Gillies’ Philosophical Theories of Probability, Chapter 9

Chapter 9 of Donald Gillies’ Philosophical Theories of Probability (2000) is his conclusion and sets out his views on a “pluralist” theory of probability.

Gillies argues that an epistemological theory of probability is appropriate for the social sciences, but an objective theory for the natural sciences (Gillies 2000: 187).

Gillies in a fascinating section (Gillies 2000: 188–194) considers probability in economics. He concludes that, since the actions of economic agents cannot all be considered as independent of one another, their actions are often very much characterised by reaction to other people’s action or expected actions (Gillies 2000: 190). But, since the independence assumption is fundamental for the objective theory of probability, it follows that an objective theory of probability cannot apply to many economic situations or phenomena (Gillies 2000: 190). For example, in the instance of financial markets, general expectations might appear to predict an outcome since they have influenced the outcome (Gillies 2000: 196).

Gillies concludes with some methodological points. The subjective and intersubjective theories of probability use operationalism, but the objective long-run propensity theory rejects operationalism (Gillies 2000: 200).

External Links
“Interpretations of Probability,” Stanford Encyclopedia of Philosophy, 2002 (rev. 2011)
http://plato.stanford.edu/entries/probability-interpret/

BIBLIOGRAPHY
Gillies, D. A. 2000. Philosophical Theories of Probability. Routledge, London.

Downward’s Pricing Theory in Post-Keynesian Economics: Chapter 9

Chapter 9 of Paul Downward’s Pricing Theory in Post-Keynesian Economics: A Realist Approach (Cheltenham, UK, 1999) presents his conclusions.

Downward concludes that critical realism is the appropriate method for Post Keynesian economics (Downward 1999: 181).

For Downward, the

“behavioural ‘core’ of post Keynesian pricing theory can be identified through the focus on the mark-up. In deference to research on actual agent decision making under conditions of uncertainty, post Keynesians should emphasise that prices are set by firms adding a mark-up to some measure of average costs. The mark-up is determined ex ante in the uncertain pursuit of some (possibly multiple) objective(s).” (Downward 1999: 181).

This is in contrast to neoclassical economics that neglects overhead/fixed costs, and frequently has unrealistic assumptions in its behaviour theory.

Econometric studies are only a limited and incomplete form of evidence on pricing and the fundamental empirical work must remain qualitative case studies (Downward 1999: 183).

Demand obviously influences flexprices, and it can influence mark-up prices too, but does so to a lesser degree than costs. Downwards’ own research finds that “prices display considerable inertia” (Downward 1999: 184).

Businesses’ general unwillingness to change prices is rational, and is part of their behavioural attempts to overcome uncertainty and stabilise expectations (Downward 1999: 187).

These conclusions are highly problematic for neoclassical economics.

BIBLIOGRAPHY
Downward, Paul. 1999. Pricing Theory in Post-Keynesian Economics: A Realist Approach. Edward Elgar Publishing, Cheltenham, UK and Northampton, MA.