever‐evolvingenvironment inwhich he finds himself. Ifman can learn to drawwater from a stone and tomultiply loaves of bread into infinity, then a niche will be developed and the ecologicalconditions necessary for his existence and that of his brethren will change with obviousconsequence.

However,Ialsoarguethatwhileadaptationhasanenormousroletoplaywithrespecttothe concept of natural capital, it is difficult if not impossible to imagine a scenariowhere the

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targetsystemsofeconomicagentsdonothaveanyecologicalpre‐conditionswhatsoever.Iclaimthat,whilethereisnoquestionhumansdemonstrateawidevarietyofadaptivebehaviour,therearealwayslimitstohumanadaptationatanygivenpointinspaceandtime.TheformerChicagoeconomist,JulianSimon,wasbothrightandwrongtoarguethattheadaptivecapacityofhumanbeings is the “ultimate resource”. I argue that, on the one hand, he is right to emphasize theadaptive capacity of human beings but on the other hand, his optimism should be temperedbecause adaptation is limited not only by technological know‐how and other epistemologicalconstraints,butbythekindofcreatureweare.Isubmitthatitismetaphysicallyimpossibleforany organism or species to have an infinite adaptive capacity or the ability to adapt to allpossiblemodificationsatalltimesinitsenvironment.Suchacreature,ifitexisted,wouldnotbeanevolvedorganismatall,butaneternalanddeathlesssortofcreature–inshort,agod.ReferencesCostanza,R.,R.d’Arge,R.deGroot,S.Farber,M.Grasso,B.Hannon,K.Limburg,S.Naeem,R.V.O’Neill,J.Paruelo,R.G.Raskin,P.SuttonandM.vandenBelt.1997.Thevalueoftheworld’secosystemsservicesandnaturalcapital.Nature,Vol.387,253‐260.

EnlargedEmpiricalEconomicsandtheQuestforValidity

MARIACAAMAÑO‐ALEGRE&JOSÉCAAMAÑO‐ALEGREUniversityofValladolid&UniversityofSantiagodeCompostela

Inthelastdecades,empiricaleconomicshasevolvedfromalimitedeconometrictestingof poorly specifiedmodels to an enlarged and pluralistic enterprise. The economists’ toolboxcurrentlyincludesnotonlymorepowerfuleconometricanalysesofenrichedmodelsgroundedon ever larger datasets, but also experimentation and survey research. This methodologicalwideningofempiricaleconomicscalls forareassessmentof thevaliditycriteriaaswellas fortheirreestablishmentinamorecomplexframework.Thepurposeofthispaperistoaccountforthe new validity challenges posed by recent empirical economics. Identifying and explainingthesechallengesmayalsocontributetoshedsomelightontwootherrelatedissues,namely,theeconomists’ concernwith themethodological limitations stemming from the special natureofthesocialdomain,andtheriskofallowingpseudo‐scientificpractices.Ourpaperisstructuredinthreeparts:thefirstsectiondealswiththeenlargementoftheempiricaleconomics,thesecondis devoted to rethinking the validity criteria for this field, and the last section focuses on itsremainingmethodologicallimitations.

1. FromaPrimarilyDeductiveEconomicstoanEmpiricallyBasedOne

Mainstream economics from the period before the nineties was implicitly adopting adeductivist, empiricallyminimalist approach, which had been earlier vigorously endorsed byMill,CairnesandRobbinsamongothers.Economicexperimentsplayedaverymarginalrole,tothepointthatlaboratoryenvironmentswereregardedbymanyeconomistsasbeingoutsidethedomainofeconomictheories,whichwouldbeintendedtoexplainrealbehaviorratherthanlabbehavior. In a similar vein, survey research was marginalized on the basis that peoplesometimesdonottellthewholetruth.Indeed,evensurveyedbehaviorwasalsoconsideredasforeigntothedomainofeconomictheories,sinceactions,insteadoftestimonies,wereassumedtobe thereal focusof study.Moreover, theoretical shortcomingsand tractability issues led toveryrestrictedeconometricanalyses,relyingonextremelysimplifiedmodelsandquitelimiteddatasets.As a consequence, economic sciencehad a verypartial and limitedly valid empiricalsupport,asitprovedunabletosatisfactorilyaccommodatelocalismandcontrolconfounds.

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Over the last decades, this picture has substantially changed. The expansion incomputational capacity, togetherwith the inventionofnumerouseconometric techniques,hasresultedinawidevarietyofmethodologicalimprovements.Someofthemconcernthemodelingof richer causal hypotheses,while others are related to themore robust testingofmodels bycombiningwiderrangesoftestsandhandlinglargersetsofdata.Thesetechnicaladvanceshavemade it possible to accommodate theoretical developments from institutional and behavioraleconomicsintoenrichedempiricalmodelspecifications.Inourpaper,however,wearegoingtofocusonotherkeyenlargementsof empirical economics: first, the sharp increaseoccurred ineconomicexperimentationsincethebeginningofthepresentcentury;andsecond,thegrowinguseof surveyquestionnaires in economic research—graduallydeparting from the traditional“just the facts” surveys. By the mid‐nineties, surveys had been already expanded to ask forpredictions of future events and formeasurements of hard‐to‐gauge variables.More recently,othersurveycategorieswhichweretraditionallyrejectedbyeconomistshavealsobeenaddedtothemethodologicalrepertoire—likeinthecaseofquestionnairesaboutmentalstates,nowinusebybehavioraleconomists.

2. Rethinkingvalidityinempiricaleconomics

These developments towards an empirically based and methodologically pluralisticeconomicshavepavedthewayforamorevalidempiricaleconomics.Byapplyingexperimentalmethods,economistshavebecomemoreable toelucidatecausal relationships than theywerewhen relying on traditional econometric inferences from field data —traditional statisticaltechniquescanhelptodeterminecorrelationsbetweeneconomicvariables,butsuchtechniqueshardly support specific causal inferences. Survey research, on the other hand, enablesmodeltestingonthebasisonpsychologicalandinstitutionalvariables,whicharenecessaryinordertoaccountfortheframesorpartialrepresentationsoftheiropportunitysetsonwhichpeoplebasetheirchoices.

Despitethepositiveeffectthatmethodologicalpluralismhasonthevalidityofempiricaleconomics,italsobringsintothisfieldthesamevaliditychallengeslargelyconfrontedinothersocial sciences. The rise of experimental economics is causing growing concernwith externalvalidity; something that has led several economists to revise Donald Campbell’s legacy, sofamiliartoothersocialresearchers.Thisworrybecomesmorerelevantasagreaternumberofexperiments are designed for purposes other than testing theories. Several suggestions havebeenmadetofacetheexternalvaliditychallengeinexperimentaleconomics,fromreproducingcertainfeaturesofthetargetsystemintheexperimentalsystemordoingstresstestsinthelab,to randomly sampling target situations and combining laboratory with field evidence. Notsurprisingly, themost recentwave in economics’ field experimentation aims at establishing asignificant connection between laboratory data and naturally‐occurring data. Similarly, thegreater use of survey data to capture institutional and behavioral factors has to makeeconomists growingly concerned with the same validity issues confronted in test validityliterature. Indeed, theeconomists’ currentusageof suchdata impliesdealingwithmulti‐item,subjectiveindicatorswithinherenterrorinmeasurement.Thisinturnentails,atleastpartially,toputasidetheeconomists’reluctancetooperatewiththekindsofhighlyabstractconstructsmostcommoninpsychology.

3. LimitstotheQuestforValidityandtheScientificStatusofEconomics

Researchersworkingwithin this enlarged empirical economics aremore dramaticallyconfrontedwiththeperennialquestionofthelimitsinthequestforvalidityaffectingempiricalsocialresearchand,ultimately,withthecontroversyaroundthescientificstatusofeconomicsasasocialscience.Ourapproachtotheseissuesemphasizesthoserecalcitrantproblemsarisingin

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the new empirical economics due to the ontological peculiarities of the social domain. Inparticular, we discuss the methodological difficulties caused by the following factors: 1) theawareness of the inquiry on the part of the subject being studied, 2) the lack of relevantstructural homogeneity between individuals with respect to their shared psychologicalproperties,3)actionsholisticdependenceon the individuals’ completepast,and4) thehighlyvariable and holistic nature of cultural and conventionallymediated forms of socio‐economicinteraction. In our work, we show how these factors have a direct bearing on the quest forvalidity.

The subjects’ awareness of different aspects concerning the experimenter, themanipulationsandmeasurementsofanexperimentposesseriousthreatstointernalvalidityin the formof different sorts of noises and confounds.Awareness of the artificiality of theexperimentalsetting,onthehand,dramaticallythreatsexternalvalidity.Constructvalidity,inturn,isaffectedbymisleadingevidencestemmingfromthesubjects’recognitionofdifferentaspects concerning theexperimentor researchprocedure.The sameproblemarises in thecaseofsurveyquestionnaire,wherereactivemeasurementmaybepromptedbythesubject’sawarenessoftheprocedure.

Factors2)and3)abovearebothinvolvedintheinscrutabilityofmotivesascausesofbehavior.The lackof relevant correlationsbetween internal structure andexternal effects,which are the building blocks of natural science, severely limits the empirical support fortheoreticalconstructsaswellastheverypossibilityofmeasuringthem.Thisleavestoomuchroomforconstructinvalidityoccurringintheformofconstructirrelevantvariance,sincethesamedependentvariablesmaybeeasilyascribabletodifferent,highlyconjecturaltheoreticalconstructs. In empirical economics, the use of election data to make inferences aboutpreferences, costs, beliefs, and other unobservable, psychological variables has been acommon practice. An ambiguous observed economic behaviour constitutes the finalempirical basis for causal inferences about unobservable variables. Such tools asquestionnairesandinterviewswouldprovideawaytoavoidtheambiguityofexperimentallyobservedbehaviour.However, it ishighlydifficult tocontrolthecommunicationprocesssoas toguaranteethat the informationprovidedbytheexperimenterconstitutesthecauseofthesubject’spredictedbehaviour.

Factors3)and4)refertothehistorically‐sensitivenatureofhumanindividualsandofsocial interaction respectively. Such sensitivity renders knowledge requirements foraccurately predicting human behaviour very hard to be met. Because of the highlyintertwinedanddynamicalnatureofsocialinteraction,laboratoryexperimentsperformedbysocialscientistsalwaysfaceahighriskofartificiality,whichinevitablyunderminesexternalvalidity. Results obtained from questionnaires also tend to have a narrow scope ofapplication;theirgeneralizabilityisoftendrasticallyrestrictedbytheextremevariabilityofsocialcontexts.

Caseswhereinvalidresearchproceduresaresystematicallyemployedandpresentedas if theywerevalidmay leadtopseudo‐scientificpractice.Acase inpoint is that inwhichtalk about measurement is not properly clarified by making explicit whether it refers toordinalassessmentorstrictmeasurement,sothatthefirstcanbedisguisedasthesecond—apractice thatmay hide not allowed transformations of scalewithin the field of economics.Another important exampleofpseudo‐scientificpractice comes from the endorsement andhiddenapriori justificationofassumptionsrefutedbyexperience. Inourpaper,wediscussthe extent towhich empirical economics succeeds in avoiding the risk of pseudo‐scientificpractices.

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1.PhilosophyofEconomicsChair:AkiLehtinenRoom6,Saturday13:15–15:15

Recentaccountsofeconomicsimperialism

USKALIMÄKI

UniversityofHelsinki

Economics imperialism started slowly taking off in the late 1950s and has marched on eversince,butthemoresystematicmethodologicalreflectionsonitareofmuchmorerecentorigin.The paper compares and critically examines some recent accounts of economics imperialism,mainly those of Edward Lazear (2000), UskaliMäki (2002, 2007, 2009), andBen Fine (2002,Fine and Milonakis 2009). Also, the contribution by Kuorikoski and Lehtinen (2010) will bediscussed.Alltheseaccountssuggestcriteriaforbothdescriptivecharacterizations(whatisit?)and normative assessments (how to evaluate it?). The evaluations range from unquestionedpraisetogloomydenigration.

A rather comprehensive and normatively a priori neutral framework has been proposed toinvestigatevariousaspects andmanifestationsof economics imperialism (egMäki2009,MäkiandMarchionni2011).Otheraccountswillbediscussedpartlyintermsofthisframeworkalsoinordertochecktheneed forrevision in it.Amongother things, the frameworkdistinguishesbetweendomain‐onlyimperialismanddisciplinaryimperialismaswellasbetweenimperialismof scope, style and standing. Issues of scope are epistemic matters considered in terms ofexplanatory unification. Subject to certain not‐easy‐to‐satisfy provisoes, the expansion of thescopeofanexplanatoryapparatusbringsaboutpotentialepistemicprogress.Issuesofstyleandstandingdealwiththeirfacilitatingandconstrainingroles,sotheassessmentoftheseformsofimperialismmustbedependentonhowtheyserveepistemicprogress.

At one end of the normative spectrum lies Lazear’s famous self‐celebrating account. It hailseconomicsimperialismasasuccessintermsofa“markettest”andattributesthesuccesstoits“rigorous language” and its adherence to “the scientific method”. Lazear’s account combinesclaimsaboutscope,styleandstandinginawaythatcanbeshowntobeungroundedandpartlyeven self‐contradictory. Closer to the other end of the spectrum, Fine suggests that after theBeckerian version of economics imperialism, a new version has emerged. The new versionextends the scope of economics by construing various social facts, traditionally conceived asnon‐economic,asresponsestomarketimperfectionsintheeconomicsphere.Itisnotfullyclearwhythisisrecognizedasaformofeconomicsimperialism,butifitis,itseemslikeaversionofdomain‐only imperialism thatas such is ratherharmless to thedisciplinarypracticesofothersocialsciencesandthatisnotevidentlynon‐progressiveaseconomics.Itsnormativeevaluationthuswouldrequiresomequalifications.

