The Future of Economics

The Great Recession created questions about mainstream economic policies and the theories they are based on. Some economists have stood their ground, affirming that the market has not failed, while others cite how the profession was blindsided as a sign that change is necessary. This blog shares the discourse among professionals, journalists and academics on the future of economic study. 

SCEPA and INET are proud to present an online, semester-long economics class - advanced microeconomics - taught by Duncan Foley, the Leo Model Professor of Economics at The New School. The series includes videos of 14 class lectures, including Professor Foley's presentations and discussions with students. 

Class 01 Preliminaries. The first lecture consists of technical topics essential to the rest of the course, including philosophy of social science, Bayesian and Information theory.

At the beginning of the course, the philosophy of social science in correspondence to its deviation from the natural science is debated, focusing on if science should address people in a different way than animals. Moreover, the subjects of the meaning of frequency and probability are examined. Afterwards, an overview of the Bayesian Theory is discussed, complementary to its limitations reaching reality and how this view is linked to the econometric theory, which is based on the former. The first lecture ends raising the topic of elementary information theory (Shannon’s entropy) within a historical framework.

Advanced Microeconomics: Information and Behavior in Political Economy | Duncan Foley | Leo Model Professor of Economics at the New School for Social Research | Lecture 01 Introduction | Spring 2016

SCEPA and INET are proud to present an online, semester-long economics class - advanced microeconomics - taught by Duncan Foley, the Leo Model Professor of Economics at The New School. The series includes videos of 14 class lectures, including Professor Foley's presentations and discussions with students. 

Class 02 Entropy-constrained behavior. The central point of discussion in the second lecture is the basic economic framework of human behavior developed based on the entropy-constrained theory and its advantages over the marginal utility theory of economics.

The lecture begins pointing out the significant impact of the entropy theory on a variety of scientific fields. Moving on, the focus shifts to the economic approach and the audience is presented with two examples of the behavior model. In the first case an individual maximizes her pay-off function through a single choice, whereas, in the second case the payoff maximization occurs via a set of mixed actions. Afterwards, the utilitarian theory is contrasted to the mainstream marginal utility theory. The former advocates that the welfare is comparable among individuals, in contrast to the latter which argues that the interpersonal comparisons of welfare are impossible due to the inherently subjective aspects of welfare. This raises the ground to legitimately taxation of the richest people, in case that people approximately have the same temperature. The second class ends with some simple examples and applications of this theory.

Advanced Microeconomics: Information and Behavior in Political Economy | Lecture 02 Entropy Constrained Behavior | Duncan Foley | Leo Model Professor of Economics at the New School for Social Research | Spring 2016

SCEPA and INET are proud to present an online, semester-long economics class - advanced microeconomics - taught by Duncan Foley, the Leo Model Professor of Economics at The New School. The series includes videos of 14 class lectures, including Professor Foley's presentations and discussions with students.

Class 03 Applications of the entropy-constrained behavior model. The biggest part of third lecture dedicated to answering students questions essential to the topic and for the rest we are presented with applicable examples of the behavior model. This lecture provides fundamental information to anyone who wishes to comprehend the ideas that are discussed in previous lectures in greater depth.

At the beginning, the audience is presented with a detailed review of the entropy constrained behavior model, emphasizing on the description of the behavior temperature. Many important points are clarified, such as if the behavior temperature of people tends to be the same or if a fluctuation in behavior temperature changes the utility function, as well as how much will one’s behavior temperature would be affected if a tiger would appear in front of them! Moreover, in this lecture Gibbs distribution is examined more thoroughly. Afterwards, a definition of the expected utility theory is presented by using Von Neumann and Morgenstern’s lottery paradigm. Duncan Luce and Patrick Suppes attempt to experimentally prove the main point of the expected utility theory. However, the experiment did not show the sharp-step function behavior predicted by the expected utility theory. Thus, their experiment seems more precise with the use of the entropy behavior theory, where a choice with a greater payoff is just more plausible to occur. Additionally, some more mathematical applications are explained. In the end, the conversation zooms in the Gaussian method of analysis, which he uses in order to describe his foundation of normal distribution. The third lecture ends raising the question if the Gaussian method in astronomy works as well in social science.

