A comment on ‘the extraordinary claim of praxeology’ by Professor Gutiérrez

Ludvig von Mises and the Austrian School of Praxeological Economics do make a claim that can only be considered extraordinary, considering the type of methodology that now pervades our social science Establishment. And the claim is that there is economic knowledge that can be both known with apodictic certainty, and be of great usefulness in understanding the world in which we live. Prof. Gutiérrez, defending the accepted view that knowledge can either be known with apodictic certainty, or have usefulness for understanding the real world, but not both, attacks praxeological allegations to the contrary, and is in turn, criticized by the author. Under contention are the status of the a priori nature of the category of human action, the basic premise of praxeology, as well as several other claims:

1. Human action can only be undertaken by individual actors
2. Action necessarily requires a desired end and a technological plan
3. Human action necessarily aims at improving the future
4. Human action necessarily involves a choice among competing ends
5. All means are necessarily scarce
6. The actor must rank his alternative ends
7. Choices continually change, both because of changed ends as well as means
8. Labor power and nature logically predate, and were used to form, capital
9. Technological knowledge is a factor of production

This exchange involves not so much specific disagreements between Gutiérrez and the author as it does the different world views of two competing philosophies of social science. To put it in its historical perspective, what we have here can be characterized as evolving from the debates concerning the possibility of synthetic a priori statements, first raised by Immanuel Kant and David Hume, but applied to the conceptual foundations of modern economics.     

Making social trade-offs among lives,disabilities, and cost

Applying cost/benefit techniques to issues of life and death generally requires a single index, comparable to gross domestic product, describing the welfare of any community in terms of the health, quality of life, wealth, and longevity of its population. While such indices, based on economic and multiattribute utility theory, do exist, they generally require detailed information on the preferences of the affected individuals. Since gathering such detailed information is often prohibitively expensive and time-consuming, this article derives a simpler index of community welfare. Our index evaluates any proposed government project using a weighted geometric average of the project's anticipated impact on

?per capita wealth less the weighted proportion of individuals with various disabilities, and

?per capita life expectancy adjusted to discount future years of life.

Since the criterion measures the overall utility of society, it can also be used to compare quality of life in various countries.     

Harsanyi’s critical rule utilitarianism

In his recent book,Rational Behaviour and Bargaining Equilibrium In Games and Social Situations, John C. Harsanyi devotes a chapter to his new theory of morality, which he calls ‘Critical Rule Utilitarianism’, and which contains his solution to the problem of the interpersonal comparison of utility. After a detailed exposition of his theory, arguments will be presented to show that:

1. there are certain formal difficulties in the solution that he offers which leads to a rejection of the axiom that there is to be agreement between an individualj’s personal preferences and individuali’s (i ≠j) extended utility function out of which the social welfare function is to be constructed; and
2. Harsanyi’s theory of critical rule utilitarianism cannot be accepted as a theory of morality because it presupposes a more fundamental theory in its actual construction.

     

Are game theoretic concepts suitable negotiation support tools? From Nash equilibrium refinements toward a cognitive concept of rationality

If game theory is to be used as a negotiation support tool, it should be able to provide unambiguous recommendations for a target to aim at and for actions to reach this target. This need cannot be satisfied with the Nash equilibrium concept, based on the standard instrumental concept of rationality. These equilibria, as is well known, are generally multiple in a game. The concept of substantive or instrumental rationality has proved to be so pregnant, however, that researchers, instead of re-evaluating its use in game theory, have simply tried to design concepts related to the Nash equilibrium, but with the property of being unique in a game — i.e., they have devised ways ofselecting among Nash equilibria. These concepts have been labeledrefined Nash equilibria. The purpose of this paper is to show the following.

1. The different types of refined Nash equilibria, based on the principle of backward induction, can lead to severe contradictions within the framework itself. This makes these concepts utterly unsatisfactory and calls for a new appraisal of the reasoning process of the players.
2. The degree of confidence in the principle of backward induction depends upon the evaluation of potential deviations with respect to the extended Nash equilibrium concept used and upon the possible interpretations of such deviations by the different players. Our goal is to show that the nature of these possible interpretations reinforces the argument that a serious conceptual reappraisal is necessary.
3. Some form of forward induction should then become the real yardstick of rationality, extending Simonianprocedural rationality towards the concept ofcognitive rationality. This could open the way to a renewed game theoretic approach to negotiation support systems. Such a research program, which would be a revision of the basic game theoretic concepts, is dealt with in the end of the paper.

