Donald W. Katzner

Some Notes on the Role of History and the Definition of Hysteresis and Related Concepts in Economic Analysis

It is commonplace that history has an impact on present behavior. Events such as the discovery of America, the Industrial Revolution, the two World Wars, and, most recently, the decline of communism and the collapse of the Soviet empire have each, in their turn, changed lives in such a way as to make a reversion to preexisting worlds impossible. Not surprisingly, then, historical effects have begun to be noticed in economic analysis. Thus, for example, Georgescu-Roegen (1950) has argued that an individuals demand for goods might depend on his past experience. In particular, temporary price and (or) income changes causing a reallocation of purchases could, as a result of his experience with the new purchases, bring about a permanent change in his preferences. Even with the old prices and income restored, then, the individual would not return to his original position. And Phelps (1972, pp. xxii,

THE SHACKLE-VICKERS APPROACH TO DECISION-MAKING IN IGNORANCE

Ignorance is a fact of economic life. All decision-makers face decision situations with incomplete information. On the one hand, the world is so complex that the individual is unable to collect, much less assimilate, more than a small fraction of the relevant data. On the other, human beings do not possess the ability to analyze what data they have beyond a few simplified, coarsely approximating propositions. Thus the decision context, including the set of options from which the decision-maker chooses, is often imprecise and fuzzy. Moreover, even if one knew and understood everything there is to know and understand about the present decision moment, it would still not be possible to anticipate all future consequences of each choice option. The unexpected can-and often does-occur. For the decision-maker, then, ignorance arises both from his incompetence to know and understand fully the past and the present, as well as from the impossibility of foreseeing the future. The reality of ignorance, however, is only just beginning to have an impact on the economic analysis of decision-making. Most studies assume it away, either by supposing that there is only one state of the world and this state is completely recognizable (as, for example, in the typical approach to the utility-maximizing consumer under certainty; see Katzner, 1970), or by postulating that there are many possible and describable states of the world, each subset of which having a (possibly

The “Comparative Statics” of the Shackle-Vickers Approach to Decision-Making in Ignorance

The analysis of decision-making under conditions of ignorance developed by Shackle [8] and Vickers [9], [10] begins with the assumption that the decision-maker is able to describe a potential surprise function defined over the subsets of an incomplete2 collection of possible outcomes or states of the world.3 The potential surprise of an outcome-set A is the surprise the decision-maker imagines now that he would experience in the future were A to occur. Let a decision set containing the objects of choice be specified, and suppose that the decision-maker has an ordinal utility function defined over the Cartesian product of the decision set and the incomplete collection of states of the world. For each state of the world, then, the utility function maps objects of choice or elements of the decision set into associated utility values. More importantly, for each object of choice, the utility function also maps states of the world into utility values. Using this latter relation, the potential surprise function can be translated into a potential surprise density (or frequency) function4 defined over utility values. Thus the original potential surprise function, whose domain is a collection of outcome-sets, becomes a potential surprise density function with a domain consisting of utility magnitudes, or real numbers. Although it has a different significance and meaning, the potential surprise density function is often drawn to look something like an inverted probability density function.

The Misuse of Measurement in Economics

Some years ago, Friedrich Hayek [11] complained about the tendency he observed in economics to disregard as unimportant and irrelevant that which, at the time of inquiry, did not appear to be amenable to measurement. Economists seemed to believe that, in confluence with Kelvin ’s famous but dubious dictum,2 the only way to live up to the scientific requirements of economic analysis was to work with numerical measures even when knowing they only captured a small portion, if that, of the important facets of the issue at hand. By this standard, wrote Hayek [11, p. 3], “… there … may well exist better ‘scientific’ evidence for a false theory, which will be accepted because it is more ‘scientific,’ than for a valid explanation, which is rejected because there is no[t] sufficient quantitative evidence for it.” He then went on to say [11, p. 5], “I prefer true but imperfect knowledge … to a pretence of exact knowledge that is likely to be false. The credit which the apparent conformity with recognized scientific satandards can gain for seemingly simple but fasle theories may … have grave consequences.”

Participatory decision-making in the firm

Abstract This paper sets out a model in which the costs of the processes of making and implementing decisions in a firm depend on the fraction of persons who participate in their making, together with the ‘similarity’ of employee preferences. It is shown, under certain conditions, that for each decision there is an optimal participatory fraction that varies with preference similarities. The nature of the latter variation is explored. In addition, Condorcets Jury Theorem is used to extend these results to account for decision quality by allowing, in the optimization, for the probability of a ‘correct’ decision being made.

Unmeasured information and the methodology of social scientific inquiry

Preface. 1. Introduction: Science, Social Science, and Measurement. Part 1: Methodology. 2. Our Mad Rush to Measure: How Did We Get into this Mess? 3. In Defense of Formalization in Economics. 4. On Not Quantifying the Non-Quantifiable. 5. Notions of Closeness in a Non-Quantifiable Setting. 6.The Role of Formalism in Economic Thought, with Illustration Drawn from the Analysis of Social Interaction in the Firm. 7. Institutionally Determined Parameters in Economic Equations 8. The Misuse of Measurement in Economics 9. Analysis with Ordinal Measurement. Part II: Applications. 10. Effort and Efficiency in the Neoclassical Finn 11. The Efficiency of Organizational Forms. 12. Attitudes, Rationality, and Consumer Demand. 13. Political Structure and System and the Notion of Logical Completeness. 14. The Formal Structure of Argument in Professor Apter s. Choice and the Politics of Allocation. Index.

The structure of authority in the firm

Abstract The purpose of this paper is to analyze the general properties of hierarchical authority structures in the firm and, in addition, to extend some of Beckmanns work on rank in organizations. Such things as the distinction between rank and ‘level’ are clarified, and the effect of the number of ranks, the span of control, and the wage ratio between successive ranks, on structures of authority, on the efficiency of those structures, on the operating cost of the firm, and on its profit, are studied.

In Defense of Formalization in Economics

These days, it seems, a lot of people are dissatisfied with a lot of economic analysis. Numerous articles and books have been written detailing complaints.2 Numerous sessions at conventions take up the issue. One often sees and hears words such as “malaise,” “disarray,” and “crisis” applied to describe the current state of affairs. In perhaps the strongest rebuke of received economic theory yet, one of its founding fathers, none other than J.R. Hicks [8, p. 365], repudiated his own work by altering his identity: “Clearly I need to change my name,” he wrote in 1975. “Let it be understood that Value and Capital (1939) was the work of J. R. Hicks, a ‘neoclassical’ economist now deceased; Capital and Time (1973) — and A Theory of Economic History (1969) — are the works of John Hicks, a non-neoclassic who is quite disrespectful toward his ‘uncle’.” Much of Hicks’ subsequently published work appears under the newly-assumed name of its author.

Economic Explanation, Ordinality and the Adequacy of Analytic Specification

This paper examines the implicit links between models containing ordinal variables and their underlying unquantified counterparts that are necessary to make the former viable theoretical constructions. It is argued that when the underlying unquantified structure is unknown, the permissible transformations of scale applicable to the ordinal variables have to be restricted beyond that which is permitted by dint of the ordinality itself. The possibility of an underlying structure being known but unspecified is also considered. In the case of the efficiency wage model, the only usable transformations of the ordinal effort scale are those which are multiples of each other.

Explaining the Japanese economic miracle

Abstract This paper argues that, contrary to popular opinion, the Japanese economy was not, by western notions and standards, highly efficient during the period in which the so-called economic miracle took place. Rather, the rapid economic growth of that period, which actually occurred in the face of substantial inefficiencies, was made possible in part by significant offsetting effects.