(1) Historical (empirical) vs. (2) logical factor in the developmant of of economic science

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Challeges to contemporary economics: modifications of

the paradigm and collaboration with other

sciences

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I. . Introductory remarks – selected elements of general philosphy of the development of economic science (1) Historical (empirical) vs. (2) logical factor in

the developmant of of economic science1. Development (evolution) of economics as the „respond” to changing (over time) conditions (technological, institutional and others) of economic performance

2. Devlopment of economics as the critical reflection on and synthesis of its former accomplishments and as the need of improvement of research method and precising the research domain (with tendency to widen the latter the so called economic imperialism)

Interdependence of both factors

I. . Introductory remarks – selected elements of general philosphy of the development of economic science

Criteria of progress/development of economic science

1. Criterion of capability to explain the nature of economic phenomena and processes (criterion of the so called scientific realism)

2. Social utilitarity criterion 3. Criterion of predictivity power (Friedman) 4. Mongin’s – Laudan’s criterion of effectiveness (the so

called instrumental realism): criterion of higher (increasing with respect to „competitive theories” ) effectiveness in solving scientific problems

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II. Key problems in and challeges to the development of economic science

1. Continuation or looking for a new paradigm

2. Significance of NIE for increasing cognitive value and widening research domain of economic science

3. Does the NIE define a new paradigm

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II. Key problems in and challeges to the development of economic science – cont.

4. Economics and other social sciences: economic imperialism vs. the need of cooperation

5. Economics and management science

6. Economics and new economic, technological and civilization trends and new social ideas

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1. Continuation or looking for a new paradigm Defence of research methodology of mainstream

economics1. Methodological individualism is funadamental for

keeping the methodological identity of economics as science

2. Critique of cognitive individualism by the so called cognitive realism (Lawson, Lewis): social-economic reality can not be reduced to the sum of HOes). It also comprises structures whose nature can not be interpreted in terms of economic individual rationality

1. Continuation or looking for a new paradigm3. Assumption on common microeconomic rationality (and

UMH): main directions of critique and early modifications

Critique: changing character of preferences (of consumers’ in particular), imperfect information or knowledge about market conditions, occurrence of altruistic behavior (empathy), ignoring sociological and, in particular, psychological conditions of economic choices, incomplete knowledge of alternative solutions and their costs (opportunity costs) and benefits

Early modifications : selective rationality or x-inefficiency (Leibenstein), concept of satisfycing behavior (H.Simona), REMM approach

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3. Further mofifications Monetarism: due to incomplete knowledge, expectations

or forecasts of economic entities are not perfect. Since , however, there occurs the process of learning by doing of human beings, it is possible to avoid or to minimize systematic errors (failures)

New classical economy: hypothesis of rational expectations (development of former concept: learning by doing process enables market agents to adjust better their decisions to changing market and tecghnological conditions and acting under conditions of imperfet information)

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New Keynesian Economics: possibility of non-maximizing behavior of enetrprises (in order to minimize adjustment costs under conditions of unpredictability of market and technological changes)

Final conclusion: Non to reject but to modify and enrich microeconomic foundations of mainstream economics through its opening for achievements of behavioral economics and complexity economics

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1. Continuation or looking for a new paradigm Behavioral economics

Main feature: „fusion” of psychology and economics in order to better explain market behavior of economic agents (also acting on financial markets)

Bahavioral economics as distinct but not homogenous stream in modern economics: H. Simon and Carnegie School Psychological economics (Kahneman, Camerer, Thaler) H. Leibenstein and x-efficiency theory Evolutionary economics (Nelson, Winter); evolutionary development theory (references to Schumpeter and New Austrian School) and evolutionary teory of firm Experimental economnics (Vernon, Kahneman, Tversky) Behavioral finance

1. Continuation or looking for a new paradigm Behavioral economics and the so called Pareto

revolution Nature of the Pareto revolution Psychological economics as the anti-Pareto revolution

( contributions of psychologicial decision making theory : Tversky/Kahneman)

Fundamental assertions of psychological economics1. Dual concept of the man as economic entity (closely relating to

A.Smith’concept in the Theory of Moral sentiments): not only maximizing the wealth, but also showing solidarity (empathy) with others and driven by volitional motives and common human instincts

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1. Continuation or looking for a new paradigm Fundamental assertions of psychological economics –cont.

2. Risk aversion as main economic motive of economic action: people tend to higher evaluate losses then gains

3. People strive for minimizing losses or maximizing gains at a given point of time and not for optimizing welfare within a certain time horizon

4. Intertemporal choices: PE opposes neoclasical economics assuming that people’s behavior is consistent (coherent) in time which occurs through exponental discounting of future time periods. According to PE, future time periods are either equally valued or discounted in hyperbolic manner

5. Altruism as inherent motive of people’s economic action

6. Numerous empirical (experimantal) verifications of main PE assertions

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Complexity economics; Beinhocker, Colander1. Attempt at a new synthesis based on accomplishments of not

only psychology, but also neurology, antropology, theory of evolution and general systems theory.

