The Invisible Hand in Economics: How Economists Explain Unintended Social Consequences (Routledge Inem Advances in Economic Methodology)

The Invisible Hand in Economics: How Economists Explain Unintended Social Consequences (Routledge Inem Advances in Economic Methodology)

N. Emrah Aydinonat

Language: English

Pages: 272

ISBN: 0415569540

Format: PDF / Kindle (mobi) / ePub

This is a book about one of the most controversial concepts in economics: the invisible hand. The author explores the unintended social consequences implied by the invisible hand and discusses the mechanisms that bring about these consequences.
The book questions, examines and explicates the strengths and weaknesses of invisible-hand explanations concerning the emergence of institutions and macro-social structures, from a methodological and philosophical perspective. Aydinonat analyses paradigmatic examples of invisible-hand explanations such as Carl Menger’s ‘Origin of Money’ and Thomas Schelling’s famous checkerboard model of residential segregation in relation to contemporary models of emergence of money and segregation. Based on this analysis, he provides a fresh look at the philosophical literature on models and explanation and develops a philosophical framework for interpreting invisible-hand type of explanations in economics and elsewhere. Finally, the author applies this framework to recent game theoretic models of institutions and outlines the way in which they should be evaluated.

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their place. Since there are some unoccupied places, residents who are discontent can move to places where they could be content. However, as they move they will change the state of their old neighbours. When an A moves to another place he reduces the number of As for his previous neighbours, so the As in those places are more likely to become discontent after he moves. If they are, they will try to move as well. As dissatisfied residents start moving, the residential distribution of As and Bs

is more than just visual impression’, says Schelling. If you compare the number of neighbours that are the same type for each group and the average number of unlike neighbours – compare Figure 4.2 with Figure 4.3 – you will see that a lot has changed. Also, the number of individuals who have no neighbours of the other type has increased. The surprising thing about this demonstration is the following: in Figure 4.2 _ A _ _ B A _ _ - A A A B B _ A B - _ A B A B A B _ - A B _ B A A A B - B _ _

explanations are partly based on the assumption that interactions of individuals are essentially complex, and it is usually not possible to have enough information about the motives of the individuals and about the peculiarities of their individual situation. We have also seen that it is usually not possible to gain knowledge about the characteristics of the individuals by simply observing social phenomena – in the sense implied by invisible-hand explanations. For these reasons, invisible-hand

observe and what they already know about other things, and usually if they find enough (or some) similarities between two different phenomena, they use these similarities to reason about the relatively less-known phenomenon. If we are allowed to use ‘analogy’ in a loose way, we may say that all we know about our neighbours, how they react to or interact with another ethnic group, or the things we know about social behaviour, individuals’ reactions to social differences, etc. may help us in

‘invisible hand’ is removed. By way of removing this misunderstanding, the chapter prepares the ground for examining contemporary examples of invisible-hand explanations. Menger and Schelling’s models and insights were reconsidered and remodelled by contemporary authors. For this reason, there is an explicit link between these models and the contemporary literature we wish to understand. This gives us a chance to evaluate the progress of this ‘research programme’. For example, Introduction  9

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