ReferencesFine,Ben(2002)“Economicimperialism:Aviewfromtheperiphery”,ReviewofRadicalPoliticalEconomics,34,187‐201.

Fine,BenandDimitrisMilonakis(2009)FromEconomicsImperialismtoFreakonomics.London:Routledge.

Kuorikoski, JaakkoandAki Lehtinen (2010) “Economics imperialismand solution concepts inpoliticalscience”PhilosophyoftheSocialSciences,40:347‐374.

Lazear,E.P.(2000)“Economicimperialism.”QuarterlyJournalofEconomics115:99‐146

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Mäki, U. (2002) “Explanatory ecumenism and economics imperialism.” Economics andPhilosophy18:235‐257

Mäki,U.(2007)“Economicsimperialismandscenariosofscientificprogress”,unpublished.Mäki, U. (2009) “Economics imperialism: Concept and Constraints.” Philosophy of the SocialSciences39(3):351‐380.

Mäki, U. and C. Marchionni (2011) “Is geographical economics imperializing economicgeography?”JournalofEconomicGeography

Rigorversusrelevanceineconomictheory:Anattemptatreorientingthedebate

ANDREASALANTIUniversityofBergamo

Apart from theappropriatenessofBlaug’s (2009),orhis arguments thereinabout thealleged“caseinpoint”(1),hisdiscussionofaperceivedtrade‐offbetweenrigorandrelevancecannotbesimplydismissedasa“tritecontradistinction…popularwithsomeeconomists(andespeciallyundergraduates)[…and]typicallyinvokedbythosewhoemphasizetherelevanceofwhattheyaredoingbutdonotinsistontherigorwithwhichisdone.”.Eventheirconclusionaccordingtowhich:“itisobviousthataneconomicanalysisthatrightlywishestogainrespectshouldseektobebothrigorousandrelevant”(KurzandSalvadori2010,3and16,respectively)appearstobeextremelynaïveandtotallyunjustifiedfromamethodologicalpointofview..A judgment of that kind ends up by diverting the attention from the need of bettercharacterizing the referred notions of rigor and relevance, the appropriate methodologicalframework within which to place the discussion of the relationship between them, and thepossibleimplicationsoftheallegedtrade‐off.Itconceals,amongotherthings,theplainfactthatthequestionof “rigor” vs. “relevance” in economic theorizing is oneof the specters thathavecontinuously haunted methodological appraisal of economics, even when not explicitlyaddressed in such terms, since (at least)Methodenstreit orMarshall’smethodological qualms,andmorerecentlyreiteratedbyanumberofseriousscholarsfromdifferentperspectives.Furthermore, it is undeniable that philosophers of science, including those particularlyinterestedineconomicmethodology,currentlytakearatherdifferentattitude.Theaimofthepaperistoshowthat:1)Bothcontendersshare,inawayoranother,someoutmodedapproachestothephilosophyofscience;2)Ifweinsteadadopttheperspectiveoftheso‐called“semanticview”oftheories,thetrade‐offbetweenrigorandrelevanceemergeasaplaincharacteristicofthevastmajorityofmodelsweencounterinmanyscientificdisciplines.My conclusion will be simply that economics, at least in this respect, is no exception at all(contraryopinionsnotwithstanding).

ReferencesBlaugM.2009,“TheTrade‐OffbetweenRigorandRelevance:SraffianEconomicsasaCasein

Point”,HistoryofPoliticalEconomy,41,2,219‐247.KurzH.D.andSalvadoriN.2010,“InFavorofRigorandRelevance.AReplytoMarkBlaug”,

MPRAonlineathttp://mpra.ub.uni‐muenchen.de/20530/

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‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐

(1) The target of Blaug’s indictment includes as well a huge amount of “leading economic theories”(notably general equilibrium theory, the first fundamental theorem of welfare economics, the Coasetheorem,someresultsingametheory,andsoon).Indeed,twoofthepresentlymostactivescholarsintheSraffiancampwonder“whatpromptedBlaugtochoosethetitleofhispiece”(KurzandSalvadori2010,3).

2.ModelsII:modelling&economicexpertiseChair:FedericaRussoRoom7,Saturday13:15‐15:15

Credibleworlds,possibilisticforeknowledgeandpolicydecisions–

Acasestudyonenergyscenarios

CHRISTIANDIECKHOFF&EUGENPISSARSKOIKarlsruheInstituteofTechnology

Energy systemsworldwide have to be transformed radically in the next decades in order toreduce global emissions of greenhouse gases (GHGs), especially of carbon dioxide (CO2). Inorder to make justified decisions with regard to energy consumption and energy provision,knowledge about the future is required. Thus, governments commission scientists, typicallyeconomists,toforecasttheconsequencesofdifferentenergydecisions.In this talkweshallpresentacasestudy fromtheenergysector.Weshall focusonanenergyreportonbehalf theGerman federalgovernment, “EnergyScenarios foranEnergyPlanof theFederalGovernment(ofGermany)”(Schlesingeru.a.2010).Ouraimistoanalysewhichkindofforeknowledge the study relies on. We shall argue that the foreknowledge gained by themethodologydeployeddoesnotallowtoderivetheintendedrecommendations.Finallyweshallpresentsomehypothesesonanadequatemethodologyforjustifyingeconomicdecisionsbasedonpossibilisticforeknowledge.

1. Briefoutlineofthereport

Thereportwehaveanalysedpursuestwoquestions:1. Which technologies that reduce energy consumption and GHG emissions are adequate inordertorealizegovernmentalGHG‐goals?2.Under theassumption that these technologieswill be implemented,what are theeconomiceffectsoftheprolongationofthelifetimeofnuclearenergyreactors?The results of the report stem from coupling three kinds of models: A socio‐economicforecastingmodel,anoptimizationmodelforelectricitymarketsinEurope,andaninput‐output‐modelwhichcalculatesmacroeconomiceffects.Thereportdescribestwoscenarios,whichdifferinthefuturedevelopmentofenergyefficiencyand of prices for CO2 emissions allowances: a business as usual scenario and a decarbonisedscenario.ThedecarbonisedscenariopresupposesthatGermanyGHGreductiongoalsuntil2050willbeattained.Theenergydemandmodelcalculatestheenergyandelectricitydemandundertheassumptionsofthebothscenarios.Thecostminimizationmodelcomputesthecompositionof electricity generating technologies which minimizes the costs of the provision of theelectricity demand calculated by the energy demand model. The results of this optimizationmodelling include: the technologymix for electricity generation, the required energy sources,

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electricityprices,andGHGemissions.Finally,thereportusesaninput‐outputmodelinordertocalculatetheeffectsontheGDPandtheemploymentresultinginteraliafromthedifferentfuturedevelopmentsofenergydemand,energypricesandelectricitycostsinthebothscenarios.The report does not stop at describing the developments of the energy system in the twopossibleworlds. It also analyses the decarbonised scenariowith respect to the effects of theprolongation of the lifetime of nuclear power plants. Therefore the cost‐minimizationmodelcomputeshow thecosts forelectricityprovisionand theCO2emissionsvary if the lifetimeofnuclear plants is prolonged for different time periods (from 4 to 28 years). The remainingparameters (likeenergydemand, technologyefficiencyetc.)are taken fromtheresults for thedecarbonisedscenario.Theinput‐outputmodelcalculateshowtheGDPandemploymenteffectsvary subject to the varying lifetimes of nuclear power plants using the results from the cost‐minimizationmodellingandtheenergydemandmodellingforthedecarbonisedscenario.

2. Typesoftheforeknowledgeinvolvedinthereport

Usually, at least three kinds of foreknowledge can be distinguished (e.g. Knight 1921):deterministic foreknowledge describes what will be the case. Probabilistic knowledge stateswhat will be the case with a certain probability. Possibilistic foreknowledge describes whatpossiblywillbethecase(Betz2010).Weshallarguethattheresultsofthiskindofmodellingshouldbeinterpretedasrepresentingmerelypossiblefuturedevelopments.ThemodelsrepresentwhatSugden(2009)calls“credibleworlds”:abusinessasusualworldandadecarbonisedworld.Theresultsofthemodelscanbeinterpretedasbeingderivedbyanargumentwhichhasthefollowinglogicalform:1.IfA1,…,AnholdthenX1,…Xkwillbethecaseotherthingsbeingequal.2.ItispossiblethatA1,…,Anhold.3.Thus:ItispossiblethatX1,…Xkwillbethecaseotherthingsbeingequal.The first premise represents an if‐then‐statement which is generated by the presupposedmodels.Thesecondpremisedescribestheepistemicstatusoftheassumptionswhicharemadeinthereport.Themostthatonecanreliablysayaboutsomeoftheassumptionsofthereport,weshall argue, is that they are possible. Those assumptions include claims about futuredevelopment of socio‐economic and technological properties likeGDP, population, technologyefficiency,pricesofenergysources,andpricesforcertificatesforCO2‐emissions.Eachscenariointhereportpresupposesauniquefuturepathofthesevariables.Wedonothavedeterministicforeknowledge about the evolution of these properties but merely possibilistic. Thus, thepresupposition that thesepropertieswillevolveuniquelyrepresents theironepossible futuredevelopment.Weshallarguethattheresultsoftheanalysisoftheeffectsoftheprolongationofthelifetimeofnuclearpowerplantsrepresentmerelypossibilisticknowledge,too.Sincetheanalysisisbasedontheassumptionswhichholdforthedecarbonisedworld,theresultsbequeaththeepistemicstatusoftheinvolvedassumptions:theyarepossible.

3. Dotheresultsofthereportrespondtotheposedquestions?

We shall argue that the results of the report answer the posed questions merely for somecredible worlds: We learn that there are some worlds in which the calculated sets oftechnologieswillrealizegovernmentalGHG‐goals.WealsolearnthatthereisatleastoneworldinwhichdifferentsetsoftechnologieswillnotrealizeGHG‐goals(thebau‐scenario).Withregardtotheeffectsoftheprolongationofthenuclearpowerlifetimeweshallarguethat

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the report describes some possible future developments. We shall doubt that it isolates anycausal factors or what Cartwright calls “capacities” (e.g. Cartwright 2009). Nevertheless, theresults of the report are not epistemically worthless: They do verify that some states of theworld can be the case in the future. But they neither provide a reason in favour of theprolongationofthelifetimeofpowerplantsnoragainstit. 4.Howtojustifypolicydecisionsonthebasisofpossibilisticforeknowledge.We shall deny that we can gain probabilistic or deterministic foreknowledge about energysystems.Ourimpressiongainedfromaliteraturesurveyofpolicyreportsinthefieldofenergypolicysupportsthisclaim:Alotofthemadmitthattheirrecommendationsarebasedonmerelysomepossible futuredevelopments (e.g. IEA2006,Dieckhoff et al. 2011).Wealso agreewithCartwright (2009) that our knowledge about capacities or general principles in economics issparse.Thus,thequestionarises:howexactlycouldknowledgeaboutsomecredibleworldshelptojustifypoliticaldecisions?Inthelastsectionweshallpresentourideasonthisquestion.Often,we have a normative conception about the future: There are some future states of theworldwhichareworthytobepursuedandotherswhicharenot.Concerningenergyprovision,thereisevenabroadsocietalconsensus–atleastinGermany–thatenergyproductionoughttobe radically decarbonised in the first half of the 21st century. Some kinds of possibilisticknowledgecanhelptojustifythenormativegoal:

• Bythemeansofscenariomodellingwecanexploreunderwhichcircumstances(underwhichassumptions)thepoliticalgoalscanbereachedandunderwhichnot.Thereforethemodelsneedtoberununderavariationofalluncertainparameters.

Otherkindsofpossibilistic knowledge can supportdecisions about the appropriatemeansbywhichthegoaloughttobepursued:

• With regard to the question of the prolongation of the lifetime of nuclear powerreactorswecouldlearnunderwhichcircumstancesprolongationofnuclearpoweruseis necessary (albeit not automatically sufficient) for reaching climate goals. Thepoliticalprocesswillthenhavetodecidewhetheritisworthwhiletakingthisrisk(andhopingthatthesecircumstanceswon'tprevail).

ReferencesBetz,G., 2010.What's theWorstCase?TheMethodologyofPossibilisticPrediction.Analyse&Kritik,01,S.87‐106.

Cartwright, N., 2009. If No Capacities Then No Credible Worlds. But Can Models RevealCapacities?Erkenntnis70,S.45‐58.

Dieckhoff, C. et al. (Eds.) (2011). Energieszenarien. Konstruktion, Bewertung undWirkung ‐''Anbieter''und''Nachfrager''imDialog.Karlsruhe:KITScientificPublishing.

IEA,2006.WorldEnergyOutlook.Knight,F.H.,1921.Risk,uncertaintyandprofit,Boston[u.a.]:HoughtonMifflin.Schlesinger,M.u.a.,2010.EnergieszenarienfüreinEnergiekonzeptderBundesregierung,Tech.rep.,PrognosAG,EnergiewirtschaftlichesInstitutanderUniversitätzuKölnundGWSmbH.

Sugden,R.,2009.CredibleWorlds,CapacitiesandMechanisms.Erkenntnis,70,S.3‐27.

