Lecture Notes for Ethics & Economics
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Utility, Ethics and Behavior
Journal of Academic and Business Ethics Utility, ethics and behavior Marcela Parada-Contzen Universidad de Concepcion-Chile Jose R. Parada-Daza Universidad de Concepcion-Chile ABSTRACT This essay has the following hypothesis as its foundation: a new function taking a more global perspective can be developed based on the analytical economic conception of utility. However, this new hypothesis/perspective considers that individuals are driven to act by economic as well as social, religious, ethical, and other reasons. Thus, the crux of this exposition is an analysis of the concept of utility and its application towards daily acts. The essay also deals with the philosophical aspects of utility and its paradoxes and analyzes utility from the perspective of a biological being. This analysis is broader and includes the simultaneous actions of an economic human and a complex human. Keyword: Utility function, Emotional well-being, wealth, ethics, “homo economicus”, weights. Utility, ethics and behavior, Page 1 Journal of Academic and Business Ethics INTRODUCTION The study of what motivates individual acts, especially regarding economic decisions, offers an intellectual challenge for the human sciences. In economics, this matter has been studied using a methodology of normative analysis known as the utility function, in which people seek to obtain the maximum degree of satisfaction. Herein, utility is what each person obtains from a certain level of wealth or consumption. For those not instructed in economics, this idea creates distrust and is blamed for generating a society of individualistic and insatiable beings. Grounds for both supporting and distrusting this approach have been given. The utility function is an intellectual device for explaining personal economic behavior. -
Utility and Happiness in a Prosperous Society
Utility and Happiness in a Prosperous Society Yoram Kirsh1,2 1 Institute for Policy Analysis, The Open University of Israel 2 Department of Natural Sciences, The Open University of Israel Version: March 30, 2017 Keywords: Prosperous society, Utility, Happiness economics JEL Classification: D63, D64, I31 This article is scheduled to be a chapter in a book on the economics of the prosperous society. My claim is that there is a gap between economic theory and economic reality in the western world, since economics was traditionally established to deal with conditions of scarcity. As many of our current problems are associated with abundance rather than with scarcity, new tools are needed to tackle the modern dilemmas. For a definition of a prosperous society, please see the previous chapter (Unemployment and Job Creation in a Prosperous Economy). I would be grateful for any suggestion or comment. OUI – Institute for Policy Analysis Working paper series, No. 37 – 2017 * P AuthorPU contact details: ProfessorU (Emeritus) Yoram Kirsh, Department of Natural Sciences, The Open University of Israel, 1 University Rd., P.O.B. 808, Ra'anana 43107, Israel. Cell Phone:. 972-532-209726, For correspondence– yoramk2TU @openu.ac.il U2T 2 Abstract Some examples of human behavior which seem paradoxical or irrational in view of the utility maximization principle can be explained as rational if we distinguish between two types of utility. The first type is the conventional utility – cardinal or ordinal – which the rational economic actors are expected to maximize. The second type is connected to actions which fulfill some psychological needs and might appear irrational by cost- effective calculations. -
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Journal of Risk and Financial Management Article The Standard Model of Rational Risky Decision-Making Kazem Falahati Glasgow School for Business and Society, Glasgow Caledonian University, 70 Cowcaddens Road, Glasgow G4 0BA, UK; [email protected]; Tel.: +44-141-331-3708 Abstract: Expected utility theory (EUT) is currently the standard framework which formally defines rational decision-making under risky conditions. EUT uses a theoretical device called von Neumann– Morgenstern utility function, where concepts of function and random variable are employed in their pre-set-theoretic senses. Any von Neumann–Morgenstern utility function thus derived is claimed to transform a non-degenerate random variable into its certainty equivalent. However, there can be no certainty equivalent for a non-degenerate random variable by the set-theoretic definition of a random variable, whilst the continuity axiom of EUT implies the existence of such a certainty equivalent. This paper also demonstrates that rational behaviour under utility theory is incompatible with scarcity of resources, making behaviour consistent with EUT irrational and justifying persistent external inconsistencies of EUT. A brief description of a new paradigm which can resolve the problems of the standard paradigm is presented. These include resolutions of such anomalies as instant endowment effect, asymmetric valuation of gains and losses, intransitivity of preferences, profit puzzle as well as the St. Petersburg paradox. Keywords: decision-making; rationality; risk; expected utility; behavioural puzzles MSC Codes: 62Cxx; 90B50; 91A26; 91B02; 91B06; 91B16; 91B30 Citation: Falahati, Kazem. 2021. The JEL Codes: C00; D01; D81 Standard Model of Rational Risky Decision-Making. Journal of Risk and Financial Management 14: 158. -