     

The ABACON Chart—A visual aid to benefit assessment

Describes a tool for assessing the comparative benefits of alternative policies or systems in terms of their likely effects on the objectives of the organization, as seen by different interest groups. For each group a separate proforma chart is completed :

• 1.1. Up to eight goals are listed vertically in order of importance to that group (most important at top);
• 2.2. Separate horizontal scales are provided for each goal, calibrated either numerically or verbally as appropriate, with current values central and desired targets to the right.
• 3.3. Values forecast for alternative policy options are marked, and comparative utilities are estimated, bearing in mind that forecasts in the upper right part of the chart are most desirable for that group.

Comparison of the charts for different groups allows potential conflicts to be identified at an early stage, so that some compensating action can be taken to benefit groups in danger of being adversely affected by proposed changes.Examples of completed charts are given for two interest groups, based on an actual exercise in participative forward planning.     

Additive representation of separable preferences over infinite products

Let \(\mathcal{X }\) be a set of outcomes, and let \(\mathcal{I }\) be an infinite indexing set. This paper shows that any separable, permutation-invariant preference order \((\succcurlyeq )\) on \(\mathcal{X }^\mathcal{I }\) admits an additive representation. That is: there exists a linearly ordered abelian group \(\mathcal{R }\) and a ‘utility function’ \(u:\mathcal{X }{{\longrightarrow }}\mathcal{R }\) such that, for any \(\mathbf{x},\mathbf{y}\in \mathcal{X }^\mathcal{I }\) which differ in only finitely many coordinates, we have \(\mathbf{x}\succcurlyeq \mathbf{y}\) if and only if \(\sum _{i\in \mathcal{I }} \left[u(x_i)-u(y_i)\right]\ge 0\) . Importantly, and unlike almost all previous work on additive representations, this result does not require any Archimedean or continuity condition. If \((\succcurlyeq )\) also satisfies a weak continuity condition, then the paper shows that, for any \(\mathbf{x},\mathbf{y}\in \mathcal{X }^\mathcal{I }\) , we have \(\mathbf{x}\succcurlyeq \mathbf{y}\) if and only if \({}^*\!\sum _{i\in \mathcal{I }} u(x_i)\ge {}^*\!\sum _{i\in \mathcal{I }}u(y_i)\) . Here, \({}^*\!\sum _{i\in \mathcal{I }} u(x_i)\) represents a nonstandard sum, taking values in a linearly ordered abelian group \({}^*\!\mathcal{R }\) , which is an ultrapower extension of \(\mathcal{R }\) . The paper also discusses several applications of these results, including infinite-horizon intertemporal choice, choice under uncertainty, variable-population social choice and games with infinite strategy spaces.     

On recursive solutions to simple allocation problems

We propose and axiomatically analyze a class of rational solutions to simple allocation problems where a policy-maker allocates an endowment $E$ among $n$ agents described by a characteristic vector c. We propose a class of recursive rules which mimic a decision process where the policy-maker initially starts with a reference allocation of $E$ in mind and then uses the data of the problem to recursively adjust his previous allocation decisions. We show that recursive rules uniquely satisfy rationality, c-continuity, and other-c monotonicity. We also show that a well-known member of this class, the Equal Gains rule, uniquely satisfies rationality, c-continuity, and equal treatment of equals.     

Randomized dictatorship and the Kalai–Smorodinsky bargaining solution

“Randomized dictatorship,” one of the simplest ways to solve bargaining situations, works as follows: a fair coin toss determines the “dictator”—the player to be given his first-best payoff. The two major bargaining solutions, that of Nash (Econometrica 18:155–162, 1950) and that of Kalai and Smorodinsky (Econometrica, 43:513–518, 1975), Pareto-dominate this process (in the ex ante sense). However, whereas the existing literature offers axiomatizations of the Nash solution in which this ex ante domination plays a central role (Moulin, Le choix social utilitariste, Ecole Polytechnique Discussion Paper, 1983 ; de Clippel, Social Choice and Welfare, 29:201–210, 2007), it does not provide an analogous result for Kalai–Smorodinsky. This paper fills in this gap: a characterization of the latter is obtained by combining the aforementioned domination with three additional axioms: Pareto optimality, individual monotonicity, and a weakened version of the Perles–Maschler (International Journal of Game Theory, 10:163–193, 1981) super additivity axiom.     