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EconomicsasaFieldScience:Towardsamethodologyofexpertknowledge

MARCELBOUMANS

UniversiteitvanAmsterdam

Oneofthemajorproblemsforafieldscience,inparticularwhenitisasocialscience,isthatthesocialworldistoocomplexandtooirregulartobecapturedsufficientlyinourmodelsorinourlaboratories. Economic conditions are too idiosyncratic to be modeled or to be covered bytheory completely (Bogen and Woodward 1988). Knowledge about these idiosyncraticconditions is captured by another body of knowledge, less articulated,more tacit knowledge,whichwecallexpertise,soiscapturedbyexperts.Therearethreeparticularaspectsofexpertisewhich relate to empirical economics, andwhichare considered tobewidely important in thefieldsciences:1.‘ruleofthumb’heuristics,2.fieldexpertisebeyondstatisticalknowledge,and3.aggregation of expert judgments.The various different field sciences (e.g., civil engineering,climate science,meteorology, and risk analysis) have developed their own separatemethodsandtechniques,withonlylittlecrossfertilization.Whilethesedifferentmethodsarenotlikelytobeintegrated,solutionstotheircommonproblem–howtotakeaccountoflocalfieldknowledgeabout thephenomenonunder investigationandabout itsenvironment–maywellbe.That is,whilecontextualknowledgeisnoteasilytransmittabletootherfields,methodsofdealingwithsuchknowledgemaybe.Therearethreecloselyconnectedproblemsinwhichthevariouslocaltheoriesandpracticesofmodellingandmeasurementoutside the laboratorycouldbe fruitfullysharedandprovide thebasisforamoreintegratedandcompleteaccount.Problem1:Epistemologyof‘ruleofthumb’heuristicsNumbers travel well, so do probabilities. The problem is that such numbers do not carryinformationaboutthecontextfromwhichtheywerederived,ortheapproachthatwasusedtoderive them, running the risk of misinterpretation. For example, medical information (ondiseases and test results) is packaged in probabilities, with the explicit purpose of easytransmission. If thesenumbersare transmittedwithout their contextualknowledge, theymaylead to wrong diagnoses (e.g. Boumans 2008). Numbers should carry with them uncertaintyevaluationsofthetypethatcapturescontextualknowledge.Insciencetheneedtocommunicatewithdecisionmakersabouttheuncertaintiesintherelevantmodels has become acute. Interdisciplinary work has been done in this domain to arrive atcommonlyagreedupontypologiesofuncertainty(Petersen2006).Thisincludeseffortstowidentheconceptofreliability,sinceitisoftennotpossibletoestablishtheaccuracyoftheresultsofsimulationsortoquantitativelyassesstheimpactsofdifferentsourcesofuncertainty.Recoursewillbemadetoqualitativeassessmentofthedifferentelementsusedintheresearch(e.g.,data,models, expert judgments and the like) anddetermine their ‘methodological reliability’, giventhepurposeoftherelevantmodel.Investigatinghowfieldexpertknowledgecanbepackagedtotravel will contribute to a better understanding of the epistemic status of ‘rule of thumb’heuristics(HowlettandMorgan2011).Problem2:FieldexpertisebeyondstatisticalknowledgeTheenvironmentofthephenomenonunderinvestigation–outsidethelaboratory–isoftentoocomplex.Thiscomplexityhidesanotherproblem,namely,whetherthephenomenonreallyexistsorisanartefactofitsenvironment?Inalaboratorythispossibilitycanusuallybeverifiedbythestrategy of calibration. Outside the laboratory, modelling the environment’s complexity isessential. But modelling complexity readily leads to too complexmodels. To keepmodels assimple as possible one can employ ceteris paribus assumptions, but these models are onlyaccurateforlaboratorysettings.Formodellingeconomicsystemsoutsidelaboratories,itmaybe

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more useful to investigate which ceteris neglectis conditions hold. Verification of these latterconditions provides clues about whether the observed phenomenon is spurious or not(Boumans2003).Knowledge about these ceteris neglectis conditions requires knowledge thatgoesbeyondstatisticalknowledge.Expertjudgmentisusedtoobtainknowledgeabouttheseconditionswhenexperimentsand/ormeasurementsarenotperformableinpractice–usuallythecase–becausetheyare‘outofscale’financially,morally,orphysically intermsof time,energyordistance. Insteadofperformingaphysicalexperiment,expertsareaskedtodoa“hypotheticalexperiment”(CookeandGoosens1999). Investigating the epistemological foundation of this kind of expert judgment willcontributetoanepistemologyoffieldexpertiseforeconomics.Problem3:EpistemologyofexpertknowledgeExpertjudgementsarenottheregistrationsofameasuringdevice,normechanicalobservations,nor ‘objective’ observations. The standard view (in science) is that these non‐statisticalobservations run the risk of being more biased than statistics, therefore often denoted as‘subjective’ observations. Because of this subjective aspect of expert judgment, it is thecombination of expert observations that creates trust.Moreover, a group of experts tends toperformbetterthantheaveragesolitaryexpert.Thistrust‐generatingcombinationiscreatedbyamodel,triangulation,agameormathematicalaggregation.Anexampleofmodel‐basedtrustisTinbergen’s account of Economic Policy (Boumans 1998), an example of triangulation‐basedtrust is thewayof setting the interest‐rate at theBankofEngland (DownwardandMearman2008) andan exampleof game‐based trust isHelmer’sDELPHImethod (Helmer andRescher1959).Becauseexperimentshaveshownthatthebestindividualinthegroupoftenoutperformsthe group as awhole, in safety science a combination of expert judgment is not based on andirect interaction between the experts, like in a game or in case of triangulation, but byaggregation, that is,weighting the individual expert judgmentsbasedon theirquality.Qualityassessmentofexpertsisakindofmeasurement,sorequiresthedevelopmentofstandardsandprocedures, about which a lot can be learned from both accounting and metrology (Power1997).ReferencesBogen,J.andJ.Woodward(1998).Savingthephenomena.PhilosophicalReview97:303‐352.Boumans,M.(1998).JanTinbergen.InJ.B.Davis,D.WadeHandsandU.Maki(eds),TheHandbookofEconomicMethodology.EdwardElgar.

Boumans,M.(2003).HowtodesignGalileanfallexperimentsineconomics.PhilosophyofScience70,308‐329.

Boumans,M.(2008).Battle intheplanningoffice:Fieldexpertsversusnormativestatisticians.SocialEpistemology22.4:389‐404.

Cooke,R.M.andL.H.J.Goosens(1999).ProceduresGuideforStructuredExpertJudgment.ReportEUR18820.Luxembourg/Brussels:EuropeanCommission.

Downward, P. and A. Mearman (2008). Decision‐making at the Bank of England: a criticalappraisal.OxfordEconomicPapers60:385‐409.

Helmer, O. and N. Rescher (1959). On the epistemology of the inexact sciences.ManagementScience6.1:25‐52.

Howlett, P. and M.S. Morgan (eds) (2011). How Well Do Facts Travel? The Dissemination ofReliableKnowledge.CambridgeUniversityPress.

Petersen, A.C. (2006). Simulating Nature: A Philosophical Study of Computer­SimulationUncertaintiesandTheirRoleinClimateScienceandPolicyAdvice.HetSpinhuisPublishers.

Power,M.(1997).TheAuditSociety:RitualsofVerification.OxfordUniversityPress.

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ModelingExperts:

TheRoleofExpertsintheMethodologyofEconomics

CARLOMARTINIUniversitätBayreuth

Economic experts, the graduates from departments of economics and business schools, arewidelyconsideredtheprincipalauthorities,whenitcomestopracticaleconomicproblemssuchas advising and policy mak‐ ing. Ultimately, however, economic authority comes from thesuccessofeconomicsasascience,thatis,asmodelingandtestingoftheories;oratleastthatisthe widely accepted economic consensus, which puts a strong emphasis on the close linkbetweenexpertiseandeconomicmodelingandtesting—whatFriedman(1953)calls“positiveeconomics”.In the first part of this paper I analyze the relation between modeling and knowledge ineconomics.Much of the literature in philosophy of economics holds, to different degrees andmore or less explicitly, that economics is an inexact science (Hausman 1992; Sugden 2000;Rubinstein2006).Howtheclaimissubstantiatedvariesacrossdifferentinterpretationsofwhateconomicmodelsare;yettheunderlyingparadigmisthateconomicmodelsarethebasicsourceofknowledgeof economicphenomena. I give three reasonsas towhy this idea is inadequate,and argue that the link between positive economics and expertise is wider than mostapproachestoeconomicmethodologytakeittobe.The aforementioned reasons are: 1) the instability of economic systems and the nature ofeconomic externalities; 2) the openness to exploitation of economic systems; 3) the type ofvariablesandobservablesthateconomicsciencesareconcernedwith.Idiscusspoints(1)to(3),and conclude that economics is inexact in a very different way from the one that Hausmansummarizes in his four points about economic inexactness (see Hausman 1992, 128). Theforegoingobservationsmakewaytothesecondpartofthepaper,whereIchallengetheallegedsourcesofexpertiseineconomics(inparticularwhenitcomestoexpertisewithaneyetopolicymaking),andsuggestadifferentapproachtocurrentmethodologyofeconomics.InthesecondpartofthepaperIinvestigatetherelationbetweenpositiveeconomicsandpolicymaking.Theanalysisofthatrelationshowsthatknowledgeineconomicsisonlyderivativelyaproductofmodeling,butinthefirstplaceaproductofthepersonaljudgmentofthosewhomwecall, institutionally, economic experts. Personal judgment is predominant in eco‐ nomics,becauseofthedifficultiesinderivingapplicableknowledgefromthepracticesofmodelingandtesting(points(1)to(3),above),orothersources,likeexperimentsorhistoricalinvestigation.Ifthat is the case, however, thenoneof the focusesof economicmethodology shouldbeon thediscussionofexpertsandexpertise,theproblemsofdealingwithexpertjudgment,andpossiblesolutions.Thepaperconcludeswithadiscussionoftheroleofexpertsandexpertjudgmentineconomics.Expert judgmentmostly relies on a large batch of unarticulated and unstructured knowledge(seeHelmerandRescher1960;Kahneman1982), andbecauseof that, it is affectedbybiasesand flaws which decrease its epistemic value (see Helmer and Rescher 1960; Faust 1984).Analysisofsuchflaws,theproductionofstrategiesandresourcestoavoidthem,andthetaskofameliorating the epistemic value of expert judgment, should all be considered legitimatemethodologicalproblems ineconomics.This latterclaimsuggests, ifnotashift in the focusofeconomicmethodology,atleastamorethoroughapproachtoitsepistemologicalproblems.

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ReferencesBlanchard,Olivier(2009)‘TheStateofMacro’,AnnualReviewofEconomics,1:209‐28.Collins, Harry M. and Evans, Robert (2002) ‘The Third Wave of Science Studies: Studies ofExpertise and Experience.’ Social Studies of Science 32: 235‐296. Faust, David (1984) ThelimitsofScientificReasoning.UniversityOfMinnesotaPress.

Friedman,Michael(1953)EssaysinPositiveEconomics.Chicago:UniversityofChicagoPress.Hausman, Daniel M. (1992) The Inexact and Separate Science of Economics . Cambridge:CambridgeUniversityPress.

Helmer, Olaf and Nicholas Rescher (1960) ‘On the Epistemology of the Inexact Sciences’PROJECTRANDR‐353.

Kahneman,Daniel(1982)JudgmentunderUncertainty:HeuristicsandBiases.Cambridge(UK):CambridgeUniversityPress.

Rubinstein,Ariel(2006)‘DilemmasofanEconomicTheorist’,Econometrica74(4):865‐883.Sugden,Robert(2000)‘Credibleworlds:thestatusoftheoreticalmodelsineconomics’,JournalofEconomicMethodology,7(1):1‐31.

3.Economicsasascience,andtheeconomicsofscienceChair:MaríaJiménez‐BuedoRoom15,Saturday13:15‐15:15

NewEconomicsofScienceand/orEconomicsofScientificKnowlegde

TheCaseofPaulDavid

MATHIEUBALLANDONNEUniversited’Angers

Foralittlemorethantwentyyears,theterminologyusedinthefieldoftheeconomicsofsciencehas changed significantly with the development of expressions like "the new economics ofscience"(NES)and"theeconomicsofscientificknowledge"(ESK).ThisarticleseekstoshedlightontheuseofthesedifferentterminologiesbytakingexamplesfromPaulDavid’swork.Wehavechosen this author not only because he is the co‐author of the seminal article of the neweconomicsofscience(Dasgupta&David1994)butalsobecause,afewyearslater(David1998),he is the author of an article regarded as belonging to the field of the economics of scientificknowledge (Zamora Bonilla 2005). David is in our opinion the ideal candidate to show thedefinitionalambiguitiesnowgoingthroughthefieldoftheeconomicsofscience,especiallysinceheconsidershisarticlewrittenin1998asmakingpartofthe"neweconomicsofscience”.Ourstudyisfurthermotivatedbythefactthat,toourknowledge,nootherarticleshaveyetfocusedontheeconomicmethodologyofPaulDavid.DuetothepolysemousnatureoftheterminologyusedtodescribePaulDavid’sresearch,severalinterpretationscanbemade.Onecouldconsider that theeconomicsofscientificknowledge isthe same fieldas theneweconomicsof science (Hands2001)and in this case theproblem ispurelyevacuated;oronecouldinsteadconsiderthattheanalysisprovidedbyZamoraBonillaissimplyincorrect;orthatitisDavidhimselfwhohasfailedtoperceivethespecialcharacteristicsofhisarticlein1998comparedtotheonepublishedin1994.Werejecteachofthesethreesolutionstodefendamoresubtlethesis:iftheobjectofstudythatbindsDavidinhis1998articlecorrespondstothatoftheESKasinterpreted,thephilosophicalandsociologicalfoundationsofthispaperarethoseoftheneweconomicsofscience.To show this paradox in David’swork, an introductory sectionwill attempt to provide someindicationsofastructuralnatureontherelativeimportanceofthe"threetypes”ofeconomicsof

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sciencethatweidentify,namelythe"old"economicsofscience,theNESandtheESK.Wethenreviewtheprincipaldefinitionsofthese"types"ofeconomicsofsciencefoundintheliterature(Sent1999)byfocusingonthoseoftheNES(Dasgupta&David1994)andtheESK(Hands1994,1997,2001;Shi2001;ZamoraBonilla2005)andcharacterizingthebenefitsandlimitationsofeach.WewillthendefendwhatweconsidertofallwithintheresearchprogramoftheESK.Inathirdstep,weexaminethemethodandtheresultsofDavid(1998).WeshowthatifDavidaimsto study the nature of the scientific knowledge produced by communities of research teamsorganizedintonetworks,hissociologicalandphilosophicalreferencesarethoseof theNES. Inconclusion, we use the traditional distinction in science studies between the object and themethodtoaskhowoldepistemologicalfoundationscanbeappliedtonewobjectsandwhattheconsequencesarefortheESK.