A Sticky-Price View of Hoarding ∗
A Sticky-Price View of Hoarding ∗ Christopher Hansman Harrison Hong Aureo de Paula Imperial College London Columbia University University College London Vishal Singh New York University November 8, 2018 Abstract Governments worry that household hoarding of staple foods during times of high prices destabilizes com- modity markets. The conventional view has hoarding—due to consumer precaution or panic—amplifying supply shocks and creating shortages. Using U.S. store-scanner data during the 2008 Global Rice Crisis, we reject this narrative. Areas with rice-eating populations had more hoarding but no difference in store price dynamics or stockouts. We find support instead for a reverse-causal channel, whereby sticky store prices lead to hoarding. Anticipating higher prices, rice-eating households bought rice from slow-to-adjust stores that implicitly offered promotions. Policy implications differ across these two views. ∗This paper was previously circulated as "Hoard Behavior and Commodity Bubbles". We thank seminar participants at INSEAD, Aalto, Peking University, Warwick University, Cambridge University, NBER Universities Conference on Commodities, HKUST, New York University, PUC-Rio and Yale University for helpful comments. We are also grateful to Emi Nakamura, Hassan Afrousi, Michael Woodford, William Goetzmann, Hank Bessembinder, Manuel Arellano, Orazio Attanasio, Richard Blundell, Marcelo Fernandes, Bo Honoré, Guy Laroque, Valerie Lechene and Elie Tamer for useful conversations. de Paula gratefully acknowledges financial support from the European Research Council through Starting Grant 338187 and the Economic and Social Research Council through the ESRC Centre for Microdata Methods and Practice grant RES-589-28-0001. 1 Introduction Household hoarding of staple foods—defined as the accumulation of inventories during times of high prices—has long been a concern of governments, particularly in developing countries. -
U.S. and European Authorities Actively Pursue COVID-19 Price Gouging Violations
U.S. and European authorities actively pursue COVID-19 price gouging violations 20 April 2020 The COVID-19 crisis has led to increased scrutiny of pricing decisions by competition and consumer protection authorities around the world. Already, we have seen a rise in state, federal, and international enforcement efforts in response to rapidly increasing complaints of price gouging activity related to products that are in high demand or designated as essential by statute or executive action as a result of the crisis. In light of this, companies should be aware of several aspects of price gouging laws and recent enforcement activity: First, normal supply and demand rules may not apply during a crisis – that is, sellers who normally respond to increased demand by increasing prices may violate state price gouging laws which prohibit price increases over a certain amount during emergencies. Second, online marketplaces (i.e., platforms) are also facing scrutiny from state and federal regulators for allowing sellers to price gouge on their sites. Whether online marketplaces can be held liable for the pricing practices of their users will likely vary based on state law, the potential application of certain defenses, and the characteristics of the specific platform. Third, price gouging laws and enforcement priorities vary state-by-state and country-by- country. A single pricing decision may be lawful in one jurisdiction but unlawful in another. Fourth, responses to price gouging during this pandemic are still evolving. Some jurisdictions have taken executive and legislative actions to bolster their existing price gouging laws to allow for a more targeted response to the COVID-19 crisis, and more are sure to follow. -
Updating Rules for Non-Bayesian Preferences
Updating Rules for Non-Bayesian Preferences. Tan Wang∗ December, 1999 Abstract We axiomatize updating rules for preferences that are not necessarily in the expected utility class. Two sets of results are presented. The first is the axiomatization and representation of conditional preferences. The second consists of the axiomatization of three updating rules: the traditional Bayesian rule, the Dempster-Shafer rule, and the generalized Bayesian rule. The last rule can be regarded as the updating rule for the multi-prior expected utility (Gilboa and Schmeidler (1989)). The operational merit of it is that it is equivalent to updating each prior by the traditional Bayesian rule. ∗Tan Wang is with the Faculty of Commerce and Business Administration, University of British Columbia, Van- couver, British Columbia, Canada, V6T 1Z2. [email protected]. The author is grateful to the Social Sciences and Humanities Research Council of Canada for financial support. 1 Introduction The traditional approach to updating is the Bayesian rule. This approach is justified by the ax- iomatic treatment of Savage (1954), where it is shown that, in situations of uncertainty, if a decision maker’s preference satisfies a certain set of axioms, his preference can be represented by an expected utility with respect to a subjective probability measure and that probability measure represents the decision maker’s belief about the likelihood of events. Moreover, in light of new information, the decision maker updates his belief according the Bayesian rule. This Savage paradigm has been the foundation of much of the economic theories under uncertainty. At the same time, however, the Savage paradigm has been challenged by behavior exhibited in Ellsberg paradox (Ellsberg (1961)), which seems to question the very notion of representing a decision maker’s belief by a probability measure and hence by implication the validity of the Bayesian rule. -
