Philosophy and Economics I: Methods and Models by Hartmut Kliemt e Preamble and overview Preamble These lectures in philosophy and economics intend to bring together several strands of inquiry on the level of an advanced undergraduate or an introductory graduate course for students of PPE (Philosophy, Politics, and Economics), MPE (Management, Philosophy, and Economics), P&E (Philosophy and Economics), and L&E (Law and Economics). Hopefully, others interested in (practical) philosophy, political theory, or (normative) economics will find the discussion useful as well. The aim is to give an integrated presentation of philosophical and economic topics that is accessible with a rather modest training in any of the aforementioned academic fields. For the more advanced and the specialists, the chapters of this two volume book can serve as an invitation to “look at the world through an interdisciplinary window.” The first volume deals with methods – in the wide sense including meta-theoretical issues – and models – in the decision theoretic sense. The second volume will again start with some reflections of a methodological kind and then discuss morals on the basis of the methods and models of the first. The ambition is to illustrate that “economic philosophy” (or “philosophical economics”) does indeed exist as a discipline in its own right. This project began at the European Forum in Alpbach (Tirol) in 1984. On this occasion I recommended to Thomas von Cornides of Oldenbourg that this publishing house might translate Axelrod’s then upcoming book on the evolution of co-operation. Cornides immediately went on to get the rights to the book but also suggested that I write an introduction to the field of philosophy and economics in German. He wanted it for his series “scientia nova.” Based on the lectures that I gave together with James M. Buchanan at Alpbach at the time and using the material of lectures presented in Munich where I served as a substitute lecturer for Wolfgang Stegmüller shortly after, I did follow Cornides’ advice to “write it all up.” The first text was then used for courses offered in the philosophy department of the University of Frankfurt in 1987. Later on, after moving to the University of Duisburg, Bernd Lahno and I expanded the German text. We use the text still as lecture notes distributed for free to our students. VI Preamble Given this history, it seemed to me appropriate not to give in to the sirens of an English publishing house and to stay with the original proposal of Oldenbourg as publisher of this philosophically somewhat more and technically somewhat less advanced text. Much of it is the result of lectures and courses held at the Universidad Torcuato Di Tella, Buenos Aires, in 2003. The work on these lectures started after Guido Pincione and Horacio Spector invited me there. Subsequently lectures of the same kind and beyond were held at the Center for Study of Public Choice, George Mason University, Fairfax in 2003, 2004, and 2005 and the Vienna Circle Institute, Vienna, in 2006 (together with Geoffrey Brennan). I am greatly indebted to the hospitality and inspiration that the three institutions and their staff offered. Some parts are drawn from my lectures in the MBA program of the Frankfurt School of Finance and Management, too. Bernd Lahno and I have recently transferred there from “the calm but dark fields of philosophy” to set up a Management, Philosophy, and Economics program. I am grateful to the school for providing an excellent environment in which this work could be completed. On a more personal level I should like to mention in particular my friends Hans Albert, Max Albert, Michael Baurmann, Geoffrey Brennan, Jim Buchanan, Bernd Lahno, and David Levy. As can be seen from the lectures, these excellent philosopher economists influenced my thinking fundamentally. I do owe much to another seasoned economic philosopher and old friend, Manfred Holler, for kicking me to get this book done. His generous advice as well as his written and oral criticisms greatly improved the text. Without Manfred’s persistent interest, I never would have finished the project. That much of the following is most strongly influenced by my collaboration with Werner Güth should be obvious to those who know his publications. Werner took me by his “invisible hand” almost to the extent of co-authorship and many of the thoughts expressed here I owe to him. Our joint work on foundational matters started after Reinhard Selten brought us together in his “game theory in the behavioral sciences” research project at the Center for Interdisciplinary Research of the University of Bielefeld (ZiF) in 1987/1988. Since the early 1990’s, Werner has become my game theoretic mentor and closest friend. I do owe much to the ZiF, not only in this regard. It is also the institution where Joachim Frohn, Werner Güth, Reinhard Selten, and I organized a one year project on “making choices” in 1999/2000, which had a considerable