Economicrationality:

Mechanismsofdiffusioninthescientificcommunity

FLORIANFOUGY‐HOUËLUniversitéd’Angers

IntroductionIsthereamarketfororgantransplants?Isdeatharesourcetobeoptimized?Theseissuesraisedby Philippe Steiner in his recent book entitled La transplantation d’organes, un commercenouveau entre les êtres humains [Transplantation of organs, a new trade between humans]showthattheconceptofrationalityineconomicsistodayessentialfordifferentreasons.First,thisconceptisrecurrentinthescientificrecordandregistermedia.Second,itcontainsstronglynormative issues. Lastly, it changes the purpose and nature of economic science, makingrationalityakeyelementoftherelationshipbetweeneconomicsandothersocialsciences.Theconcept of economic rationality is then a very interesting case study of economic culturediffusion.Anancientconcept,rationalitywasformalizedattheendofthe19thcenturybytheneoclassicalschool andespeciallybyVilfredoPareto (1917).Rationality is therefore theoptimal choiceofmeansgiventheintendedpurpose.AccordingtoHerbertSimon,nearly40yearslater,economicagents do not have access to perfect information and have limited cognitive abilities.Recognizing these limitations, the agents did not seek the optimal solution but merely asatisfactory solution, what Simon called bounded rationality. The concept of proceduralrationality, established in 1955 by Herbert Simon, is the first radical change of the conceptbecause it assumes that given the limitations imposed on the individual, the consistency ofdecisionmakingwilldefinethecriterionofrationalitybehavior.Therationalbehaviorsarenolongerguidedbythepurposesof individualsbutbytheirpastexperiences.Thesecondradicalchange of the rationality concept is operated by Raymond Boudon, in the late 90s, byintroducingtheconceptofbelief.Given the importance of the rationality concept aswell as its age, the aim of this paper is toidentify the authors who play a crucial role in the spread of the rationality concept in theacademicsphere.MethodologyWewillconductabibliometricanalysis,thegoalbeingtomapthecitationsofauthorsinterested in the rationality concept. For this, we begin by creating a sufficiently consistentdatabase,bibliographiesofall articles including theword"rationality” in the listofkeywords.Once these bibliographies have been collected, to start with, we will build a matrix of thefollowingtype:

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Citedauthors jCitingAuthors i

Xji:1ifauthorIcitesauthorj;0otherwiseThis matrix will then allow us, using the software UCINET, to draw a network representingselectedbibliographies.Wewillthenlocatecentralauthorsontherepresentednetwork,thatisto say, authorswho create links between other authors. These central authors appear as keyauthorsinspreadingtheconceptofeconomicrationalityTorefinetheanalysis,thisstudywillbedividedintothreeperiods,boundedbythetworadicalchangesoftherationalityconcept.Thiswork depends of twomajor hypotheses. First, this study assumes that the presence (orabsence)ofanauthorinthebibliographyofanarticleissubjectedtonostandardorcriterionofpublication. We admit that when an author is cited in a bibliography, there is a form ofknowledgetransmission fromthequotedauthor to thequotingauthor.Second,wehavetobeawarethatbyselectingthearticles that includetheword"rationality" in thekeyword,weareonlyinterestedintherationalityconceptasanobjectofstudy,notasanhypothesis.DiscussionThisarticlewillprovidethreemainresults.Wewillfirstidentifythesaidcentralauthorsandthereforewecanattempttocharacterizethem.Howcanwebringtogetherauthorswhoareessentialinspreadingtherationalityconcept?Aretheauthorsprimaryconceptorsofideasordotheymerelyadaptideaswhichalreadyexist?Comparingnetworkconstructiononthethreeperiods,wemayalsoobservewhetherachangehasoccurredtocentralauthorsornot.Aretheseauthorsthoseof thepreviousperiodornot?Thisallowsustoseeindirectlyifrecentconceptionsofrationalityreplaceorcomplementolderconceptions.Finally,thisbibliometricworkwillallowustoobservedisseminationoftherationalityconceptinthevariousdisciplineswhichpublisharticlesaboutthesubject.SampleofbibliographyBECKER G. The economic approach to human behavior. Chicago, University of Chicago Press,1993.

BOUDONR.Essaissurlatoregnraeearatonat:actionsocialeetsenscommun.1eréd.Paris:PressesuniversitairesdeFrance,2007.

COLANDERD.C.,COATSA.W.TheSpreadofEconomicIdeas.CambridgeUniversityPress,1993.GINGRASY.«Mappingthechangingcentralityofphysicists(1900–1944)». In:Proceedingsof

xji

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the 11th International Conference of the International Society for Scientometrics andInformetrics.2007.p.314–320.

KAHNEMAND.,TVERSKYA.«Rationalchoiceandtheframingofdecisions».Journalofbusiness.1986,Vol.59,n°4,p.251–278.

KUHNT.S.Thestructureofscientificrevolutions.Chicago,1962,PARETOV.TraitédeSociologieGénérale.Paris,1917.SIMONH.A.«Abehavioralmodelofrationalchoice».Thequarterlyjournalofeconomics.1955,Vol.69,n°1,p.99–118.

SIMONH.A.Modelsofboundedrationality.MITpressCambridge,MA,1982.SIMONH.A.«Rationalityinpsychologyandeconomics».JournalofBusiness.1986,Vol.59,n°4,p.209–224.

VRIEND N. J. « Rational behavior and economic theory ». Journal of Economic Behavior &Organization.1996,Vol.29,n°2,p.263–285.

WASSERMAN S., FAUST K. Social network analysis: Methods and applications. CambridgeUniversityPress,1994

TheProblemofKuhnianRationality

ROGIERDELANGHEGhentUniversity

ThomasKuhn's"StructureofScientificRevolutions"isbelievedtobeoneofthemostimportantbooks in20thcenturyphilosophyofscience.Yet thebookhasmoreenemiesthan friendsandeven its friends, fellow historicists such as Imre Lakatos and Larry Laudan have almostinvariantly tried to change or reformulate Kuhn's view in search of a historically warrantednotionofscientificrationality.Lakatos'notionofrationalityisbasedonaresearchprogramme'sability to generate novel predictions, while according to Laudan rationality turns around aresearchtradition'sproblemsolvingability.ForKuhnthereisnoparadigm‐independentsetofrules to decide between rival paradigms.Many commentators took the absence of paradigm‐independent rules to imply that paradigm choice must necessarily be irrational on Kuhn'saccount. Still Kuhn himself maintained that paradigm‐choice is rational, although he neverdeveloped a specific account of rationality. I will call the problem of finding a conception ofrationalitythatisconsistentwithKuhn'saccounttheproblemofKuhnianrationality.The three most important views on rationality are confirmationism, falsificationism andhistoricism. Confirmationism is most commonly associated with Carnap's work on inductivelogicandstandsfortheviewthatscientistsshouldacceptthosetheoriesthataremostlikelytobe true given the available evidence. Falsification is usually associatedwith Karl Popper andmaintains that scientists should try to falsify theories and reject those falsified such thatonlythose that conformwith theevidence remain.Both confirmationismand falsificationismweredevelopedasahistorical theoriesofscientificrationality.Shouldtheyfail to fitactualscientificpractice, then somuch theworse for the rationality of scientific practice.Anopposedview istakenbyhistoricism,whichholdsthatagoodtheoryofrationalitymustinsomewaysconformtothehistoryofscience.Andshouldhistorysuggestthereisnouniversalcriterionforscientificrationality,thansomuchtheworseforphilosophy.Andsuchistheconclusionofoneofthemostprominentandexcentricexponentsofhistoricism,ThomasKuhn.Even a simple notion of means‐ends rationality reveals that rationality in Kuhn's account isproblematic. Let's call thisnotion 'optimizing rationality'.This conceptionof rationality statesthatanagentisrationalifandonlyifs/hechoosesthatoptionwhichmostefficientlyprovidesthemeanstoreachagivengoal.AppliedtoKuhn'saccountthis impliesthatrationalitycanbesituatedattwodifferentlevels:thelevelwithinaparadigmandthelevelbetweenparadigms.Atthelevelwithinaparadigm,rationalityisnotproblematic.Theparadigmprovidesthegoalsfor

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which scientists try to find the means to reach them. However, for Kuhn there is no single,paradigm‐independent set of goals to decide between rival paradigms. This lack of a rationalbasis for paradigm‐choicewas responsible for the bulk of the charges of irrationality againstKuhn.Ifnotbroughtaboutbythesheerconstructionoftheproblem,whichappearstoleavenopossibility forrationality, thensurelybythesolutionsuggestedbyKuhnhimself.AccordingtoKuhn, choiceof aparadigmdependson “persuasion” (1970,198) and, if successful, results in“conversion”(ibid.150).ThisleadsKuhntoassertthat"thesuperiorityofonetheorytoanotherissomethingthatcannotbeprovedinthedebate.Instead,Ihaveinsisted,eachpartymusttry,bypersuasion,toconverteachother."(ibid.198)Intheabsenceofparadigm‐neutralcriteriafortheacceptanceofparadigms,socialfactorsseemtobeguidingparadigmchoice.Choicebasedon‘persuasion’ and ‘conversion’ seems to stand very far from a rational choice and indeed,accordingtoKuhnhimself,misconstructionsofthisviewisthemainreasonforthechargesofirrationalityagainsthim.(ibid.199)ThesechargescamefromscholarssuchasDudleyShapere(1964), Israel Sheffler (1967), Karl Popper (1970) and Stephen Toulmin (1970). Theinterpretation of Kuhn responsible for this criticism is what Gerald Doppelt calls “the neo‐positivist interpretation” (Doppelt 1978, 35). This interpretation focuses on paradigms aslinguistic entities and thus understands incommensurability as an incommensurability ofconcepts.Scientistsindifferentparadigmsspeakadifferentlanguageandbecausetherearenocommonconceptsatall,translation,communicationandrationalargumentbetweenparadigmsisradicallyimpossible.Kuhncallsthisinterpretation“seriouslymisconstrued”:

“the proponents of incommensurable theories cannot communicate with each other at all; as aresult, in a debate over theory‐choice there can be no recourse to good reasons; instead theorymust be chosen for reasons that are ultimately personal and subjective; some sort of mysticalapperception is responsible for the decision actually reached. More than any other parts of thebook, the passages on which these misconstructions rest have been responsible for charges ofirrationality.”(Kuhn1970,198‐9)

FromtheverybeginningKuhnhasresistedsuchaninterpretation.Tocontrasthisviewwiththeneo‐positivistformulationoftheproblemofKuhnianrationality,IwillcallhisviewtheKuhnianview. His reaction in the postscript to the second edition of the Structure of ScientificRevolutions to the neo‐positivist formulation of the problem is to reformulateincommensurability not so much as an incommensurability of concepts (taxonomicincommensurability)butanincommensurabilityofvalues(methodologicalincommensurability;see Sankey & Hoyningen‐Huene 2001, Carrier 2008). Scientists from different paradigmsdisagreeaboutwhat theproblemsareandwhatcountsasasolution.Theydisagreeabout thedefinitionandweightingofthevaluesusedtoevaluatetheories.Thisrenderscvommunication"partial"(Kuhn1970,198),butnotimpossible.Asaconsequencetheneo‐positivistformulationoftheproblemofKuhnianrationality,whichrequiresthisimpossibility,doesnotholdwater.Kuhn maintained that scientists were rational in coping with this circularity, but he neverdeveloped a specific account of rationality. He did formulate intuitions about how a solutionmight look like, but because these containedwords such as 'conversion' and 'persuasion' theneo‐positivists allegations of irrationality were only reinforced. On the view of rationality asconversiontherearenoexplicitruleslaidoutforwhyscientistsacceptaparadigmandthereisnobenchmarkforprogress,twokeyaspectsofmostaccountsofrationality.Inwhatsensecanthis rationality bemore than at best a sociological phenomenon?What guarantees does thisformofrationalityofferthatscientistsactuallychooseagoodsolutionfromasetofalternatives?Nearly half a century after the publication of the Structure of Scientific Revolutions, nosatisfactoryanswershavebeenreachedtothesequestions.Moreover,thelastdecadehasseenvery little work on historicist theories of rationality in general (Matheson 2008). This paperrenews interest in the topic of historicist rationality and submits that Kuhnian scientists areindeed rational. However, their rationality is one of satisficing, not optimizing. I willdemonstrate that this new view provides the unique combination of compliancewith Kuhn's

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accountwhilstremainingagenuineformofrationality.Thepaperisstructuredasfollows.FirstI describe the twomain viewsonwhy thenotionof rationality is problematic in theworkofKuhn, the neo‐positivist one and the one Kuhn preferred himself. Secondly I introducesatisficing,contrastitwithoptimizingandshowthatitcansolvetheproblemsassociatedwithKuhn'sversionoftheproblem.InthethirdsectionIarguethattheviewthatKuhnianscientistsare satisficers is consistentwith Kuhn'swork. Agentswith a satisficing decision function areabletoreproducethetypicallyKuhnianfeaturesofaggregatescientificchange:normalscience,crisisandrevolution.Thisisdemonstratedthroughtheconstructingofanagent‐basedmodelinwhichagentssatisficebetweenalternativestandards.ReferencesCarrier,Martin(2008),"TheAimandStructureofMethodologicalTheory"in:Soler,SankeyandHoyningen‐Huene (eds.), Rethinking Scientific Change and Theory Comparison: Stabilities,Ruptures,Incommensurabilites?Berlin:Springer,pp.273–90