Risk behavior for gain,loss, and mixed prospects

This study extends experimental tests of (cumulative) prospect theory (PT) over prospects with more than three outcomes and tests second-order stochastic dominance principles (Levy and Levy, Management Science 48:1334–1349, 2002; Baucells and Heukamp, Management Science 52:1409–1423, 2006). It considers choice behavior of people facing prospects of three different types: gain prospects (losing is not possible), loss prospects (gaining is not possible), and mixed prospects (both gaining and losing are possible). The data supports the distinction of risk behavior into these three categories of prospects, Further, probability weighting and diminishing sensitivity of utility as predicted by PT are observed. Loss aversion is, however, less pronounced, except for choices where one prospect is degenerate. The data suggests that the probability of losing may be relevant for loss aversion.     

Recall searching with and without recall

We revisit the sequential search problem by Hey (J Econ Behav Organ 8:137–144, 1987). In a 2 \(\times \) 2 factorial design, varying fixed and random cost treatments with and without recall, we address open research questions that were originally stated by Hey (1987). Our results provide clear evidence for Hey’s (1987) conjecture that recall negatively affects performance in sequential search. With experience, however, search behavior with and without recall converges toward the optimal reservation rule. We further find that the utilization of optimal reservation rules is independent from the stochastic nature of the search cost.     

The influence of fear in decisions: Experimental evidence

This article studies decisions made under conditions of fear, when a catastrophic outcome is introduced in a lottery. It reports on experimental results and seeks to compare the predictions of the expected utility (EU) framework with those of a new axiomatic treatment of choice under uncertainty that takes explicit account of emotions such as fear (Chichilnisky 1996, 2000, 2002, 2009). Results provide evidence that fear influences the cognitive process of decision-making by leading some subjects to focus excessively on catastrophic events. Such heterogeneity in subjects’ behavior, while not consistent with EU-based functions, is fully consistent with the new type of utility function implied by the new axioms.     

Liberal–conservative self-identification in Korea: a cross-cultural explanation

Two sets of explanations for the liberal–conservative political orientation developed and tested in the U.S. were compared and tested with Korean data. The two sets of explanations are (1) Moral Foundations Theory that states that liberals and conservatives have different moral intuitions (Haidt and Graham, Soc Justice Res 20:98–116, 2007) and (2) a theory that cognitive needs to manage uncertainty and threat are the main factors behind the political orientation (Jost et al., Psychol Bull 129:339–375, 2003). These two sets of explanation for political orientation were tested and supported empirically in the U.S. The Korean data showed clear support for the Moral Foundations Theory. Compared to conservatives, liberals in South Korea agreed more with individual oriented moral statements and less with community oriented moral statements. The data showed weak support for the uncertainty and threat explanation in that conservatives showed higher level of intolerance to ambiguity and higher level of death anxiety, but the correlations are weak. Implications of these findings were discussed.     

Prudence and extensionality in theories of preference and value

Luce's axiom governing probabilities of choice is formulated as a principle governing metalinguistic probabilities. IfX, Y, W are sets of options, and δ(X), δ(Y), δ(W) are sentences asserting that choice is made from these sets, then the axiom is $$\begin{gathered} If \pi [\delta (X)] \ne 0 and \pi [\delta (X \cap Y)] \ne 0, then \hfill \\ \pi _{\delta (X)} [\delta (Y \cap W)] = \pi _{\delta (X \cap Y)} [\delta (W)]\pi _{\delta (X)} [\delta (Y)] \hfill \\ \end{gathered} $$ where π is a probability on sentences. The axiom is then entailed by extensionality of the probability π in company with a simple condition on probabilities of truth-functions. Conditions are also given under which the probability π is uniquely represented by a probability on the sets of options. What look to be logical constraints on the metalanguage entail a normative or prudential constraint. Debreu's well-known counterinstance to the axiom as a principle governing probability of choice is examined and a novel and consistent interpretation of the axiom is proposed.     

Implementing equal division with an ultimatum threat

We modify the payment rule of the standard divide the dollar (DD) game by introducing a second stage and thereby resolve the multiplicity problem and implement equal division of the dollar in equilibrium. In the standard DD game, if the sum of players’ demands is less than or equal to a dollar, each player receives what he demanded; if the sum of demands is greater than a dollar, all players receive zero. We modify this second part, which involves a harsh punishment. In the modified game \((D\!D^{\prime })\) , if the demands are incompatible, then players have one more chance. In particular, they play an ultimatum game to avoid the excess. In the two-player version of this game, there is a unique subgame perfect Nash equilibrium in which players demand (and receive) an equal share of the dollar. We also provide an \(n\) -player extension of our mechanism. Finally, the mechanism we propose eliminates not only all pure strategy equilibria involving unequal divisions of the dollar, but also all equilibria where players mix over different demands in the first stage.     