Advanced Microeconomics: Information and Behavior in Political Economy | Lecture 03 Applications of the Entropy Constrained Behavior Model | Duncan Foley | Leo Model Professor of Economics at the New School for Social Research | Spring 2016

SCEPA and INET are proud to present an online, semester-long economics class - advanced microeconomics - taught by Duncan Foley, the Leo Model Professor of Economics at The New School. The series includes videos of 14 class lectures, including Professor Foley's presentations and discussions with students. 

Class 04 Social Interaction (Part Α). The fourth class consists of a review of the entropy constrained behavior model, the completion of the expected utility theory and an introduction to the Social Interaction behavior.

The fourth lecture begins with a brief summary of the entropy-constrained behavior model and moves on to re-examining the expected utility function via Von Neumann and Morgenstern’s lottery example. Additionally, two more applications of the entropy-constrained theory are analyzed and visualized graphically. One is able to comprehend the weakness of the econometric models via this analysis. The econometric models ignore the constrains of real life and assume an asymmetry in error deviations, which cannot always lead to accurate results. The lecture ends with the explanation of the basic ground of the social interaction of the models and how this framework could be introduced in economics, something that until now has not been resolved by the mainstream utility theory.

Advanced Microeconomics: Information and Behavior in Political Economy | Lecture 04 Social Interaction (Part A) | Duncan Foley | Leo Model Professor of Economics at the New School for Social Research | Spring 2016

SCEPA and INET are proud to present an online, semester-long economics class - advanced microeconomics - taught by Duncan Foley, the Leo Model Professor of Economics at The New School. The series includes videos of 14 class lectures, including Professor Foley's presentations and discussions with students. 

Class 05 Social Interactions (Part Β). The fifth class studies the functionality of the canonical social interaction model and examines a major topic in Political Economics – The Tragedy of the commons.

The fifth lecture begins with an analytical presentation of the canonical social interaction model. The model integrates social interaction into economics and answers the question of what would happen in a social coordination case, in which all people gathered together and decided what to do. The subject of what is the best response for each individual in a variety of cases is also examined. After the theoretical analysis, the lecture focuses on the mathematical framework of the model and an accurate graphical visualization is given by presenting on what extent the certain parameters can affect the model’s fluctuation. Through this approach, they are able to explain in which cases there is a strategic complementarity between agents and in which cases there is not. Prisoner’s dilemma is just a subset of this theory. In the last part of the class, the major topic of the Tragedy of Commons in Political Economy is discussed as an example that integrates this model into real life.

Advanced Microeconomics: Information and Behavior in Political Economy | Lecture 05 Social Interaction (Part Β) | Duncan Foley | Leo Model Professor of Economics at the New School for Social Research | Spring 2016

SCEPA and INET are proud to present an online, semester-long economics class - advanced microeconomics - taught by Duncan Foley, the Leo Model Professor of Economics at The New School. The series includes videos of 14 class lectures, including Professor Foley's presentations and discussions with students. 

Class 06 Social Interaction (Part C). The sixth class consists of various examples through which they examine the results that could be reached by modifying the canonical social interaction model.

At the beginning of the sixth lecture, the canonical social interaction model and studies are reviewed and different cases are visualized graphically in order to precisely define the meaning of the strategic contementarity and the strategic substatibility in the model. In the former strategic, the more the people that follow the same action the better the result, whereas in the latter, the more the people that follow an action, the less the chances are that one would wish to follow the same strategy. Additionally, an accurate description is given based on the quantal decision response. The Hawk and Dove cases are also presented as an algebraical example of how a biological chain of these two species tends to be in harmony and why none of the two species has an evolutionary advantage over the other. In the end, the audience is presented with examples of a strong strategic contementarity, in which the path dependence determinates to a great extend the winners.