Gov. Brown Extends Ban on Price-Gouging to Six Months October 25
Item 6,a.(1) CALIFORNIA APARTMENT ASSOCIATION Gov. Brown extends ban on price-gouging to six months October 25. 2017 Of RENT INCREASES LIMITED TO 10 PERCENT Under an executive order by Gov. Jerry Brown, protections against price-gouging in the wake of the North Bay fires — including rent increases over 10 percent — will be in effect until at least April of next year. The ban on price gouging, which originally had a 30-day time limit, is now in effect until April 18, 2018. ONLINE RESOURCES • CAA Wildfire Resource Center » • New! Industry Insight: Anti-Price Gouging Laws - States of Emergency • Attorney General’s Office:FAQs on Price Gouging The state’s anti-price gouging law went into effect earlier this month after the president and governor issued a state of emergency in California. These protections prohibit raising the price of many consumer goods and services, including that of rental housing, by more than 10 percent after an emergency has been declared. Protections under California’s anti-price-gouging law are not restricted to the city or county where the disaster occurred. The aim is to prevent price gouging anywhere in the state with an increased consumer demand resulting from the declared emergency. State or local officials can extend disaster declarations for additional 30-day periods after the initial declaration expires. Because the price-gouging law does not set clear parameters for determining where the price controls apply, rent increases exceeding 10 percent — anywhere in California — may constitute price gouging while the declaration is in effect. Members who are unsure whether the price CALIFORNIA APARTMENT ASSOCIATION controls apply to their property should seek the advice of an attorney before implementing any increase of more than 10 percent. -
Climate Change, Consequentialism, and the Road Ahead
Chicago Journal of International Law Volume 13 Number 2 Article 8 1-1-2013 Climate Change, Consequentialism, and the Road Ahead Dale Jamieson Follow this and additional works at: https://chicagounbound.uchicago.edu/cjil Recommended Citation Jamieson, Dale (2013) "Climate Change, Consequentialism, and the Road Ahead," Chicago Journal of International Law: Vol. 13: No. 2, Article 8. Available at: https://chicagounbound.uchicago.edu/cjil/vol13/iss2/8 This Article is brought to you for free and open access by Chicago Unbound. It has been accepted for inclusion in Chicago Journal of International Law by an authorized editor of Chicago Unbound. For more information, please contact [email protected]. Climate Change, Consequentialism, and the Road Ahead Dale Jamieson* Abstract In this paperI tell the stoy of the evolution of the climate change regime, locating its origins in "the dream of Rio," which supposed that the nations of the world would join in addressing the interlocking crises of environment and development. I describe the failure at Copenhagen and then go on to discuss the "reboot" of the climate negoiations advocated by Eric A. Posner and David Weisbach. I bring out some ambiguides in their notion of InternationalPareianism, which is supposed to effectively limit the influence of moral ideals in internationalaffairs, and pose a dilemma. I go on to discuss the foundations of their views regarding climate justice, arguing that the most reasonable understandings of their favored theoretical views would not lead to some of their conclusions. Finaly, I return to the climate regime, and make some observations about the road ahead, concluding thatfor theforeseeable future the most important climate change action will be within countries rather than among them. -
1 Utility and Happiness Miles Kimball and Robert Willis1 University of Michigan October 30, 2006 Abstract: Psychologists Have D
Utility and Happiness Miles Kimball and Robert Willis1 University of Michigan October 30, 2006 Abstract: Psychologists have developed effective survey methods of measuring how happy people feel at a given time. The relationship between how happy a person feels and utility is an unresolved question. Existing work in Economics either ignores happiness data or assumes that felt happiness is more or less the same thing as flow utility. The approach we propose in this paper steers a middle course between the two polar views that “happiness is irrelevant to Economics” and the view that “happiness is a sufficient statistic for utility.” We argue that felt happiness is not the same thing as flow utility, but that it does have a systematic relationship to utility. In particular, we propose that happiness is the sum of two components: (1) elation--or short-run happiness--which depends on recent news about lifetime utility and (2) baseline mood--or long-run happiness--which is a subutility function much like health, entertainment, or nutrition. In principle, all of the usual techniques of price theory apply to baseline mood, but the application of those techniques is complicated by the fact that many people may not know the true household production function for baseline mood. If this theory is on target, there are two reasons data on felt happiness is important for Economics. First, short-run happiness in response to news can give important information about preferences. Second, long-run happiness is important for economic welfare in the same way as other higher-order goods such as health, entertainment, or nutrition. -
