1、Lectures at Fudan University on The Economics of Behavior, Institutions, and Evolution Samuel Bowles, /bowles University of Siena/ Santa Fe Institute,Lorenzetti, Aspects of Good Government, 14 th century Siena,Lectures at Fudan University on The Economics of Behavior, Institutio

2、ns, and Evolution,The dynamics of capitalism and the emergence of a post Walrasian paradigm in economics (Prologue, 1) Economic man and social preferences: experiments, new preference functions, and mechanism design (3, JPubE) nstitutional dynamics: the emergence of private propety (within- and betw

3、een-group selection dynamics) (2,11) Institutional persistence and innovation: stochastic evolutionary game theory (application of Young) (12) The co-evolution of preferences and institutions: agent-based modeling of group selection (13) Parochial altruism and war (and summing up) (Science 07) I wou

4、ld be happy to amend this programme,Related papers at: /bowles,Walrasian Economics in Retrospect. Quarterly Journal of Economics, 115:4, 2000 with H.Gintis “In Search of Homo economicus: Behavioral Experiments in 15 Simple Societies” American Economic Review. 91,2(2001 )(with R.

5、 Boyd, C. Camerer, E. Fehr, H. Gintis, et al.). “Persistent Parochialism: the Dynamics of Trust and Exclusion in Networks,” Journal of Economic Behavior and Organization 55, 2004, with Gintis “Social preferences and public economics: mechanism design when preferneces depend on incentives,” Journal o

6、f Public Economics, 2008, forthcoming (with S-H Hwang) “Policies designed for self interested citizens may undermine the moral sentiments” Science, 2008 forthcoming. Group competition, reproductive leveling and the evolution of human altruism. Science, 314, 2006. “The co-evolution of parochial altru

7、ism and war,” Science, 319 (2007) with Jung-Kyoo Choi. My email: ,Capitalism and economic theory,What should microeconomic theory be a theory of ? Most of the people in the world are poor, so if we knew the economics of being poor we would know much of the economics that really matters. Schultz, T.W

8、. (1980), “Nobel Lecture: The Economics of Being Poor,” Journal of Political Economy 88,4:639-651. The primary task to economic theory (in my view) is to understand (really existing) capitalism and its evolution (not economic systems generically, not abstract principles of optimal use of resources)

9、Is the Walrasian (neoclassical) paradigm adequate to this task?,Walrasian (neoclassical) economics,A paradigm (school) is characterized by what it teaches its students and th assumptions that are necessary and sufficient for its main results. The Walrasian paradigm is characterized by Complete contr

10、acts: enforceable at low cost by third parties Absence (or nearly so) of economies of scale Economic man: exogenous, self regarding preferences What are the big facts about capitalist dynamics that this theory should explain?,Leon Walras,From Bowles, Edwards and Roosevelt, Understanding Capitalism:

11、Competition, Command, and Change, Oxford U Press, 2004,From Bowles, Edwards and Roosevelt, Understanding Capitalism: Competition, Command, and Change, Oxford U Press, 2004,From Bowles, Edwards and Roosevelt, Understanding Capitalism: Competition, Command, and Change, Oxford U Press, 2004,From Bowles

12、, Edwards and Roosevelt, Understanding Capitalism: Competition, Command, and Change, Oxford U Press, 2004,From Bowles, Edwards and Roosevelt, Understanding Capitalism: Competition, Command, and Change, Oxford U Press, 2004,Cities with more than a million people 1850 and present,London and Paris,Beij

13、ing,From Bowles, Edwards and Roosevelt, Understanding Capitalism: Competition, Command, and Change, Oxford U Press, 2004,From Bowles, Edwards and Roosevelt, Understanding Capitalism: Competition, Command, and Change, Oxford U Press, 2004,From Bowles, Edwards and Roosevelt, Understanding Capitalism:

14、Competition, Command, and Change, Oxford U Press, 2004,From Bowles, Edwards and Roosevelt, Understanding Capitalism: Competition, Command, and Change, Oxford U Press, 2004,From Bowles, Edwards and Roosevelt, Understanding Capitalism: Competition, Command, and Change, Oxford U Press, 2004,From Bowles

15、, Edwards and Roosevelt, Understanding Capitalism: Competition, Command, and Change, Oxford U Press, 2004,From Bowles, Edwards and Roosevelt, Understanding Capitalism: Competition, Command, and Change, Oxford U Press, 2004,Top income shares: UK 1908-1998,Top percentile share: France 1900-98,Top 0.01