Doppelt, Gerald (1978), "Kuhn's Epistemological Relativism: an Interpretation and Defense",Inquiry,21,33‐86

Kuhn,Thomas(1962).TheStructureofScientificRevolutions.Chicago,ChicagoUniversityPressKuhn, Thomas (1970). The Structure of Scientific Revolutions. 2nd ed. Chicago, ChicagoUniversityPress

Kuhn,Thomas(1977).TheEssentialTension.ChicagoandLondon:UniversityofChicagoPressMatheson, Carl (2008), "Historicist Theories of Rationality", Stanford Encyclopedia ofPhilosophy http://plato.stanford.edu/entries/rationality‐historicist/ (Retrieved February28th,2011)

Popper, Karl (1970), "Normal Science and its Dangers", in: Lakatos and Musgrave (eds.)CriticismandtheGrowthofKnowledge.Cambridge:CambridgeUniversityPress,pp.51‐8

Sankey, Howard & Hoyningen‐Huene, Paul (2001), "Introduction" in: Hoyningen‐Huene andSankey(eds.)IncommensurabilityandRelatedMatters.Dordrecht:Kluwer,pp.vii‐xxxiv

Scheffler,Israel(1967).ScienceandSubjectivity.Indianapolis:Bobbs‐MerrillShapere,Dudley(1964),‘'Thestructureofscientificrevolutions',ThePhilosophicalReview,73,383‐94

Toulmin, Stephen (1970), "Does the Distinction between Normal and Revolutionary ScienceHold Water?" in: Lakatos and Musgrave (eds.) Criticism and the Growth of Knowledge.Cambridge:CambridgeUniversityPress,pp.39‐48

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1.ThefirmChair:JohnDavisRoom7,Saturday15:20–17:20

Onthereferenceofthemarginalist‘firm’

AKILEHTINEN

UniversityofHelsinki

Fritz Machlup argued in various publications that the term ‘firm’ in neoclassical economictheoriesdoesnotrefertoanythingreal.Itisratherjustausefulfictionthatallowsfordrawingconclusionsfromthetheory.Forexample, inMachlup(1967,p.30)hesays ‘all firmsarepurefictions’,andthatthetheorypostulates‘thispurelyfictitioussingle‐mindedfirm’(p.10).UskaliMäki (1999)presentedacriticismofMachlup,arguing that the termdoes indeedrefer torealfirms. In particular, Mäki argued that Machlup implicitly relies on the description theory ofreference,andthatthenotionofthefirmdoesreferifitsreferenceisconceptualizedintermsofthecausaltheoryofreference.Inthispaper,IwillchallengeMäki’sinterpretationofMachlupandtrytoprovideanalternativereading that does more justice to Machlup’s aims. My main argument is that while Mäki’sargument from reference looks plausible on the face of it, it is misleading because despiteMachlup’sterminology intermsof fictions,hismainpointwastosaythatthereferenceof theterm‘firm’isdifferentfromNokiaortheCoca‐ColaCompanyratherthanthatitdoesnothaveanyreference.Theaimofthispaperisofcoursebroaderthanthatofprovidingacritiqueofaparticular interpretation. Mäki’s argument is related to his broader concerns concerningscientific realism and commonsensibles. He says elsewhere that ‘Against fictionalism andinstrumentalism,scientificrealismconsidersscientifictheoriesas(hypothetical)descriptionsoftheworld, not just derivation devices. The postulated entitiesmust be understood to exist atleastpossibly’(Mäki1984,p.81).This earlier statement shows that he is notwilling to admit any kind of fictional elements intheories.(Mäkidefinesfictionsbysayingthattheyexistonlyinthedescriptionofthetheorybutnot in reality.)The exampleof the ‘firm’ is thus just a special caseof a broader reluctance toadmittingfictionsineconomictheories.Mäki’sownaccountofisolationandmodelsemphasizesthateconomicmodelshavevariousdifferentparts,andthatthemodelersjustifiablycareaboutthetruthvaluesofsomeprivilegedpartsmorethanthoseoftheotherparts.Particularlyinthelater writings on models, Mäki has emphasized that the main mechanism in a model is therelevant truth‐bearer. Ifwe take this thought and combine itwith the idea that according toMäki,scientificrealismisperfectlycompatiblewithunrealisticassumptions,wemayconcludethatMäkiacceptsfalsitiesinmodelsinsofarasthemodeldepictsacausalmechanismcorrectly.Butthen,whyacceptunrealisticassumptionsbutnotnon‐existententities?Ifthecredibilityoftheresultsofamodeldoesnotdependcruciallyonwhetherornottheentitiesitdepictsreallyexist, why bother? If the fictitious entities allow for isolating the workings of a causalmechanism,theyseemtobejustasacceptableasunrealisticassumptions.Thecaseoftheneoclassicalfirmistricky,however,becauseMäkimightarguethatwhatisreallywrongwithMachlup’saccountisthatthecentralmechanismisitselfafiction.Thepointofthetheory is to study the price transmission mechanism, i.e. how changes in various conditions(productioncosts,pricesofothergoods,priceschargedbyotherfirmsforagivengood,taxes,andsoon)affecttheoutputandthepriceschargedbyfirmsatthemarketlevel.Theindividualrepresentative firm is then a fiction in the sense that it is assumed to be a unitary decision‐makingbodywhichisabletochangeitsbehavioraccordingtothechangingconditions.Itisalso

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supposedtodothisonthebasisofprofitmaximization.Machlupcouldbetakentoarguethatsuchafirmissofarremovedfromtherealitythatitisbettertorefertoitasafiction.Itisjustanintervening variable that shows how the changes in the aforementioned conditions affect thepricesandquantities.MäkicouldbearguingthatMachlup’saccountmakesthereasonsforthefunctioning of the central mechanism a mystery, and that while unrealistic assumptions areotherwise perfectly acceptable, they are not acceptable here because the central mechanismitself isbasedona fiction.This isnot,however,whathe isarguing,becauseheveryexplicitlysays that ‘Machlup cannot deny the referential use of the term ‘firm’ only because of theinadequaciesof the associateddescription.‘Herehe refers toDonnellan’sdistinctionbetweenattributive and referential uses of definite descriptions. A speaker who uses a definitedescriptionattributivelyinanassertionstatessomethingaboutwhoeverorwhateveristheso‐and‐so. A speaker who uses a definite description referentially in an assertion, on the otherhand,usesthedescriptiontoenablehisaudiencetopickupwhomorwhatheistalkingaboutandstatessomethingaboutthatpersonorthing.…intheattributiveusetheattributeofbeingso‐and‐soisallimportant,whileitisnotinthereferentialuse.Mäki’s critique is thus not based on the idea that the central mechanism is modeled with ablatantlyfalseassumption.Itisratherthattheterm‘firm’canbetakentobeacommonsensibleandthatitmaybetakentorefertorealfirmsifthecausaltheoryofreferenceisinvoked.Hesaysthatthere‘havebeeneconomistswhohavesuggestedthat‘firm’isjustanothertheoreticalterminthefamilyoftermsincludingotherssuchas‘electron’…Iftheseeconomistsarecorrect,thentheargumentagainst thecausal theoryshouldalsoapplyto ‘firm’ inneoclassical theory.But Idon’t thinktheyarecorrect. Itseemsmorecorrect tosuggest that ‘firm’ ismoreakinto ‘heat’and‘water’thanto‘electron’and‘quark’.Thisisbecausebusinessfirmsare‘observable’featuresofoureverydaylivesandtheterm‘firm’appearsinourordinarydiscourse.’Thus, according toMäki, the term ‘firm’ isnota theoreticalone.However,Machlup’swritingsgivetextualevidencefortheclaimthathethinksoftheneoclassical firmandthereal firmsasdifferententities.Hesays,forexample,‘economists,however,knowforsurethatfirmsexistasempirical entities and, hence, they have a hard time keeping the theoretical firm and theempiricalfirmapart’andhetalksaboutthe‘fallacyofmisplacedconcreteness’.Healsosaysthat‘Many people cannot understand that othersmay be talking about altogether different thingswhentheyusethesamewords’(1967,28‐9).313MäkithinksthatwhenMachluparguesthatthe term ‘firm’ in themarginalist theory is factually non‐referential, his primary usage is anattributiveone.ButMachlupseemstobetalkingnotaboutactualfirmsatall,butratheraboutwhatever accounts for how changes in conditions are translated into changes in output andprices.Machlupthustreatstheterm‘firm’asahomonym.However,onlyoneofthemeaningsofthishomonymisknownincommonparlance.Itseemsclearthat,ifnorestrictionsareimposedonhowdifferenttheactualobjectsintheworldandtheobjectsdescribedby the theorymaybe, it isalwayspossible to invoke thereferentialuseoflinguisticexpressionsinordertopresentanargumentthatthetermsineconomicsrefer.What is lost, however, with such an approach, is the understanding concerning economicargumentsandmodels.ThinkingoftheCoca‐Colacompanywillnothelpawhitinunderstandinghowhigherdemandleadstohigherprices.Thisisevenmoreevidentinthosecaseswherethecommonsensible and the corresponding theoretical term refer to entirely different entities.‘Utility’ is a good example. Using this word commonsensically to denote ‘pleasure’ or ‘desiresatisfaction’ inexpectedutilitytheoryinvolvescommittingaseriousfallacy.Binmore(2009,p.20) calls it the ‘causal utility fallacy’. The point, more generally, is that the fact thatcommonsensible words are widely used in economics proves just about nothing about theprevalence of commonsensibles in economic theory. If the meanings of terms are typicallydifferent from their commonsense meanings in economic theory, saying that they refer tocommonsensibleentitiesisseriouslymisleading.

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On the other hand, Mäki says that according to Machlup’s instrumentalist conception, ‘Thetheory does not purport to give a true picture of the real mechanism underlying marketphenomena.’WhatMäkiultimatelyfindsproblematicisnottheideathattheterm‘firm’doesnotrefer,butrathertheideathatthetheory,asawhole,isinterpretedinstrumentally.

ReferencesBinmore,Ken(2009):Rationaldecisions,PrincetonUniversityPress,Princeton;Oxford.Mäki,Uskali(1999):"RepresentationRepressed:TwoTypesofSemanticScepticismin

Economics",inIncommensurabilityandtranslation:Kuhnianperspectivesonscientificcommunicationandtheorychange,eds.R.Favretti,S.G.Rossini&R.Scazzieri,Elgar;distributedbyAmericanInternationalDistributionCorporation,Williston,Vt.,pp.307‐321.

Mäki,Uskali(1984):"TieteellinenRealismiJaMarxismi[ScientificRealismandMarxism,inFinnish]",inVuosisatammefilosofia[Thephilosophyofourcentury],eds.IlkkaNiiniluoto&EsaSaarinen,WernerSöderström,Porvoo,pp.78‐116.

Affiliationstrategiesandintrafirmcooperation:Anevolutionarymodelofpersonalidentityofthefirm

BEATRICEBOULU‐RESHEF

UniversityofLyon,UniversityofParisNord

Wedevelopanevolutionarytheoryofpersonalidentityandapplyittotheevolutionofaffiliationstrategies in firms. We implement the innovative theoretical strategy and experimentalmethodologydevelopedbyAguiaretal.(2010)forrepresentationoftheindividualwhichreliesmainlyontheworkofDavis(2006,2007,2010).Theresultsofthisimplementationshedslightontheeffectoffirmorganizationonthelevelofcooperationinfirms.Mostspecifically,weapplyittothecaseoftheevolutionofaffiliationstrategiesinthecaseofmergersandacquisitions.ThisworkdevelopstheproposalofProfessorJohnB.Davis(2006,2007)foratheoryofpersonalidentity and applies to the case of individuals’ behavior in the firm. Personal identity theorydiffers from themore traditional social identity theory (Akerlof and Kranton, 2000, 2005). Itdefinesidentityastheresultofindividuals’managementstrategiesabouttheirsocialidentitiesprofile, determined by investment in those social identities. This work combines the recentliteratureonidentityineconomics(KirmanandTeschl,2004;Davis,2010)andtheliteratureonthe firm in order to study how individuals’ sense of affiliationwith the firm affects intrafirmcooperation.Ourtheoreticalstrategyisstructuredbythedescriptionoftheeffectsoffirmcapabilitiesontheselection and adaptation of levels of affiliation over time. By describing types and levels ofinvestment in social identities, my work will help explain how individuals identify andindividuate,andhowtheydothisovertime.Thisstrategyreliesonthetwomainadvantagesofthe new personal identity theory. First, personal identity allows the description of individualidentity strategies over time through the identification of the effect of institutions on specificindividuals. Second, it allows the inclusion of the studyof individuationwhichdescribes howindividuals differentiate themselves from others – in addition to the traditional study of theeffectofidentificationonbehavior(Simon,1976).Thepossibilitytosimultaneouslydistinguishandincludeintheanalysisidentificationandindividuationstrategiesallowstoexplaininwhatconditions the costs associated with investments in social identities may lead to a drop incooperative effort. My work will help explain how changes in organizational structure affectlevelsofaffiliationandpatternsofcooperation.

