Markets regulations and law (behavioural economics)

Markets, regulations and law th th

Domande a sorpresa a inizio classe; multiple choice questionnaires (7 of oct and 28

oct); writing assignment (to upload at the beginning of dec)

LAW, ECONOMICS and MODELS of AGENTS

Models of agents

Agent’s actions human decisions.

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Institutions organized social interactions.

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Social science modelling: basic models of human agent and decision-making process

in an environment with scarce resources. It can be microeconomic (individuals

interacting ex: buyers-sellers) and macroeconomic (institutions interacting ex:

governments).

Rational choice theory

Approach that relies on methodological individualism aggregate social behaviour



results from behaviour and decisions of individuals. (Microeconomic perspective +

strict assumptions of rationality).

Axioms of rational choice: completeness (preferences are clear), transitivity, continuity

(a preferred to b all situations close to A are preferred to b). people can rank

 

situations from least desirable to most.

Behavioural economics

Bounded rationality: individuals do not act rationally when making decisions, because

of many external and internal factors the satisfactory solution, not the optimal

seek

one. Causes:

Heuristics and bias: people often make decisions based on not strict logic and

 repeat systematic errors

Frames: to understand and respond to events individuals rely on stereotypes

 and anectodes.

Behavioural economics always use experiments to collect data

ex: Linda’s experiment: single graduated outspoken … she’s just a bank teller and not

a feminist because we know that generally is more probable that a person has just one

role conjunction fallacy (stereotypes on feminists). Another ex: economists at a

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dinner will eat all the appetizers before the main dinner self- control even though

no

they knew the dinners was going to be served soon.

Behavioural ‘policy’

On law – going cognitive

Neuroscience: scientific research on the structure and function of the nervous system.

Cognitive neuroscience: studies on cognitive decision-making processes.

Behavioural economics detect systematic deviations from the rationality in real life

behaviours.

Research on behaviours of legal agents legal studies are also starting to do

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experimental research. Using neuroscientific evidence and studying the redefinition of

legal capacity boundaries.

Endowment effect: effect that make people more likely to retain an object when they own it than

acquire that same object when they do not own it. (the willingness to give up the object is lower when

they own it than when they do not).

Reading: RATIONAL DECISION-MAKING IN BUSINESS ORGANIZATIONS

Decision theories in the service of political economy are not economics, so they do not

subgoal identification: when the goals of an organization cannot be connected

operationally with actions then decisions will be judged against subordinate goals that

can be so connected.

The employment relation: why preferred employment? accepted employment in a

business firm and the authority relation with the employer because of 2 reasons:

uncertainty, as to which future behaviours would be advantageous to the employer,

and indifference of the employee as compared with the employer.

Organizational equilibrium: defined the survival of organizations in terms of the

motivations that make their participants willing to remain in the system. also bring



positive profits

Social interactions (between individuals): A sequence of social actions between

individuals or groups who modify their actions and reactions due to actions by their

interaction partner.

Standard economics theories relies upon a set of individual rational

 expectations that apply in a friction-less world. But this does not apply to our

world as we are affected by beliefs, interests.

Reciprocity is a phenomenon where people feel obliged to give back what they

received (both in a positive and in a negative way).

With a research of Falk, was discovered that taking as a sample 80000 people

 from all different countries, the preferences changed depending on individual

characteristics (women, old people cathegories)

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Social rules country by country (a study on it)

Positive reciprocity: low in China and northern Africa

 Trust: high in China, low in Japan



Fairness: is a key for understanding how we react, depending on how we perceive the

fairness of the situation. Ex: ultimatum game: 2 people; the person with money

offers a share to the other. Until it is a rational offer (ex 70-30) the other will accept

but with a more unfair the other will refuse even if it is not rational (the other person

would get no money instead of getting something even if not much).--> also animals

react the same way.

From fairness to war

Individual vs collective agents

Collective agents like states or firms pursuing their objective will be more willing to

come to a solution and find a mid-way.

The thucidydes trap: consist in a tendency to war when an emerging power threatens

to displace an existing great power (ex: USA vs China).

Geo-economics (interplay of international economics, geopolitics and strategy) using

of economic tools for conflicts, the study of the effects and the material causes of

power disputes among different actors. strategy like the chinese one: belt and road

initiative (starting by building streets and sea channels infrastructures). Later on

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USA answered to these initiatives against the emerging power (against Russia as well).

Starting a trade war or economic warfare, fought by means of laws and regulations.

But Usa trying to sabotage China ended up getting damaged (agriculture sector sunk

for exports).

Economic intelligence: a range of activities that aim at picking information about

another country’s economy in order to safeguard another country’s economic safety

(to support decision making). a line of thought that acquires and manages useful



economic information within the current geo-economic contexts. Economic security is

mainly given by companies behaviours and status, as by imposing sanctions on the

right sector, countries can damage or help in a more significant way. Objectives of EI:

Support strategic decisions; Data research in view of defensive/offensive actions (e.g.

firewall against unfair commercial practices, R&D/IP protection, predatory espionage);

Activity of influence on events, as well as on policies or decisions by governments or

companies of other States. Ex: the foreign agricultural service (FAS) within the US

department for agriculture is a key EI agent in the global agricultural sector.

Competitive intelligence: EI but for companies.

Reading: On foreign investment and merger controls: A law and

geoeconomics view

A golden share is a type of share that gives its shareholder (usually a government

organization) special veto power over changes to the company’s charter, as well as

over a takeover or acquisition by other companies. Before there was a lack of control,

but now the Government (Italy) has a say in the decisions of the shareholders. There

has been a transition from golden shares to golden powers. The Italian golden power

rules stipulate that an inter-ministerial committee may exercise veto powers on

extraordinary operations related to companies that are incorporated in Italy and

involved in special activities indicated by the law.