16、% share: India 1922-8,Top 0.1% UK, US, France, India,From Bowles, Edwards and Roosevelt, Understanding Capitalism: Competition, Command, and Change, Oxford U Press, 2004,From Bowles, Edwards and Roosevelt, Understanding Capitalism: Competition, Command, and Change, Oxford U Press, 2004,From Bowles,

17、Edwards and Roosevelt, Understanding Capitalism: Competition, Command, and Change, Oxford U Press, 2004,Growth in productivity Growth in wages Uneven development among nations Population growth and urbanization Within country equalization and dis-equalization Inequality:class, ethnic group, race, se

18、x, urban-rural, Growth of the state The information revolution (other aspects of technical change) Persistence of global poverty Institutional divergence and convergence,Does the Walrasian paradigm provide an explanation of these big facts about Capitalism?,Economics is the study of human behavior a

19、s a relationship between given ends and scarce means. L. Robbins(1935) :16 An economic transaction is a solved political problem . Economics has gained the title Queen of the Social Sciences by choosing solved political problems as its domain. Abba Lerner (1972):259 The first stresses exogenous pref

20、erences, the second stresses the exogenous enforcement of incomplete contracts,Familiar definitions of (neoclassical) economics,Other taxonomies would be illuminating, for example, concerning the content of preferences, e.g. self regarding or other regarding) and the role of positive feedbacks (gene

21、ralized increasing returns) etc,One roadmap of economics: Walrasian and post Walrasian,What should economic theory be about?,Now at last we are setting ourselves seriously to inquire whether it is necessary that there should be any so called lower classes at all: that is whether there need be large

22、numbers of people doomed from their birth to hard work in order to provide for others the requisites of a refined and cultured life, while they themselves are prevented by their poverty and toil from having any share or part in that life. .The answer depends in a great measure upon facts and inferen

23、ces, which are within the province of economics; and this is it which gives to economic studies their chief and their highest interest.,Alfred Marshall, Principles of Economics, 1890,Has neoclassical economics provided an answer to Marshall?,Post-Walrasian economics differs from Walrasian (neoclassi

24、cal) economics in its representation of,Social interactions (incomplete contracts) Preferences (endogenous, not entirely self regarding) The importance of increasing returns (positive feedbacks) and more (for a summary, see figure 14.1),Walrasian and evolutionary economics (Figure 14.1),Precursors o

25、f Post-Walrasian economics,Not everything in the contract is contractual. Emile Durkheim De la division du travail social. 1902 How selfish soever man may be supposed, there are evidently some principles in his nature which interest him in the fortunes of others, and render their happiness necessary

26、 to him, though he derives nothing from it, except the pleasure of seeing it. Adam Smith, The theory of moral sentiments, 1759 Only by misuse could the appropriation of labor by capital be called any kind of exchange at all. Karl Marx, The Grundrisse Post-Walrasian economics addresses themes stresse

27、d prior to the advent of neoclassical economics using contemporary mathematical tools.,The emergence of post Walrasian economics: Hobbes to Hayek, a brief history,The classical constitutional conundrum, again Hobbes Mandeville Smith Property and markets as a form of constitution Markets vs planning:

28、 the great debate Why markets won and Walrasian economics lost,Which of these systems central planning or competition is likely to be more efficient depends on the question under which of them can we expect that fuller use will be made of the existing knowledge. And this, in turn, depends on whether

29、 we are more likely to succeed in putting at the disposal of a single central authority all the knowledge which ought to be used but which is initially dispersed among many different individuals, or in conveying to the individuals such additional information as they need in order to enable them to f

30、it their plans in with those of others. F.A. Hayek, “The Use of Knowledge in Society” 1945,The Walrasian detour,Virtually all of the main ideas making up the post Walrasian paradigm were developed more than 4 decades ago by highly recognized scholars. Nash, Zeuthen, VN-M (game theory, including evol

31、utionary, bargaining) Simon, Schelling (non market social interactions) Coase (transactions costs, authority in the firm) Alchian, Becker (evoutionary modeling zero intelligence age) Duesenbery, Leibenstein (endogenous preferences, state dependent preferences) Myrdal (multiple equilibria) Why did th

