Economics

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Read: Experiments in Ethics

Experimental philosophy is not as young an academic field as it might seem. Not only do I know philosophers that already relied on (economic) experiments far longer than wikipedia dates the birth of the field, Appiah quite correctly points to a number of ancient and classical philosophers who relied on empirical research. And he points to a number of empirical scientist in psychology, sociology, and economics who without hesitation can be classified as philosophers as well. Indeed, I am quite convinced that all these academic disciplines not only share some of their objectives but have a substantial overlap.

Appiah’s Experiments in Ethics is a remarkable historical and methodological account of morality from the philosopher’s perspective. He offers a balanced view, he never sugarcoats problems with the philosophical methodology and does not shy away from picking to pieces what he thinks is a futile exercise in thought experiments. He advocates a joint approach of the different disciplines to “sustain what’s good in our lives.” He never entertains the illusion that there is a simple answer. In contrast, he candidly admits the complexity of research on morality, what constitutes goodness.

Even though the book – as seems typical for a philosophical treatise – poses more questions than it offers answers I rather enjoyed reading it…

In the end, one of the most important insights that Appiah is offering his readers is in my opinion: “In life, the challenge is not so much to figure out how best to play the game; the challenge is to figure out what game you’re playing.”

Read: Mostly Harmless Econometrics

Reading statistics or econometrics textbooks cover to cover is certainly not something any “normal” person would do. So, I am not normal. And so ain’t Mostly Harmless Econometrics by Angrist and Pischke.

You cannot learn econometrics just by reading this book, you would need another textbook for the basic econometric theory. Yet, MHE offers something often not found in your standard textbook: an applied perspective. It addresses issues that may arise from empirical work in labor and micro-economics focusing on identification of causal effects, illustrating the methods and pitfalls using empirical field studies that either rely on natural experiments (happenstance data) or field experiments.

Their brief chapter on nonstandard (i. e. nonstandard according to the theoretical ideal, the real world looks different) standard errors is, for instance, astonishingly accessible and almost makes me revise my standpoint on modelling the error structure (using multilevel designs) vs adjusting standard errors.

I do not know whether science geeks are still attracted by Adams’ Hitchhiker’s Guide to the Galaxy. Angrist and Pischke, sure, are. Not only is the title of their textbook an obvious reference to Adams’ work, they start every chapter with a little Adams quote. Something I did, too, when I was still in graduate school. This gives their book a slightly brighter, less earnest tone. All in all, it is certainly not as dry as many other econometrics textbooks.

As an additional added value, Angrist and Pischke set up a companion website to their companion where they post corrections (there are already quite a number of erratas) and comments to MHE.

Read: Reason and Rationality

Jon Elster’s inaugural lecture at the College de France is an instructive essay on reason, emotions and their link to rationality. In contrast to most of his other books that are quite heavy tomes (in volume and content), Reason and Rationality is a nice little book that really invites the reader to open it.

I wonder whether his presentation was as well delivered as this little book was written. Maybe I will finally dare to start reading his other contributions that are waiting on my book shelf – some already for several years.

Read: Morals and Markets - An Evolutionary Account of the Modern World

Dan Friedman’s Morals and Markets is a nice complement to the multidisciplinary collection Moral Markets that I read earlier. Friedman provides an historical account of the interdependence of well functioning markets and moral sentiments and thus an evolutionary perspective that is not limited to economics as he also discusses the respective impact on societal structures and vice versa.

Friedman offers a rather balanced discussion of the benefits and perils of a moral society, when markets need morals and when markets are choked by them. Solely the joint discussion of terrorist and religious groups may seem a bit controversial.

Morals and Markets is not an academic textbook. It tells a coherent story by a sequence of (true) anecdotes that is easily accessible to anyone. In fact, it is quite entertaining while still being instructive.

In the end, Friedman argues convincingly that the major challenge will be to realign morals and markets such that they work together and thus help to improve our society.

Read: Moral Markets

Is economics an amoral science? No, though sometimes it seems so. Look at what is taught at most business schools and economics departments and you might certainly get this impression. Indeed, the focus on the rational decision maker – a rather selfish sociopath – in most curricula in business, law and economics may be a cause for the rather unscrupulous behavior that can be observed in the current business world: Greed is good.

The world is not amoral. Even markets are not. Successful economic exchange without trust, reciprocity, honesty and some sense of fairness seems hardly possible. At least if you listen to the diverse team of authors of Moral Markets. And I tend to agree.

Moral Markets is the result of several years of collaborative research and discussion (the list of contributors is rather impressive). It reviews the critical role of social norms in the economy from a diverse set of fields and points of view. The discussion ranges from biology, the animal world and evolutionary arguments to philosophical questions (and answers) and an analysis of our current perception of the economy to the interdependence of social norms and law and of course (economic) behavior. The main message is clear. Without a social conscience we would not be as successful as we were so far. And it is unlikely that we will keep up the pace if we forget the importance of social norms, values and virtues.

Read: Rational Decisions

Ken Binmore’s Rational Decisions is not quite what I expected when I first read just the title. It is, however, something you should very much expect from Ken Binmore. He is an excellent Game Theorist. And even though he eyes current experimental economics rather critically, i. e. he is just more skeptical about some of the claims your standard experimental economists (or are these rather behavioral economists?) are willing to make, his research is very much based on empirical findings, experiments and the boundedness of human capabilities and facilities.

Rational Decisions is about Bayesian Decision Theory. It is about where it can apply and where not. Bayesian Decision Theory It is useful in Games, in situation in which everything is known up to an exactly quantified level of risk. It is utterly “ridiculous” if the decision maker instead is confronted with uncertainty as is the case in the real world where most events do not have a unique objective probability.

Rational Decisions is, therefore, about filling the gap between Decision Making under risk and Decision Making under uncertainty. In my opinion, it is ultimately about an instance of Bounded Rationality.

Binmore gives a comprehensive overview of the standard economic model of decision making and its limitations. He explores the foundations of this model, reviews the historical context and clarifies how Economic Theory has to be interpreted, that current Economic Theory (i. e. the concept of revealed preferences and utility) is not concerned with psychological motives at all.

His writing is witty and opinionated, yet, succinct and clear. Though, sometimes the math made me think twice… All in all, Rational Decisions is a very enlightening experience.

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