Foreign investment and merger control: in EU things started to change as the new

objective became to establish a cooperation mechanism based on the obligation that

Member States inform the Commission about any non-EU investment to be screened

according to national applicable laws, with the possibility for the EU institutions to

issue a non-binding – but highly authoritative – opinion.

Focus transition from geo-politics to geo-economics as geo-economics is to be

understood as the use of economic tools to achieve geo-political goals. Basically, to

add the logic of war in the grammar of commerce. Countries use that to preserve their

own safety (economic and politic wise) and now they are including big firms in this

process (from local to international role of companies).

Market: a dimension in which happens the meeting of supply and demand both

physical and virtual. Polanyi: market economy should be understood not as a

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natural way of organizing societies, but rather as a radical transformation occurred

within human relationships when moving to trading activities as the prevalent form of

exchange. To solve human needs, human relationships took different forms:

Householding: where family units produce food, textile goods for their own use

 and consumption

Reciprocity: exchange of goods and services based on traditions, like primitive

 economies (network of shared obligations that motivates individual behaviour)

Redistribution: allocation and production of goods transferred to a political chief

 which redistribute.

Market exchanges separated from social structures, the other are based on social

aspects (centricity, symmetry and autarky).

Market: a device to manage exchange where prices emerge from the meet of

 demand and supply. The modern market concept rose when markets became

the man way to deal with human needs.

Embeddedness: concept that express that in non-market societies economics activities

are tied to religious and political institutions (non-economic stuff), meanwhile in

market societies, markets have been rationalized and do not follow the society, but

their own logic ( critics say it’s not true, there are always non-economic factors). 

example: China’s market was and still is deeply embedded with its society (strong

bureaucracy system) but achieved to be a rich economy.

Market development: eastern perspectives: relying in the market mechanism, however

the state intervened in:

Market idea

Trade arenas of price uniformity, institutions, networks, value-creating systems,

consumers’ cognitive frames, outcomes of performative practices.

Markets as trade arenas of price uniformity, so a place where the same price is to be

paid for the same thing, at the same time, in all parts of the market. following

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theories like the General Equilibrium Theory which explains efficient distribution via

price setting mechanisms as part of a design for an optimal economic order.

Assumptions: market composed of individuals who have rational preferences, buyers

maximize utility and sellers profit, participants act independently and with full info.

Markets as institutions: market actors participate in markets only after acknowledging

guidelines. Market institutions function as protocols to control exchange. restricting

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the potential alternatives (via rules and sanctions).

Market as networks: actors operate in relationship with each other (b to b and b to c),

the market is a node of a network look for interdependency and an on-going

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interaction. Buyers and sellers know each other. The network of a company can be

seen as an extension of the company itself.

Market as value creating system: development of the market as a network. It focuses

on the creation of value. useful to see the customer as a co-producer, rather than a

receiver. Ex: IKEA making the customers building furniture and connecting the

suppliers.

Markets as consumers’ cognitive frames: consumer culture theory: focuses on aspects

of consumption and how these factors influence the consumer. focus on demand.

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exchange / trading practices that focus around calculative processes and market

devices normalising practices that contribute to shaping markets by establishing rules

and regulations. Practices might involve third parties, such as government agencies

that are not directly involved in exchange, but that are endogenous to the process of

shaping markets. representational practices that produce images of markets and

frame mental models of actors: representations are relevant because mental models

are antecedents to business models.

Markets as outcomes of performative practices: actors shape markets with their

everyday practices. The practices that shape the markets are: exchange / trading

practices, establishing rules and regulations. Practices might involve third parties,

such as government agencies that are not directly involved in exchange,

representational practices as representations are relevant because mental models are

antecedents to business models.

Market representation: frame, content, purpose, approach.

Case study: a WWII war camp. In the camp they were given a quantity of basic goods

(ex: cigarettes) that became a type of currency. There were different types of

cigarettes, and the preferences of smokers were based on the brand of the cigarette or

if it was handmade or pre-built. People started to use mostly hand made cigarettes for

exchanges, leaving the standard ones to smokers, but soon there were problems:

cigarettes too thin or not well done were rejected. Slowly become to grow price rings

and monopolies as different conditions in the camp and contacts with the French camp

started. A board with offers (prices of goods offered) were put, a restaurant and a shop

born and started issuing a paper currency instead of cigarettes. Started to control

prices influencing the public opinion. inflationary and deflationary trends started and

the board managed by the shop and restaurant was not able to keep up with them, so

the system came back to its original way of trading: cigarettes in exchange for goods.

Reading: assembling market representations

Market representations and translations (assemblages of representational objects): A

market representation includes the representational objects (what), and the practices

in which objects are put together (how), in order to privilege a view of a market (what

for). Translations are operations enabled because they are multifaceted negotiations

that problematize how an actor responds to an action.

Research design and data gathering: Market research is the systematic gathering and

interpretation of information about individuals or organizations using the statistical

and analytical methods and techniques of the applied social sciences to gain insight or

support decision making.

Tension between exchange and non-exchange (FRAME): the frame of the market is

exchange when the central aspect is on trade, while it is non-exchange when the

action is centred in forces that may influence trade but which are not bound to price-

setting mechanism. The frame delimits what will be part of a situated market. For a

marketer, a market frame which includes non-exchange elements is often necessary

because marketers often operate on the fringes of cultural and economic domains

(Slater, 2012), for example, a manager focuses on exchange when introduces a price

reduction but expan