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There are two main methodological motivations for this work. First, current analyses ofpersonalidentitydonotcapturetheeffectofthechangingenvironmentonindividuals’decisions(Davis, 2010). The question of individuals’ identity has not been central to evolutionaryeconomics, the main focus being more on an aggregated perspective on populations ofindividuals.Thisperspectivemaybeincomplete(Davis,2010),becauseastypesof individualsendureintheevolutionaryprocessthenitmaybeusefultounderstandhowspecificindividualsof those typesmayalsoendure in theevolutionaryprocess. Second, the representationof theindividual is central to the study of institutions and firms. An evolutionary personal identitytheoryprovidesa framework toexplainhowchanges infirms’ environmentaffects individualaffiliation strategiesover time; this isdefinedby individuals strategies for investment in‐ andmanagement of their social identities. This helps overcome the limitation of the atomisticapproachtotheindividual(Davis,2003;Hodgson,2007).Themainmanagerialimplicationisthatthisworkaddstotheliteratureonabsorptivecapacityadescriptionofhowindividualsadapttheirsenseofaffiliationinchangingbusinessenvironmentinordertosustainintrafirmcooperation.TwentyyearsafterCohenandLevinthal(1990),mostattention has been paid to the tangible outcomes of absorptive capacity; individual levelantecedents and the role of interactions of individuals have been ”relatively neglected”(Volberdaetal.,2010).ReferencesAguiar, Fernando, Pablo Branas‐Garza, Maria Pas Espinosa, and Louis M. Miller, “Personal

Identity: a theoretical and experimental analysis,” Journal of Economic Methodology,2010,17(3),261–275.

Akerlof, GeorgeA. andRachel E. Kranton, “EconomicsAnd Identity,” TheQuarterly Journal ofEconomics,2000,115,715–753.

—“IdentityandtheEconomicsofOrganizations,”JournalofEconomicPerspectives,2005,19,9–32.

Cohen,WesleyM.andDanielA.Levinthal,“AbsorptiveCapacity:ANewPerspectiveonLearningandInnovation,”AdministrativeScienceQuarterly,1990,55(1),128–152.

Davis, John B., “Social Identity Strategies in Recent Economics,” Journal of EconomicMethodology,2006,13,371–390.

—“AkerlofandKrantononIdentityinEconomics:InvertingtheAnalysis,”CambridgeJournalofEconomics,2007,31.,

—IndividualsandIdentityinEconomics,NewYork:CambridgeUniversityPress,2010.Davis, JohnBrian, The theory of the Individual in Economics: Identity andValueAdvances in

SocialEconomics,Londres:Routledge,2003.Hodgson, Geoffrey M., “Meanings of Methodological Individualism,” Journal of Economic

Methodology,2007,14,211–226.Kirman, Alan and Miriam Teschl, “On the Emergence of Economic Identity,” Revue de

PhilosophieEconomique,2004,9,59–86.Simon,Herbert,AdministrativeBehavior,3rded.,NewYork:TheFreePress,1976.Volberda,HenkW.,NicolaiJ.Foss,andMarjorieA.Lyles,“Perspective‐AbsorbingtheConceptof

AbsorptiveCapacity:HowtoRealizeItsPotentialintheOrganizationField,”OrganizationScience,July‐August2010,21(4).

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Evolutionaryeconomics,contrastiveexplanationandstrategicmanagement

JORMASAPPINENLappeenrantaUniversityofTechnology

Strategicmanagementasaresearchfieldisinterestedinseveralissues,andtheoriginoftheseissues stems from the need to provide actionable prescriptions for practitioners. While theresearchfieldisinthewordsofNobellaureate“acomplexsubject”which“spansthefunctionalareas in business” and “is genuinely interdisciplinary” (Williamson, 1996), sometimes theobjective of the whole field is condensed to just one question, namely: How it is possible tocreatevalue? Inamoredetailedway it canbe said that the studyof strategy ismotivatedbythreecentralquestions(i)Whytherearedifferencesinperformanceoffirms,(ii)Whydotheseperformance differences persist? and (iii) How it is possible for managers improve theprofitability of the their firms and how can such better profitability be sustained? (Rumelt,SchendelandTeece,1991)Althoughthequestions(i)and(ii)canbestudiedandansweredinaway involving purely descriptive knowledge, the ultimate interest behind them ismanagerialdecisionmaking:themotivetomanipulatefirmperformance.EvolutionaryeconomicsoriginatingfromNelson’sandWinter’sclassicbook(1982)hasbecomewidelyused in the research fieldof strategicmanagement. This situationhas attracted somecriticalvoices,arguingthatresearchbasedontheconceptofroutineanditsvariousderivatives,e.g. capability (a stream often coined as the knowledge based view of firm), is based on aproblematic philosophy of science. In particular it has been argued that these theories aresuspect because they lack so called micro‐foundations, and are not consistent withmethodologicalandontologicalindividualism(Felin&Foss,1996,2011,Witt,2011).Accordingto the critics these theories are not capable of really explaining the phenomena they try toexplainanddonotprovidebasisformanagerialaction,i.e.arenormativelyuseless.Iwill analyze the arguments of critics of theknowledgebasedviewof firm from thepoint ofview of contrastive counterfactual explanation (Woodward 2003, Ylikoski 2001). The idea ofcontrastiveexplanationisthatitisimportanttobespecificaboutthequestion,e.g.whatkindofquestiononetriestoanswer.Scholarsworkinginthesameresearchfield,andbroadlyagreeingon research topics (a competitive advantage, or superior performance of a firm in strategicmanagement,forexample)maystillhavedifferentviewsonwhatexactlyistobeexplained.Thecriticsoftheknowledgebasedviewseemtomoreorlessexplicitlydemandforanaccountfortheoriginofthefactorwhichisseentoaccountforsuperiorperformance.Butwhendoingso,theychangethecontrastclass,e.g.whenthequestion“whyafirm(currently)hasacompetitiveadvantage?” is answered the relevant contrast class the alternative factors which could inprinciple account for the same phenomenon. Those arguing for the study of the origin of thecompetitiveadvantagearedemandingananswer toquestionsuchas “why(andhow)did thefirm acquire the competitive advantage it currently has?” Answering to this questionpresupposesprovidinganaccountoftheprocess(fromthepresumedorigintothepresent)howthe competitive advantagewas developed rather than pointing out the factor(s) that is (are)causallyeffectiveinthecurrentsituation.Themainpointsemergingfromcontrastiveviewofscientificexplanationisthatonelacksgoodreasons to prefer solely on ontological grounds a particular type of explanation, e.g. that aparticulartypeofmicro‐foundationsisalwaysneededtoexplainthephenomenonofinterest(cf.Vromen2010).Thepreferredtypeofexplanationvariesdependingonourexplanatoryinterests.Indeed,thesearchfororiginsand/or“ultimate”factorsmaybeoftenimpossibleorimpracticalinthestudyoffirmbehavior.Moreover,thesearchfororiginsand/orultimatefactorsmayalsobe irrelevant from themanagerial perspective. For the normative use of theory one needs to

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knowthecausallyefficientfactorsinsituationwhenacertainstrategicdecisionismade,notthefullcausalhistoryhowthethesefactorsdeveloped,orhowtheymaybeseentobeconstituted,anissuewhichdependsone’sfavoriteperspectiveofontologicallayers,forexample.Thecriticsof the knowledge based view of firm have argued for explaining the presuppositions of theknowledge based theories. It is important to study how they (Abell, Felin, Foss, 2008) havesucceeded inthiseffort,andalsoanalyzethe implicationsof thiseffort tomanagerialdecisionmaking. It is argued that even thoughmanagerial action can be described as intentional, theexplanationofperformancedifferencesandthesustainabilityof thesedifferencesare likely toinvolveseveraltypesofexplanations.

2.ModelsIII:modeling&policyChair:CaterinaMarchionniRoom7,Saturday15:20–17:20

GeneralversusContext­SpesificPolicyClaims:

TheCaseoftheEconomicsofMacroUnemployment

FRANÇOISCLAVEAUEIPE,ErasmusUniversityRotterdam

It is a commonplace that the social sciences have had a hard time in their quest for law‐likegeneralizations.Eventhemostestablishedgeneralizations―e.g.,theLawofdemandaccordingtoeconomists―areknowntobesubjecttoexceptionsandtobeoflimitedhelpforprediction.These limitations do not stop social scientists from asserting general propositions. Thesepropositionstypicallyhaveimplicitclauses―ceterisparibus,‘mostofthetime’or‘onaverage’clauses―weakeningthemsuchthatthefirstcounterexamplewillnotcountasarefutation.Thequest forgeneralizations isalsoapparent inthepolicyclaimsofsocialscientists. Itseemshardtoresistmakingbulletlistsofdo'sanddon'tsonagivenpolicyissue.Atthesametime―and often nearby the bullet list ― social scientists emphasize that the effects of a policy arehighly context specific. The stress on contextualizationmakes onewonderhow thebullet listshouldbeinterpreted:IspolicyXbelievedtohavethetargetedeffectsmostofthetime?I propose in this contribution to analyze the tension between the quest for general versuscontext‐specificpolicyclaims.Iwillofferanswerstotwoquestions.First,whatisthesemanticrelationship between general claims and context‐specific claims? Second, is there a tensionbetween research targeted at general claims and more contextual research or do theycomplementeachother?Thefirstquestionisparticularlyrelevantincaseswheretwoclaimsseemcontradictory―e.g.,ageneralclaimsays‘XhasapositivecausaleffectonY’andacontext‐specificclaimsays‘InC,Xhas anegative causal effect onY’. Iwill argue that the apparent contradictiondissolves if thegeneralclaimisinterpreted,asitshould,asaveragingoverheterogeneouscausaleffects.Whilethisinterpretationallowsforareconciliationbetweengeneralandcontext‐specificclaims,italsocreatesapuzzleforproponentsofgeneralclaims:Inthefaceofhighcausalheterogeneity,whatisthepracticalrelevanceoftheseaverageclaims?Regardingthesecondquestion,Idoacknowledgepotentialsynergiesbetweenresearchtargetedatgeneralclaimsandmorecontextualresearch.Iwillhoweverarguethatthemethodstypicallyused to investigate general claims ― e.g., cross‐country regressions, generic rational‐choicemodels―areparticularlyill‐suitedtoanswercontextualquestions.Inthissense,thequestforgeneralityisdivertingresourcesawayfromcontextualanalysis.

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Iwillillustratetheseclaimswithacasestudyontheeconomicsofmacrounemployment.IwillspecificallylookattheresearchdoneinacademiaandattheOECDsincethepublicationoftheinfluential OECD Jobs Study (1994). Research at the OECD is explicitly presented as a directsourceofinformationforpolicymakersbuteconomistsfromacademiaworkinginthissubfieldhave typically less involvement with concrete policy making. The upshot of this distinctionbetweenthenon‐academicOECDandacademiceconomistsisthatthelattergrouptendstotiltmoretowardgeneralityofpolicyclaims.ButtheOECDitselfliveswiththistension:oneobservesacleartendencytowardincreasedemphasisoncontextspecificityfromits1994report―proneon(short)bulletlists―toitsmorerecentpublications.Thiscasestudyisthusprovidingarichmaterial to analyze the tension between the quest for general versus context‐specific policyclaims.

Theoreticalperspectivesandpolicyrecommendationsineconomics

LUISMIRELESFLORES

EIPE,ErasmusUniversityRotterdam

Incontroversiesabouttheappraisalandconvenienceofcertaineconomicpoliciesoverothers,suchassupply‐sideversusdemand‐sidepolicies,orfree‐tradeversusprotectionistpolicies,andthelike,whenevertheyarepubliclydebated,eachofthesidesinvolvedoftenstresseswhethertheirargumentsarescientificallysupportedinonewayoranother.Notthatthescientificarenaistheonlyrelevantdimensionuponwhichsuchcontroversiesaredebated,butscientificsupportis certainly regarded as important in such economic policy evaluations, and thus scientificknowledgeisusuallycalleduponinthesedebatesasapieceofevidencefororagainstdifferingpositions.Nevertheless, in several controversies about policies, scientific knowledgehas beenfar from being decisive: usually both sides of the debate have some amount of scientificknowledgeintheformofscientifictheoriesandevidence,supportingtheirparticularpositions,which has been more or less equally validated such that there is no clear way to state in adefinitewaywhichpolicypositionisthecorrectone.The present article is an attempt to offer an account of how to understand such type ofcontroversies by relying on a philosophical position known as “scientific perspectivism”developedbyRonaldGiere(2006).Scientificperspectivismhasbeenpresentedasathirdwaybetweenobjectivismandconstructivismasaccountsofscientificknowledge,anditsmaintenantin anutshell is that: theway scienceproceeds is through interactionsbetween someexternalreality and our subjective conceptions, such that both elements causally contribute to ourscientificknowledge.Theoutcomesarenotabsolutetruetheoriesorentirelyconstructedones,but scientific representations of phenomena which only make sense from particular (andpartial) perspectives. Moreover, scientific representations are relative to particular researchgroupsandtoparticularpurposes,andcanonlybeappraisedinaccordancetothese.Giere’s account is discussed in the realm of the natural sciences, but as Iwill show it can behelpful to clarify some of the controversies about policies that are debated on the basis ofapparently opposite economic theories. After offering a critical account of the features ofperspectivalrealismthatcanbeusefulforunderstandingpolicydebatesineconomics,Inarrowdawnthenotionofperspectivesintoanadditionalnotionthatismorerelevantforthetypesofdebates at hand, the notion of “theoretical perspectives”, these are defined in amore specificway, for instanceintheformof:macroandmicrotheoreticalperspectives;dynamicandstatictheoretical perspectives; or abstract or concrete theoretical perspectives. The final aimof thearticle is to employ this framework so as to analyse and try to shed light in some specificcontroversiesthathavetakenplaceintheeconomicpolicyarena.