2. Conglomerate comprising : psychological economics, evolutionary economics, ecological economics, experimental economics, and many specific subdisciplines: evolutionary game theory, computer simulations, non-linear general equlibrium theory and others

3. Transition from the ortodox triad: complete rationality – egoism - equlibrium towards an ecclectic triad: intentional behavior – „self-constrained” individual interest – sustainability of development

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2. Importance of NIE for increasing the cognitive value of economic science and widening its research domain

Significance of historical factor (differences in growth rates vs. economy’s institutional endowment) and logical factor (critique of „institutional deficit” of mainstream economics) for the emergence and development of NIE

Major acomplishments of NIE 1. Working out numerous generalizations concerning the

interdependencies between neoclassically understood growth and institutional environment of economy (the need of institutional equilibrium) 2. Highlighting the importance of non-material capital forms (social capital, moral capital and political capital)

2. Importance of NIE for increasing the cognitive value of economic science and widening its research domain

3. Working out categories and manners of analysis that are useful for theoretical reflection on the transformation process, i.e. transition from C&C economic system to a market economy

New Institutional Economy as mostly continuation and enrichment of mainstream economics and not a current in the development of economic thought based on new paradigm

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4. Economics and other social sciences: economic imperialism versus cooperation

Social character of economics as a science versus the need of formal-deductive modelling

Fundamental question: should the relation of economics to other social sciences consist in specific imperialism (as in the csae of NIE), i.e. in appriopriating their domains, or should it consists in the cooperation with other social sciences in cognitive and methodological terms.

Thesis: there exists a big and already partially used field of cooperation with other social sciences, as well as some experimental and behavioral sciences; e.g with psychology and evolutionary biology (behavioral economics and complexity economics)

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Main cognitive and methodological differences (overview)1. Economics: mostly (1) theoretical and deductive, (2)

positive and (3) momological 2. Management science: mostly (1) empirical and

inductive, (2) normative, (3) descriptive and applied Two areas of controversies :

What is the actual and desired scope of distinctness – with respect to subject and methodology – of economics and management science

What is the relation of management science to other social sciences: psychology, sociology and anthropology in particular


Integration of economics and management science through widening in both disciplines (and in economics in particular) of empirical and exeperimental research

Managerial economics as the area of potential synthesis of economics (micreconomics) and management science (strategical managment)

Microeconomics and management L. Robbins: economics as a science dealing with the analysis of

human being understood as his/her relation between realized and unrestricted goals and scarce resources needed for the achievement of those goals and having alternative uses

W.R. Grifin: management as a science dealing with such choosing and coordination of resources (human, financial, physical and others ) which enable business organizations to achive their objectives

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Theories of the firm/organization as the most important area of both convergence and divergence between economics and management

1. Main theories chiefly referring to (neoclassical) microeconomics: managerial models of enterprise, bahavioral model of enterprise, model based on the theory of agent and principal, allocative theory of enterprise, model based on the concept of x-inefficiency of Leibenstein

2. Main theories based on management science: praxeological organization theory, classical theory of organization, psychological organization theory, sociological organization theory, concept of learning organization, concept based on strategical management

3. Resources based theory of the firm/organization as a „convergence case”

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3. Resources based theory of the firm/organization as a

„convergence case” Resources owned by the organization should be characterized by features

postulated by economic theory: scarcity, diversified productivity and possibility of alternative uses (applications)

One assumes that the enterprise has organizational structure which develops on the base of its unique resources and core competences

Individual firms can succesfully compete with other enterprises due to quicker accumulation of resources and concentration on few products and markets, as well as owing to taking advantage of synergy effects in the use of available resources

Achievement of big competitive adavantage is also possible due to cooperation between firms (important source of potential synergy effects)

Following the concepts of evolutionary economics, it is emphasized that specific (unique) non-material resources are essential for the economic and market success

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Historical factor in the evelution of economics, as well as the need of its social utility, make it necessary that in the development of both economics and management science the following problems have to be taken into theoretical considerations:

. 1. New important phenomena, processes and trends in contemporary economy and civilization

2. New (vis-a-vis ortodox economic theory in particular) social ideas

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Fundamental challenges :1. Emergence of the so called New Economy and Knowledge Based Society, along with growing role of education and innovation in socio-economic development2. Globalization of world economy and accompanying process of deepenig civilization and income disparities in the world3. Ecological and energy constraints to and consequences of hitherto prevailing development patterns4. Impact of cultural and religious distinctnesses upon microeconomic behavior patterns and models of socio-economic development

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Economics and potential challenges brought about by contemporary financial and economic crisis

1. Increasing significance of MNCs in the globalizing world economy2. Process of virtualization of capital and the so called

financialization of economy3. Autonomization of financial markets with respect to real economy4. Globalization of international (world) financial markets5. Crisis of fundamental values defining the economic culture and

ethos of free market economy (real foundation: ongoing process of spliting of ownership and management in big enterprises)

Implicit fundamental question: do those challenges mean the necessity of global governance and what is the political feasibility of this concept

Documents

(1) Historical (empirical) vs. (2) logical factor in the developmant of of economic science