32、ese ideas proliferate in the 1990s and not the 1960s? Time for a break?,Lecture 1, part 2Institutions and Games,Courbet, Enterrement a Ornans,Coordination failures and the classical constitutional conundrum?,The study of institutions is motivated by the importance of coordination failures as a cause

33、 of human suffering Coordination failure: non cooperative interaction leading to a result that is not P-efficient. The conundrum: How can social interactions be structured so that people are free to choose their own actions while avoiding outcomes that none would have chosen? Modern fields of econ a

34、ddressing this question: welfare economics, implementation theory, optimal contract theory Game theory is the fundamental analytical tool for the study of economic institutions.,Why do coordination failures occur, generically?,The reason why uncoordinated activities of individuals pursuing their own

35、 ends often produce outcomes that all would seek to avoid is that each persons actions affect the well-being of others and these effects are often not included in whatever optimizing process or rule of thumb which results in the actions taken by the relevant actors. More simply: actors to not take a

36、ppropriate account of the effects of their actions on others. Incomplete contracts are one of the reasons why this happpens The problem thus concerns both preferences and constraints (e.g. people do not care about others, and they are not constrained to act as if they did care),Institutions,Institut

37、ions: the laws, informal rules, and conventions which give a durable structure to social interactions among the members of a population based on centrally deployed coercion (laws), social sanction (informal rules) and mutual expectations (conventions) which make conforming to the institution a best

38、response for virtually all members of the relevant group, given individual beliefs and preferences.,Preferences, beliefs and constraints (defined in ch 3),NB institutions are group level phenomena, while preferences and beliefs are facts about individuals: Beliefs: an individuals understanding of th

39、e relationship between her actions and consequent outcomes. Preferences: an individuals evaluation of the outcomes. Constraints: define the set of feasible actions Institutions constitute part of the constraints (you have to pay for the goods you acquire) and (as we will see) they also influence the

40、 evolution of beliefs and preferences.,Tragedy of the Fishers: A Prisoners Dilemma Eye Jay 6 hours8 hours Fish 6 hours1,10, 1+ Fish 8 hours1+, 0 u, u,Coordination typically involves problems of both allocation and distribution as in the PD game.,What is the allocation problem here? What is the distr

41、ibution problem?,Pure conflict and pure common interest games. What are they?,Tragedy of the Fishers: A Prisoners Dilemma Eye Jay 6 hours8 hours Fish 6 hours1,10, 1+ Fish 8 hours1+, 0 u, u,Common and conflicting interest,The degree of common interest: / (1- u)/(1+) .or in this case the gain from coo

42、peration by contrast to mutual defection relative to the gain from defecting on a cooperator Or more generally, the maximum difference between the payoffs possible when both choose the same action divided by the maximum difference when they choose different actions (SW to NE distance compared to SE

43、to NW difference).,A taxonomy of coordination failures (considering only pure strategies),The mathematical representation of institutions,As exogenously given games (e.g principal agent models of wage setting) As Nash equilibria of games (driving on the right as a mutual best response) As NE that ar

44、e accessible and stable (has a large basin of attraction) in a plausible dynamic (crop shares of one half as stochastically stable states) NB the primary tool for the first is classical game theory (institutions by design) while for the second and third one uses evolutionary game theory (spontaneous

45、 order),Game theory and the theory of institutions: advantages and shortcomings,Advantages over non-strategic approaches: Explicit representation of information and action sets Subject-subject (strategic) vs Subject object Shortcomings (on which, more later) Limitations of the Nash equilibrium (evol

46、utionarily irrelevant equilibria) Cognitively implausible refinements,Desiderata for game theory: many important games are ,Overlapping: one plays in many games simultaneously Recursive: the structure of the game in subsequent periods is an outcome of past play Constitutive: past play of a game infl

47、uences the preferences and beliefs (and therefore payoffs and equilibrium strategies) in subsequent play Asymmetric: when members of different classes, species, sexes, nations, races, age cohorts, etc interact, strategy sets typically differ (and payoffs). Other than the last, game theory has not ye

48、t adequately modeled the other desiderata,Why are coordination failures common? Why are P-improvements not implemented?,No NE is P-efficient (PD) There exists a P-efficient NE that is a P-improvement over the status quo but it is inaccessible (AG) It is not risk dominant Coordinating actions is impossible (if we knew how to do that, we would not be poo