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Thetwocasestudiesthatareanalysedarerelatedtothesupply‐sideversusdemand‐sidepolicycontroversy: First, the general glut controversy in which two different theoretical positionscontendedwitheachotherasthe“correct”explanationforcommercialcrisesandbothcameoutwith entirely opposite policy prescriptions. On the one hand, the classical theory ofmarkets,usuallyassociatedtotheworksofJ.‐B.Say,thoughAdamSmith,JamesMill,DavidRicardo,andJ.S.Mill also contributed to its shape.On theotherhand, the theoryofgeneraloverproduction,held(withsomedifferences)byThomasMalthusandSimondedeSismondi,amongothers.Thesecondcase issimplyamodernelaborationof theclassicalcase inwhichmodernsupply‐sidetheoriesandpoliciesareevaluatedincontrasttothepost‐Keynesianproposals.Theideaistostresstheparallelsbetweentheoldandthenewversionsofthecontroversy,employingtheposition of scientific perspectivism to understand the partial theoretical perspectives fromwhich both sides of the debate are meant to offer their respective accounts of economicphenomena, and consequently offer some clearer grounds for evaluating their policyrecommendations.3.LimitsofeconomicsChair:KarinAstridSiegmannRoom15,Saturday15:20–17:20

TheMeccaofeconomics

MICHAELJOFFE

ImperialCollageLondon

Social reality is, as we know, bewilderingly complicated and therefore difficult to study. Inaddition,mostofitisnotamenabletoexperimentation,sothatdescriptivemethods(includingstatistical analysis) need to be used. Its open‐endedness adds further complexity. Nowonderthatitisdifficulttodevisedefensibleeconomictheory.Thesameistrueofthestudyofbiology,yet inthatcasemuchhasbeenachieved–anditwasdoneinaremarkablyshorttime,fromDarwin,Mendelandothersinthe1850stothestructureof DNA in less than a century. Admittedly, biology has the advantage of amaterial basis andgreater regularity, more of it is open to experimentation, and it does not have to deal withagency/expectations/etc. Nevertheless, there may be a great deal that economists and othersocial scientists can learn from biological methodology. We should take seriously Marshall’sdescriptionofbiologyas“TheMeccaofEconomics”.This is not an argument for direct analogies, e.g. of the specific causal structure of biologicalevolution,tobeappliedineconomics.Rather,itisaclaimthatmethodologicalinsightsderivedfrom biology can be useful to economists. For example, functional arguments are valid in abiologicalcontext,becausetheycanreadilybere‐expressedincausallanguage,whereasthisisnotgenerallytrueinthesocialsciences.In biology, the core theoretical concepts have been derived from descriptive evidence,painstakingly converted into empirical generalisations, and thence to theory by asking “howdoesnatureworktoproducethisresult?”.Economicstoocouldfollowthismethodologymoresystematically. One practical way of achieving this would be to seek examples of convergenthistorical processes, analogous to convergent evolution in biology, and to examine both thesimilaritiesandthedivergencesbetweenthedifferentinstances.Much current economic research does aim at an empirical basis and a broad causalunderstanding. The issue is not somuch specific research projects as in integrative activities

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suchastextbooksandteaching,andinmethodologicalwritings.Atthecoreisthedefaultbeliefthatalltypesofmarketarenaturallyself‐adjusting–aptlycalled“marketfundamentalism”.Thishashaddirepracticalreal‐worldconsequences.Two features stand out in the history of economics, both orthodox and heterodox. One isreactivemode,inwhichstandardtheoryperpetuallyandfruitlesslyconfrontsdirectcriticismsof how it is done. Examples include (a) unrealistic assumptions in general; and (b) theassumptionofperfectrationalityinparticular.Ratherthanmerelyreactingtothesefeaturesofmainstream economic theory, a better response is that (a) theory should be built not onassumptionsbutonevidence;(b)reductionofeconomiclifetobehaviour–rationalornot–issimple‐mindedasitignoresunintendedconsequences,whichareubiquitous.Thesecondfeatureisincrementalmode,inwhichastandardviewisnotreplaced,butratherismerelysupplementedwithanadditionalelementaimedatcorrectingtheinitialdistortion.Oneexample is “new” growth theory, based on neoclassical assumptions but with an additionalcomponent added so as to remove the assumed diminishing returns. Another example is theresponsewhen theassumedrationalitygivesawronganswer: start fromrationalityand thenadd a correcting term to tweak themodel towards the realworld. Incrementalmode is onlyjustifiablewhen the initialmodel isvalidbutover simple (like lawsofmotionplus friction inphysics),ratherthaninherentlydistorting.A better methodology for economics would abandon reactive mode and limit the use ofincrementalmode, removing the aspects of theory that are not based on evidence, replacingthemwithawell‐foundedempiricalbasis.This couldbecalledselective replacementmode. Itwouldthenlooklikethebestpracticeincurrent/recentresearch,organisedaroundacorethatisworthyofit.Thereissomedistancetogo.

North’sCritique:TowardsEconomicsofCulturalCodes

OLEGANANYINNationalResearchUniversity,Moscow

Thesubjectmatterofeconomicsisstillacontestedterrain.AdamSmitherectedhistheoreticalsystemtoexplaineconomicgrowthanddevelopment.Butlaterattemptstoenhancerigorofthenewsciencecaused its infectionwithastrongstaticbias.Alleged justificationof thisbiaswasrootedinSmithianbeliefsinindividualdecision‐makingasapreconditionofefficientallocationofresources,andincapitalistfrugalityasaforcechannelingefficientlyarrangedresourcesontotherightgrowthpath.Fortunately,firstgenerationsofeconomistswereawareofthegapbetweenpuretheoryandrealpolicy;hencedevelopmenteconomics couldemergewithoutbeing seriously infectedwith thestaticbias.ItwasnotbeforethedoctrineoftheWashingtonconsensusofthelate1980sthattheintegration of development economics into orthodox economics took place. The failure of theWashingtonconsensus, thatbecameevidentjustinafewyearsafteritsbirth, isakeypointforbothhistoricalandmethodologicalaccountofcontemporaryeconomics.Contraryto‘economicimperialists’itrevealednarrownessofthesubjectmatteroforthodoxeconomics,itsinadequacyto vital real‐world economicproblems.Characteristically enough that oneof the lessons fromthedecade(1990)of reformsderivedbyWorldbankexpertswas: “PromoteGrowth,Not JustEfficiency”. It also stimulated efforts to integrate institutions into economic analysis, both byraising professional status of new institutional economics, and attracting new generation ofeconomiststoempiricalandappliedresearchinthisarea.

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Herewe are coming to the crucial problem: even if institutional turn in economics is rightlyoriented,areeconomistswellequippedtotakesucha journey?Thisquestionwasstressedbyoneof the leadersof thenew institutionaleconomicsDouglassNorth: “Curiouslyenough–hewrotein1997–institutionsarefrontandcentreinallcurrentexplanationsofgrowthorlackofitinthirdworldandtransitioneconomies;buttheexplanationslackbothanalyticalcontentandanunderstandingofthenatureofinstitutionsorthewaytheyevolve”.Togetoutofthesituationhecalledfor“afundamentalrecastingofthewaywethink”.Northquestionstheverycoreoforthodoxeconomicsandespeciallyitsrationalityassumption,theuncriticalacceptanceofwhichhecallsdevastatingformostofthemajorissuesconfrontingsocialscientists.Hismajorclaim is thatrationaldecision‐making isnot individualistic,but theproductofbeliefsinstantiatedinsocialinstitutionsandotherculturalsymbols.Hissuggestionsare to focuseconomists’attentiononhuman learningand to lookatculturalanthropology forinspiration.Itshouldbenotedthatcognitiveaspectofhumanbehaviour,emphasisedinNorth’scritique of orthodox economics is quite different from cognitive aspect implied in recentexpansionofbehaviouraleconomics.Thelatterreferstoindividualbehaviourandseemstobewelcome in the current mainstream, the former deals with social cognition and suggestsradicallydifferentpathforeconomics.TheremightbetworesponsestoNorth’schallenge.Theradicaloneshouldallowthateconomicsmightbecomeabranchofculturalanthropology,i.e.undergoascientificrevolutioncomparabletomarginalrevolutionof lateXIXthcentury,whenclassicalproductparadigmwasreplacedbysubjective utility paradigm. The moderate response should take into account the economicexistenceofaspecialrealmofhumanactivitieswhichgenerate,translate,interpret,implement,protect and enforce programs of human action, or rules, or cultural codes in a broad sense.Cultureisnotjustmemoryretrievedinlibrariesandmuseums,butevenlibrariesandmuseumsarereal‐worldentitiesinvolvedintoacircularflowofcurrenteconomiclife.Thesameistrueofjudicialandpoliticalorganisations,scientificandeducationalinstitutions,etc.

Thisperspectivehas importantontological implications, requiring,e.g., the reinterpretationofinstitutions as entities of dual nature. They appear to be both inter‐subjective notions (rules,norms, cultural codes) existing in the heads of economic agents, and specific (real‐world)organisations translating respective notions into agents' heads, and enforcing their persistentvitality.Thus,unlikemainstreamviewofeconomyasahomogeneousmarketspace,itappearstoconsistoftwounequalparts:oneinwhichagentsactaccordingtotheirculturalcodes,another–inwhich agentsmake and guard these codes.Historical account of relationshipsbetween thetwopartssuggeststhatusuallytheirfunctioningmechanismsweredifferent.Marketisatypicaloption for themainpartofeconomy;self‐governedprofessionalcorporation– for thespecific'economy of cultural codes' part, with a whole range of intermediate cases readilyacknowledged.

Towardsamorerationalizedsetofcriticisms

MELISSVERGARAFERNÁNDEZEIPE,ErasmusUniversityRotterdam

In the lightof the financialandeconomiccrisisof2008,commentatorsboth fromoutsideandwithin the economics discipline have tried to analyze the extent to which the economicsprofession should be blamed. Flaws in the institutional scheme, ideological attachments andmethodologicalinadequacieshavecometotheforeinthisanalysis.Thefocusofthispaperliesonthelatter.Thepurpose,however,isnottoenumeratethemethodologicalshortcomingsofthetheory that may have led economists to either fail to anticipate or to foster the crisis – the

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literature in that respect is long enough already. My argument is rather that many of thesecriticismshavebeenpresentedinverygeneralterms,asafailureoftheeconomicsdisciplineasawhole, disregarding the purposes – or rather, other purposes different frompreventing thecrisis–forwhichthesetheoriesandmodelshaveprovedusefulandthusnotasinadequateasportrayedbythecriticisms.Inotherwords,Idefendtheclaimthatatheoryoramodelhastobeassessedasinadequateornot,accordingtothepurposesitserves.Toillustratemypoint,IfocusontheworkbyColanderetal.(2009)inwhichtheyarguethattheeconomicsdisciplinefailedbothinanticipatingandunderstandingthecrisisandinfosteringit.Iarguethatthetheoriesandmodelstheyattempttodisqualify,basedonthisallegedfailure,haveservedother importantpurposesand therefore,atmost, theiruse for thisparticularpurposeshouldbedisqualifiedandnot the theoriesand/ormodelsaltogether,as theysuggest.Amongtheargumentstheyprovide,theyattributethefailuretosomeofthemethodsthateconomistsuse. In an appeal for more realistic assumptions, they find highly problematic that rationalexpectations and the representative agent are not consistent with findings in psychology,behavioral and experimental economics about the formation of expectations of individuals ortheirheterogeneity.Thus,theyarguethatmodelsoughttobenotonlyinternallyconsistentbutalsoexternallyconsistentwiththeevidenceprovidedbyotherareasordisciplines.Colanderet.al also criticize the microfoundations of macroeconomics. They argue that economics hassubscribedtothemostextremeversionofreductionism,inwhichthepropertiesandknowledgeof the low‐level entities are attributed to the high‐level ones, without regard for theirdifferences,treatingthemasthesamething.Theyinsistthattheconceptofmicrofoundationsformacroeconomicshastoberestated inordertodevelopmodelsthatallowustodeducemacroeventsfrommicroeconomicregularities.I argue that thework by Kydland and Prescott (1977, 1982), based on the assumptions thatColanderet.altrytodisqualify,haveprovedinsightsnotonlyonmacroeconomicpolicybutalsoon the theory of business cycles themselves. Kydland and Prescott relied on the findings onLucastosuggestthatgovernmentsarefacedwithacredibilityproblemwhenitcomestofuturepolicyannouncements,andfoundoutthatthosethatfollowdiscretionarypolicy,thatisdonotcommit at any policy in advance, resulted in a lower welfare equilibrium than when thegovernmentcommitted.This finding, in turn ,has led to thedevelopmentofmodels thathaveencouragedgovernmentsinbothdevelopedanddevelopingcountriestograntindependencetotheircentralbanksasthemonetaryauthority,inchargeofmonetarypolicy.Thereforemy claim that theories andmodels canonlybeassessed in the lightof aparticularpurpose,becausethisisanexampleofatheory–andmodelsbasedonit–thataretryingtobedisqualified,withoutregardfortheotherpurposesthatithasserved

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Practicalinformation

RegistrationandinformationThe registration and information desk is located on the ground floor lobby of theUniversityMainBuilding(Fabianinkatu33)onThursday.OnFridayandonSaturdaythedeskwillbelocatedonthe2ndfloor(theFinnish3rdfloor)oftheMainBuildingnexttoconferencerooms6and7.Theregistrationandinformationdeskwillbeonyourserviceon• Thursday15.00–19.30• Friday9.00–19.00• Saturday9.30–19.30Registrationdeskphone:+358407612273(PäiviSeppälä)

ConferencevenueTheconferencevenueislocatedinthecitycentreattheMainBuildingoftheUniversityofHelsinki(Fabianinkatu33).

ConferenceroomsTheparallelsessionswillbeheldinrooms6,7(2ndfloor/theFinnish3rdfloor)and15(2½floor/theFinnish3½floor).Thekeynotelectureswillbeheldinthesmallfestivalhall(3rdfloor/theFinnish4thfloor).If you need technical assistance or encounter technical problems, please contact theconference assistant Ilmari Hirvonen (+358 50 369 27 35) or Päivi Seppälä at theregistrationdesk(+358407612273).Youcanalsocontactthebuildingmanagers+358919122337(groundfloor)or+358919123151(2ndfloor).