effect on some of the following chapters and on me personally, by bringing my colleague Marlies Ahlert into my life. Last but not least I owe a great debt to my old American friend Allison Blizzard who – nomen est omen – went through the text “like a storm”. She did not merely improve the English but also the clarity and intelligibility of the text. Her criticism has been invaluable. Needless to say that the remaining blunders are all mine. Preamble and overview VII Overview Systematically, the following text brings together elements from three broad sub- categories. The first part on method starts with a paradigm of a basic rational choice analysis of social interaction (chapter 1). It goes on with a methodological reflection on how we “make the world” from an objective and a participant’s point of view, respectively (chapter 2). The second part, devoted to the models, takes up the tools from what has come to be known as the “rational choice approach to human (inter-)action.” It relies on many sources, but the influence of Werner Güth and, more indirectly, the foundational work of Reinhard Selten will be felt throughout. Elementary models of action (chapter 3) form the beginning of part II. Then, likewise, elementary models of inter-action are introduced (chapter 4). Both chapters can be read either as a rehearsal of or as an introduction to elementary models of opportunistically rational choice making. They put the models into a distinctive philosophical perspective by asking what their basic – often tacit – assumptions are and what they “mean”. To that effect, it is shown (chapter 5) how commitments can be modeled explicitly and legitimately as part of the rules of the game. The next chapter (6) illustrates how in principle “internalist” and “externalist” accounts of interaction can be brought together in an “indirect evolutionary approach” as proposed by Werner Güth. The final chapter of the first volume (chapter 7) brings the discussion of modeling techniques and their interpretation to a preliminary close by relating the two basic perspectives that run thorough this book to each other and to issues discussed in the second volume. The third part, which is presented in the second volume, will deal with, very broadly speaking, moral and welfare economic theories. The reader might look at the chapters forming the parts of both volumes as an invitation to join the search for a “reflective equilibrium” on foundational issues of economic philosophy. The search method is interdisciplinary. It makes an effort to integrate many strands of modern philosophy and economics via decision theoretic language. Its decision theoretic background notwithstanding, the discussion is non- technical. However, the present text is in many ways more technical (in a non- mathematical, philosophical sense) than, say, a good first introductory text to game theory like Dixit and Nalebuf (Dixit and Nalebuff (1991)). The text will not be easily accessible to those who have no training in rational choice at all. Gerald Gaus (see Gaus (2008)) might serve as a complementary introduction to the present text for those who have no former acquaintance with decision theoretic arguments. (Binmore (1994, (1998, (2005)) as well as Skyrms (1996) and Sugden (1986) are highly recommended and so are Taylor (1976; Taylor (1987), Young (1998) to mention just a few great texts from a flourishing field. Some more specific aspects are dealt with in several extended discussions (some of my VIII Reading the book favorites include Baurmann (2002), Brennan and Lomasky (1993), Brennan and Hamlin (2000), Brennan and Pettit (2006), Buchanan (1999), Smith (2008)). My aspiration here is to present a coherent narrative covering core issues of the field from a point of view that is sympathetic with rational choice modeling (RCM) but aware of the limits of rational choice theory (RCT). Reading the book 1. Readers with some background in elementary micro-economics and/or elementary game theory may want to start with chapter 2 and read it in full. They then should eyeball chapters 3 and 4 and focus there on the distinction between strategies as plans that are made and strategies as moves that can be chosen. It will become obvious that a concept like sub-game perfectness is not a technical device to sort out solutions of games but rather expresses a fundamental philosophical insight. I will refer to this insight as the “principle of intervention.” It characterizes the rational forward-looking choices of choice makers who are able to distinguish between what is and what is not a causal effect of their “interventions.” Then, chapters 5, 6, and 7 should provide both a smooth read and a hopefully interesting argument for such a reader. 2. Readers with no background in elementary micro-economics and/or elementary decision and game theory should start with chapter 1, move on to chapters 3 and 4, then go back to chapter 2 and finally continue with chapters and 5, 6, and 7.