Advanced Microeconomics: Information and Behavior in Political Economy | Class 06 Social Interaction (Part C) | Social Interaction Model | Duncan Foley | Leo Model Professor of Economics at the New School for Social Research (NSSR) | Spring 2016

Class 07 Entropy-constrained Behavior in the Social Interaction Model. During the first half of the lecture, the case of quantal response is described by the use of the social interaction model. The second half of the lecture consists of an introduction to the classical political economy.

The lecture begins with a presentation of a way to reach equilibria in the social interaction model with the entropy-constrained behavior. The best response does not necessary make everyone act in the same way, but people’s behavior depends on their behavior temperature, which determinates the probability of them choosing the best response. The model is enriched with graphical illustrations along with examples that clarify the functions of this model. In the second part, the social interaction model is applied in the classical political economy, emphasizing mainly on Adam Smith’s theory. The main question of this part is if the social coordination outcome is technically feasible in the hub-and-spoke model, in which all producers specialize and share their output equally, or in other words, to what extent the spontaneous socialism is feasible.

Duncan Foley | Leo Model Professor of Economics at the New School for Social Research (NSSR) | Advanced Microeconomics: Information and Behavior in Political Economy | Class 08 Social Coordination Problems in Classical Political Economy (Part A) | Spring 2016

Class 08 Social Coordination Problems in Classical Political Economy (Part A). The eighth lecture explores Adam Smith’s division of labor and Karl Marx’s barter economy from the perspective of social coordination through the hub and spoke model.

The class begins with Smith’s tenets on division of labor, examining algebraically the terms under which a typical individual opts for diversification or specialization and how this process affects the embedment of spontaneous socialism into a society. Then, the discussion moves on to Marx’s barter economy. It focuses on the questions of whether the barter economy is a stable system of exchange and why money economy could be considered as a hub-and-spoke model with strong strategic complementarity. In other words, the fundamental issue debated is the importance of money to society.

Duncan Foley | Leo Model Professor of Economics at the New School for Social Research (NSSR) | Advanced Microeconomics: Information and Behavior in Political Economy | Class 09 Social Coordination Problems in Classical Political Economy (Part B) | Spring 2016

Class 09 Social Coordination Problems in Classical Political Economy (Part B). The lecture summarizes Smith’s division of labor, Marx’s barter economy and explores precisely the creation and the use of commodity and non-commodity money.

Barter economy is fraught with several impediments. An individual willing to engage in barter transaction, must identify a counterparty willing to exchange a valuable product for the former’s merchandise. The lecture looks into barter trade-related disadvantages giving rise to the necessity for the introduction of a common mean of exchange, i.e. “money” – the one we have accustomed to. Money has the tendency to reduce the cost of transaction and the more producers decide to accept the money in excess of their need in exchange for their own product, the higher the payoff to any other producer from making similar decision – a case for strong strategic complementarity. At the end of the lecture, an introduction into the next discussion is taking place by investigating the sale and purchase building on the above money analysis.

Class 10 Social Coordination Problems in Classical Political Economy (Part C). Given the fact that the society is indulged in money equilibrium, the lecture explores how the economy market functions.

Initially, the lecture portrays algebraically the hub-and-spoke model of the commodity exchange at a given money price. The key question is occupied with finding out the best response of a typical producer for a choice of her price when everyone follows the P-bar price. Moreover, the examination of this model is conducted in contrast with the Bertrand competition model. In Bertrand competition the logic is simple: if the producer raises the price above the price level of other producers, then the product will remain unsold. On the other hand, if she reduces her price below of the general market level, then she will usurp the entire market share. Such approach does not seem realistic: it is narrowly defined and to some extent problematic. However, the hub-and-spoke model reviewed in class could remedy these issues. Lastly, the lecture examines the case of unbalanced supplies in the hub-and-spoke model and the manner the economy functions in such circumstances.