InternetTheUniversityWLAN(HUPnet)isfreeofcharge.Youneedausernameandapasswordin order to log in. You can find your temporary username and password in yourconference material envelope. Please keep the username and password savethroughouttheconference.Your laptopshouldautomatically find theUniversityHUPnetwhenyouare inside themainbuilding.Justselectthe“UnivHelsinkiHUPnet”fromthelistofavailablewirelessnetworksandthelogin–pageshouldautomaticallyopen.

102

Thereisacomputerattheregistrationdeskthatconferenceparticipantsmayusewhenneeded.

CopyingandPrintingPleasecontacttheregistrationdesk.

CertificateofattendanceIfyouneedacertificateofattendance,pleasecontacttheregistrationdesk.

LuggageroomYoucanleaveyourluggageattheregistrationdeskonSaturday.Therearealsolockersmeantforbackpacksandsmalleritemsonthegroundfloorandonthe2ndfloorofthemainbuilding.

Lunch&DinnerTherearemanynicerestaurants in thecitycentrenext to themainbuilding. In theserestaurantsyoucanhavebothlunchanddinner:• RestaurantAino,Pohjoisesplandi21• BelgeBar&Bistro,Kluuvikatu5• Sasso,Pohjoisesplanadi17• RestaurantKipinä,Vuorikatu16• Kappeli,Eteläesplanadi1• IlSiciliano,Aleksanterinkatu36YoucanalsohavelunchatPiano,Rauhankatu15.The student restaurant (Unicafe) of themain building is open during the conferencedays (10.30‐16.30). You can find the restaurant on the ground floor of the mainbuilding.ThepriceoftheUnicafelunchis5.65€or6.75€.

CoffeeandrefreshmentsCoffeeandteawillbeservedonFriday(16.00‐16.30)andonSaturday(17.20‐17.45)onthesecondfloorlobbynexttotheconferencerooms.ThereareplentyofcafésaroundtheUniversityarea,forexample:• KarlFazerCafé,Kluuvikatu3• CaféEngel,Aleksanterinkatu26• WaynesCoffee,Aleksanterinkatu11andKaisaniemenkatu3

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• EspressoEdge,Liisankatu29• CoffeeHouse,Mikonkatu9• Robert'sCoffee,Kluuvikatu7TheUniversitycaféonthegroundfloorofthemainbuildingisopenonThursday(8.30‐18.00)andonFriday(8.30‐17.00).

ATMThenearestATMislocatedonAleksanterinkatu30insidetheNordeaBankheadoffice.TheNordea head office is opposite theUniversitymain building onAleksanterinkatu.TherearealsoseveralotherATM’sonAleksanterinkatu.

ShoppingMostdepartmentstoresandshoppingcentersareopenMonday‐Friday9:00‐21:00,onSaturday9:00‐18:00andonSunday12:00‐18:00.

TouristinformationThetourist informationpoint is locatedonPohjoisesplanadi19,ashortwalk fromtheMainBuilding.Seealsowww.visithelsinki.fi.

PoliceandmedicalassistanceIfyouneedtocallthepoliceorneedanambulance,theemergencynumberis:112.

TaxiDial01000700tocallataxi.Taxisareratherexpensivebutsave.Taxisacceptallmajorcreditcards.

PublictransportationinHelsinkiIfyouneedtousebuses,tramsorthemetro,youmightwanttobuyDayTickets.Athreedayticketcosts€14andafivedayticket€21(asingleticketcosts€2,50).DayticketscanbepurchasedfromtheHelsinkiCityTransportoffice(HKL)downstairstheRailwaystation.OpeninghoursareMondaystoThursdays7.30a.m.to6p.m.,Fridays7.30a.m.to5p.m.andSaturdays10a.m.to3p.m.AlsoStockmanndepartmentstoreandR‐Kioskishopsselltickets.You can find information about routes, timetables and prices at the Helsinki JourneyPlanner:www.hsl.fi/en

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Transportationfrom/toairportTheHelsinki‐VantaaAirport is located20kmaway fromthecitycentre.Toget to thecentreyoucanchoosefromthefollowingalternatives:

1) The Finnair bus departs every 20minutes from outside Terminals 1 and 2 and

takesyoutotheRailwaystation.Thetraveltimeis35minutes.Thefareis€6,20.Mostcommoncreditcardsareaccepted.

2)Bus615andbus615Tdepartaboutevery15‐20minutesfromoutsideTerminals1and2and takeyou to theRailwaystation.The travel time isapproximately35minutes.Thefareis€4,00.Onlycashisaccepted.

3)Ataxitothecentrecostsaround€40andtakesabout30minutes.

SocialProgram

Rector’sreceptionIsopenforalltheregisteredconferenceparticipants.ThereceptionwillbeheldintheUniversity Main Building Press Hall (lehtisali) on the 1st floor at 19.30 on Thursday.Therewillbelightsnacksanddrinks.

ConferencedinnerWillbeheldatRestaurantSipuli(address:Kanavaranta7).Thosewhohaveregisteredforthedinnerwillfindtheirdinnerticketintheirconferencematerialenvelope.Pleaseshowyourdinnerticketattherestaurantentrance.A fewdinnerticketsareavailableat theregistrationdeskforthosewhohavenotpre‐registered.Thepriceis35€.Therelativelylowpriceofthedinnerismadepossiblebyamajorsubsidy.

AUTHORINDEX

105

NAME

AFFILIATION/MAIL SESSION

ANANYIN Oleg NationalResearchUniversity,Moscowananyin@hse.ru

Contr.VII:3

ARNOLDI Jacob AarhusSchoolofBusiness,AarhusUniversityjaar@asb.dk

Contr.II:3

AYDINONAT N.Emrah AnkaraUniversity&BogaziciUniversityaydinonat@gmail.com

Contr.V:2

BALLANDONNE Mathieu Universitéd’Angers–GRANEMmatthieu.ballandonne@univ‐angers.fr

Contr.VI:3

BASSO Alessandra LondonSchoolofEconomicsa.basso@lse.ac.uk

Contr.II:2

BOLAND Lawrence SimonFraserUniversityboland@sfu.ca

Contr.V:2

BOUMANS Marcel UniversiteitvanAmsterdamm.j.boumans@uva.nl

Contr.VI:2

BOULU‐RESHEF Beatrice UniversityofLyon&UniversityParisNordbeatrice.boulu@ish‐lyon.cnrs.fr

Contr.VII:1

CAAMANO‐ALEGRE José UniversityofSantiagodeCompostelajose.caamano@usc.es

Contr.V:3

CAAMANO‐ALEGRE Maria UniversityofValladolidmariac@fyl.uva.es

Contr.V:3

CAMERON John ISS,ErasmusUniversityRotterdamcameron@iss.nl

Contr.I:1

CAVAZOS Guillermo UniversidadAutónomaMetropolitanagcavazos99@gmail.com

Contr.II:3

CLAVEAU François EIPE,ErasmusUniversityRotterdamclaveau@fwb.eur.nl

Contr.VII:2

CRESPO Ricardo UniversidadAustralRCrespo@iae.edu.ar

Contr.V:3

CZARNY Boguslaw UniversityofWarsawpodstawyekonomii@gmail.com

Contr.IV:1

DAVIS John UniversityofAmsterdam/Marquettejohn.davis@marquette.edu

Contr.I:2

DeLANGHE Rogier GhentUniversityrogierdelanghe@gmail.com

Contr.VI:3

DesROCHES Tyler UniversityofBritishColumbiatylerdesroches@gmail.com

Contr.V:3

DIECKHOFF Christian KarlsruheInstituteofTechnologychristian.dieckhoff@kit.edu

Contr.VI:2

DÜPPE Till UniversitätHamburgtill.duppe@ucdenver.edu

Contr.III:3

ECKERT Daniel KarlFranzensUniversitätGrazdaniel.eckert@uni‐graz.at

Contr.III:3

EPSTEIN Brian TuftsUniversitybrian.epstein@tufts.edu

Contr.III:1

FUDULU Paul UniversityofBucharestpaulfudulu@yahoo.com

Contr.I:3

FOUGY‐HOUËL Florian Universitéd’Angersflorian.fougy‐houel@orange.fr

Contr.VI:3

GAGNÉ Learry UniversityofAlbertalearry@ualberta.ca

Contr.II:3

AUTHORINDEX

106

GARCÍA‐BERMEJO JuanCarlos

AutonomousUniversityofMadridjuancarlos.gbermejo@uam.es

Contr.IV:1

GARCIADELASIENRA

Adolfo UniversityofVeracruzasienrag@gmail.com

Contr.I:3

GOLD Natalie UniversityofEdinburghnatalie.gold@ed.ac.uk

Contr.IV:2

GRÜNE‐YANOFF Till RoyalInstituteofTechnology,Stockholmtill.grune@helsinki.fi

Contr.II:2

GUALA Francesco UniversityofMilanfrancesco.guala@unimi.it

Contr.IV:2

HAUSMAN DanielM. UniversityofWisconsin­Madisondhausman@wisc.edu

Keynote

HERTSHEN Gil UniversityofCaliforniaSanDiegoghert@ucsd.edu

Contr.V:2

HEILMANN Conrad EIPE,ErasmusUniversityRotterdamheilmann@fwb.eur.nl

Contr.II:2

HOOVER Kevin DukeUniversitykd.hoover@duke.edu

Contr.II:1

JESPERSEN Jesper RoskildeUniversityjesperj@ruc.dk

Contr.III:1

JIMÉNEZBUEDO Maria UNEDmjbuedo@fsof.uned.es

Contr.III:2

JOFFE MichaelImperialCollageLondonm.joffe@imperial.ac.uk

Contr.VII:3

KIRMAN Alan Universitéd’AixMarseillekirman@univmed.fr

Keynote

KUEHNELT Joerg NewYorkUniversityJoerg.kuehnelt@nyu.edu

Contr.IV:1

KUORIKOSKI Jaakko UniversityofHelsinkijaakko.kuorikoski@helsinki.fi

Contr.I:2

LANTERI Alessandro UniversitàdelPiemonteOriantalealelanteri@gmail.com

Contr.I:2

LARA Arturo UniversidadAutónomaMetropolitanaalara@correo.xoc.uam.mx

Contr.II:3

LEHTINEN Aki UniversityofHelsinkiaki.lehtinen@helsinki.fi

Contr.VII:1

LERNER Silvia UniversityofBuenosAiressilviablerner@hotmail.com

Contr.I:2

LINDEMANS JanWillem UniversityofLeuvenjanwillem.lindemans@law.kuleuven.be

Contr.V:1

LO MingChien St.CloudStateUniversitymclo@stcloudstate.edu

Contr.III:1

MÄKI Uskali UniversityofHelsinki,AcademyofFinlanduskali.maki@helsinki.fi

Contr.VI:1

MARCHIONNI Caterina UniversityofHelsinkicaterina.marchionni@helsinki.fi

Contr.IV:3

MARTINI Carlo UniversitätBayreuthcarlo.martini@uni‐bayreuth.de

Contr.VI:2

MEDEMA Steven UniversityofColoradosteven.medema@ucdenver.edu

Keynote

MIRELESFLORES Luis EIPE,ErasmusUniversityRotterdamhyperion@gardener.com

Contr.VII:2

MONETA Alessio MaxPlanckInstituteofEconomicsJenamoneta@econ.mpg.de

Contr.II:1

AUTHORINDEX

107

NAGATSU Michiru UniversityofTartumichiru.nagatsu@ut.ee

Contr.IV:2

PERRATON Jonathan UniversityofSheffieldj.perraton@sheffield.ac.uk

Contr.I:1

PELÁEZ JoséGuillermo

UniversidadAutónomaMetropolitanajgpg@correo.azc.uam.mx

Contr.II:3

PISSARSKOI Eugen KarlsruheInstituteofTechnologyeugen.pissarskoi@kit.edu

Contr.VI:2

RASHID Salim UniversityofIllinoissrashid@illinois.edu

Contr.I:3

ROSS Don UniversityofAlabama,UniversityofCapeTowndon.ross@uct.ac.za

Contr.V:1

RUSSO Federica UniversityofKentf.russo@kent.ac.uk

Contr.II:1

RUZZENE Attilia EIPE,ErasmusUniversityRotterdamattilia.ruzzene@gmail.com

Contr.III:2

SALANTI Andrea UniversityofBergamoandrea.salanti@unibg.it

Contr.VI:1

SAPPINEN Jorma LappeenrantaUniversityofTechnologyjorma.sappinen@lut.fi

Contr.VII:1

SIEGMANN KarinAstrid

ISS,ErasmusUniversityRotterdamsiegmann@iss.nl

Contr.I:1

SPANOS Aris VirginiaTecharis@vt.edu

Contr.II:1

STASCHEIT AndreasGeorg

InstituteforAdvancedStudyintheHumanities(KWI),Essenandreas.stascheit@udo.edu

Contr.III:3

SVETLOVA Ekaterina KarlshochchuleInternationalUniversityestlova@karlshochschule.de

Contr.II:3

TEIRA David UNEDdteira@fsof.uned.es

Contr.III:2

THALOS Mariam UniversityofUtahm.thalos@gmail.com

Contr.IV:3

TURNER Bradley UniversityofChicago,UniversityofHelsinkibrturner@uchicago.edu

Contr.IV:3

VanASSCHE Kristof St.CloudStateUniversitykvanassche@stcloudstate.edu

Contr.III:1

VERGARAFERNÁNDEZ

Melissa EIPE,ErasmusUniversityRotterdammelissavergara@gmail.com

Contr.VII:3

VROMEN Jack EIPE,ErasmusUniversityRotterdamvromen@fwb.eur.nl

Contr.V:1

YLIKOSKI Petri UniversityofHelsinkipetri.ylikoski@helsinki.fi

Contr.V:2

ZAMORA‐BONILLA Jesús UNEDjpzb@fsof.uned.es

Contr.III:2