A geometric approach to revealed preference via Hamiltonian cycles

It is shown that a fundamental question of revealed preference theory, namely whether the weak axiom of revealed preference (WARP) implies the strong axiom of revealed preference (SARP), can be reduced to a Hamiltonian cycle problem: A set of bundles allows a preference cycle of irreducible length if and only if the convex monotonic hull of these bundles admits a Hamiltonian cycle. This leads to a new proof to show that preference cycles can be of arbitrary length for more than two but not for two commodities. For this, it is shown that a set of bundles satisfying the given condition exists if and only if the dimension of the commodity space is at least three. Preference cycles can be constructed by embedding a cyclic $(L-1)$ -polytope into a facet of a convex monotonic hull in $L$ -space, because cyclic polytopes always admit Hamiltonian cycles. An immediate corollary is that WARP only implies SARP for two commodities. The proof is intuitively appealing as this gives a geometric interpretation of preference cycles.     

Stability of risk preference measures: results from a field experiment on French farmers

We compare two different elicitation methods for measuring risk attitudes on a sample of French farmers. We consider the lottery tasks initially proposed by Holt and Laury (Econ Rev 92:1644?C1655, 2002) and by Eckel and Grossman (Evol Hum Behav 23:281?C295, 2002; J Econ Behav Org 68:1?C7, 2008). The main empirical result from this within-subject study is that risk preference measures are affected by the type of mechanism used. We first show that this risk preference instability can be related to non-expected utility preferences of farmers. Using a risk-taking psychometric questionnaire, we then demonstrate that risk preferences of farmers are context-dependent. This may be another explanation of the observed risk preference instability.     

Eliciting decision weights by adapting de Finetti’s betting-odds method to prospect theory

This paper extends de Finetti’s betting-odds method for assessing subjective beliefs to ambiguous events. Thus, a tractable manner for measuring decision weights under ambiguity is obtained. De Finetti’s method is so transparent that decision makers can evaluate the relevant tradeoffs in complex situations. The resulting data can easily be analyzed, using nonparametric techniques. Our extension is implemented in an experiment on predicting next-day’s performance of the Dow Jones and Nikkei stock indexes, where we test the existence and nature of rank dependence, finding usual patterns. We also find violations of rank dependence.

Intertemporal utility smoothing under uncertainty

This paper axiomatizes a recursive utility model that captures both intertemporal utility smoothing defined across time and ambiguity aversion defined over states. The resulting representation adapts Wakai (Econometrica 76:137–153, 2008) model of intertemporal utility smoothing as an aggregator function, where the utility of the certainty equivalent of future uncertainty is computed by Gilboa and Schmeidler (J Math Econ 18:141–153, 1989) multiple-priors utility. The model also permits the separation of intertemporal utility smoothing from ambiguity aversion.     

Applying the ICF‐CY to identify children's everyday life situations: A step towards participation‐focused code sets

Adolfsson M. Applying the ICF‐CY to identify children's everyday life situations: a step towards participation‐focused code sets With the long‐term goal to create an interdisciplinary screening tool with code sets focusing on children's participation in everyday life situations (ELS), the purpose of the present study was to identify ELS for children 0–17 years. The views of professionals and parents in Sweden, South Africa and the USA were integrated based on ICF‐CY ¹ 1 The WHO International Classification of Functioning, Disability and Health, version for Children and Youth.
linkages. The chapters Self‐care and Major life areas seemed most obvious to include in ELS. At the 2nd ICF‐CY level, 11 categories emerged as ELS, with Hygiene and Recreation as the most obvious. Two sets of ELS were identified for infants/preschoolers and school‐aged children/adolescents. Professionals and parents agreed on ELS for the older age group. Findings suggest that ELS differ in context specificity depending on maturity and growing autonomy. The study has implications for the future screening tool that is intended to support children with disabilities in describing what matters most to them in intervention planning. Key Practitioner Message: ?Children and parents need opportunities to express their opinions during intervention processes, but a structured family–professional collaboration model is lacking; ?Using ICF‐CY‐based models, including holistic views of participation in everyday life situations, increases professionals' focus on family perspectives; ?Models to connect interventions to participation in everyday life situations enhance children's motivation and support interdisciplinary assessment.