Knowledge that Transforms

We survey the literature on estimating risk preferences using field data. We concentrate our attention on studies in which risk preferences are the focal object and estimating their structure is the core enterprise. We review a number of models of risk preferences—including both expected utility (EU) theory and non-EU models—that have been estimated using field data, and we highlight issues related to identification and estimation of such models using field data. We then survey the literature, giving separate treatment to research that uses individual-level data (e.g., property-insurance data) and research that uses aggregate data (e.g., betting-market data). We conclude by discussing directions for future research. ( JEL C51, D11, D81, D82, D83, G22, I13)

Bruce M. S. Campbell's The Great Transition: Climate, Disease and Society in the Late-Medieval World is a significant contribution to the growing literature that traces the roots of Europe's economic rise to the climatic and population shocks of the late medieval period. This review essay discusses the empirical, historical, and theoretical support for Campbell's view while highlighting that it struggles to explain why these positive effects were limited to Europe. It then hypothesizes that Europe's differential response to this shock reflected prior institutional advantages and provides some preliminary empirical evidence in support of this hypothesis. The essay concludes by examining Campbell's claim that these shocks contributed to Atlantic Europe's rise prior to the colonial period. ( JEL I15, J11, J13, N13, N33, Q54)

The importance of evolutionary forces for comparative economic performance across societies has been the focus of a vibrant literature, highlighting the roles played by the Neolithic Revolution and the prehistoric "out of Africa" migration of anatomically modern humans in generating worldwide variations in the composition of human traits. This essay provides an overview of the literature on the macrogenoeconomics of comparative development, underscoring the significance of evolutionary processes and of human population diversity in generating differential paths of economic development across societies. Furthermore, it examines the contribution of a recent hypothesis set forth by Nicholas Wade, regarding the evolutionary origins of comparative development, to this important line of research.

This essay reviews Nancy MacLean’s Democracy in Chains: The Deep History of the Radical Right’s Stealth Plan for America, which triggered a huge controversy that virally spread on the Internet and in various journals. We will evaluate MacLean’s almost biographical account of James Buchanan, which portrays the 1986 Nobel Prize laureate as the mastermind behind today’s attacks, by the foot soldiers of the radical right, on American democracy. This essay develops three main points. One, MacLean’s general narrative puts too much emphasis on Buchanan and largely neglects the many other important characters who contributed to the intellectual criticism of government intervention. Two, MacLean’s account is marred by many misunderstandings about public choice theory, for instance about the role that simple majority rule plays in constitutional economics. Third, in the midst of abundant archival material, her historical narrative is, at best, sketchy, and is replete with significantly flawed arguments, misplaced citations, and dubious conjectures. Overall, MacLean tends to overinterpret certain aspects in Buchanan’s life and thought, while she overlooks others that are equally important in understanding his work and influence. In particular, we stress that Buchanan was, first and foremost, a scholar, not a political activist, who gave significant attention to ethical considerations in his analysis of markets. ( JEL A11, B21, B31, D72, K00, N42)

This timely volume (Global Tax Fairness, edited by Thomas Pogge and Krishen Mehta) on the proper taxation of multinational enterprises argues that several feasible, near-term reforms could substantially narrow the scope for tax avoidance by closing information gaps, and it proposes more ambitious, long-term reforms that pursue coordination on the design, not just the enforcement, of tax policy. The editors construct an impassioned normative case that (legal) avoidance violates fairness because its negative effects fall especially hard on the world's poor, but their case could be bolstered by an appeal to the classical benefit-based logic behind the central aim of the reforms they recommend. (JEL D63, F23, H25, H87, K34).

I review William N. Goetzmann’s Money Changes Everything: How Finance Made Civilization Possible. This magnificent book offers insightful coverage of more than 5,000 years of human history under the theme of “how finance made civilization possible.” I reinterpret its main hypotheses in the context of recent economic research on finance and development, and also compare them with other economic historians’ views. I suggest that further examinations of the historical facts in the book could guide us in rethinking financial regulation. ( JEL E42, E44, G00, N20)

This essay reviews Michel De Vroey’s important new book on the history of macroeconomics, which extends to business cycles an earlier book by the same author on the history of involuntary unemployment. The review also offers a broader nontechnical survey of the issues and models that make up modern macroeconomics, including a reckoning of what we have learned since John Maynard Keynes and of the discoveries that still lie ahead. ( JEL B22, B41, E12, E13, E32)

Social neuroscience studies the “social brain,” conceived as the set of brain structures and functions supporting the perception and evaluation of the social environment. This article provides an overview of the field, using the book Social Neuroscience: Brain, Mind, and Society (Russell K. Schutt, Larry J. Seidman, and Matcheri S. Keshavan, editors) as a starting point. Topics include the evolution of the social brain, the concept of “theory of mind,” the relevant brain networks, and documented failures of the social brain. I argue that social neuroscience and economics can greatly benefit from each other because the social brain underlies interpersonal decision making, as studied in economics. (JEL D11, D71, D87, Z13)

This essay presents a critical review of the recent book by Alkire et al. entitled Multidimensional Poverty Measurement and Analysis, and, in the course of doing so, it also discusses some general issues that come up in this context. We outline the basic structure of the problem of measuring multidimensional deprivation and critically evaluate the methodology adopted by Alkire et al. (2015). In particular, we discuss some problems associated with the methods used by them to identify the deprived and to aggregate individual deprivations so as to derive an index of social deprivation. We examine the interpretation in terms of unfreedoms of individuals, which Alkire et al. put on one of their measures of social deprivation. We also suggest a variant of their methodology for measuring multidimensional deprivation.( JEL C38, E02, I32, Z13)

Abundant data has led to new opportunities for empirical auctions research in recent years, with much of the newest work on auctions of multiple objects, including: (1) auctions of ranked objects (such as sponsored search ads), (2) auctions of identical objects (such as Treasury bonds), and (3) auctions of dissimilar objects (such as FCC spectrum licenses). This paper surveys recent developments in the empirical analysis of such auctions. (JEL D44, H82)