Monopoly Pricing in a Time of Shortage James I
Loyola University Chicago Law Journal Volume 33 Article 6 Issue 4 Summer 2002 2002 Monopoly Pricing in a Time of Shortage James I. Serota Vinson & Elkins L.L.P. Follow this and additional works at: http://lawecommons.luc.edu/luclj Part of the Law Commons Recommended Citation James I. Serota, Monopoly Pricing in a Time of Shortage, 33 Loy. U. Chi. L. J. 791 (2002). Available at: http://lawecommons.luc.edu/luclj/vol33/iss4/6 This Article is brought to you for free and open access by LAW eCommons. It has been accepted for inclusion in Loyola University Chicago Law Journal by an authorized administrator of LAW eCommons. For more information, please contact [email protected]. Monopoly Pricing in a Time of Shortage James L Serota* I. INTRODUCTION Traditionally, the electric power industry has been heavily regulated at both the federal and state levels. Recently, the industry has been evolving towards increasing emphasis on market competition and less pervasive regulation. Much of the initial impetus for change has occurred during periods of reduced demand and increased supply. More recently, increases in demand and supply shortages have led to brownouts, rolling blackouts, price spikes and accusations of "price gouging."' The purpose of this paper is to examine the underlying economic and legal bases for regulation and antitrust actions, and the antitrust ground rules for assessing liability for "monopoly pricing in times of shortage." In this author's view, price changes in response to demand are the normal reaction of a competitive market, and efforts to limit price changes in the name of "price gouging" represent an effort to return to pervasive regulation of electricity. -
Economics 142: Choice Under Uncertainty (Or Certainty) Winter 2008 Vincent Crawford (With Very Large Debts to Matthew Rabin and Especially Botond Koszegi)
Economics 142: Choice under Uncertainty (or Certainty) Winter 2008 Vincent Crawford (with very large debts to Matthew Rabin and especially Botond Koszegi) Background: Classical theory of choice under certainty Rational choice (complete, transitive, and continuous preferences) over certain outcomes and representation of preferences via maximization of an ordinal utility function of outcomes. The individual makes choices “as if” to maximize the utility function; utility maximization is just a compact, tractable way for us to describe the individual’s choices in various settings. We can view the utility function as a compact way of storing intuition about behavior from simple experiments or though-experiments and transporting it to new situations. The preferences represented can be anything—self-interested or not, increasing in intuitive directions (more income or consumption) or not—although there are strong conventions in mainstream economics about what they are normally defined over—own income or consumption rather than both own and others’, levels of final outcomes rather than changes. Thus if you think the mainstream approach is narrow or wrong-headed, it may make as much or more sense to complain about those conventions than about the idea of rationality per se. Background: Classical “expected utility” theory of choice under uncertainty This is the standard way to describe people’s preferences over uncertain outcomes. The Marschak reading on the reading list, linked on the course page, is a readable introduction. The basic idea is that -
Prices in a Time of Corona: the Law and Economics of Price-Gouging
Prices in a time of corona: the law and economics of price-gouging Thomas Spencer, EPICENTER The COVID-19 pandemic has prompted widespread calls for stricter regulation of price gouging across the European Union. Whilst the calls come from a good place, they are ignorant of the economic costs that this will impose. The TFEU already provides sufficient restrictions on price gouging, and any further efforts to clamp down on the practice would harm consumers. Where an economic shock occurs, prices will often rise. If regulators were to intervene to prevent rising prices, then in the short run this would lead to those who need vital supplies the most being unable to procure them, and in the long-run it will ensure that any shortages that do occur become much worse. Instead, the European Commission should use the tools they already have at their disposal, which provide an effective mechanism against the more egregious offences. The powers of the Commission The main instrument the European Commission has at its disposal to act against price gouging is through Article 102 TFEU. This provision prohibits “any abuse by one or more undertakings of a dominant position within the internal market”. The treaty provides a non-exhaustive list of actions that could be prohibited. The most relevant of these prohibits “directly or indirectly imposing (an) unfair purchase price”. The key case defining how this works is United Brands v Commission [1978] ECR 207. This laid out that a price is unfair where it “has no reasonable relation to the economic value of the product”.