ADENeuro Psy

Executive Summary of Applied Doughnut Economics1 T. Larsen, Former EU/FP Coordinator; Email: torlars46@gmail.com Abstract Contemporary Mainstream Economics suffers from both internal inconsistency on behavior and lack of external outlook despite an overwhelming success in the real world! New pluralist behavioral economics (PBE), based on the Big Five Taxonomy, focuses on group processes rather than individuals where the most Open-minded of the Big Five is the key person in the formation of group standards. PBE identifies the democratic culture as the weakest link in the chain of interactions towards sustainable development due to the complexity of the issue. This requires a systematic information of the public on Economics to improve the quality of democratic decision-making on economic- political issues. The overall selection criteria of elements of economics for such a public information program is Human Capital value which has guided the structure of this new textbook. The Challenge of Contemporary Economics Globalized liberalist market growth has been extremely successful! eg. was GDP per household in the US 169.000 USD in 2019. The boundary of relative poverty, which covers both minimal physical and social expenses, is typically considered to be 50% of the median income. Median household income (2.6 person) in the US was 34.000 USD corresponding to 20% of GDP. Further, the model of liberalist market growth is now adopted by 80%+ of the world population with different countries at different stages of development. Despite the unique success of growth by liberalist markets, the intra-economics discussion of the growth model has been very intense since WW2. The state of intra-economics was recently reviewed with the conclusion of a deep schism between `Consistency based on Dogmatism` and `Pluralism accepting inconsistency` [Graebner and Strunk, 2020]. The present attempt to rethink Economics arises from both the internal heterodoxy and interacting findings in related scientific disciplines as: ● ● The disastrous scenario of the Green-house effect evidenced by Meteorology as evidenced by a series of IPCC Reports The special inequality of income arising from Globalization [Piketty 2014 et Francese & Mulas-Granados 2015]. Externalities are costs or benefits incurred or received by a third party who has no control over how that cost or benefit was created. In accordance with ordinary principles of human responsibility the best political response to negative externalities is to make the responsible agent pay. This principle operated from 1920 until today as a Pigouvian Tax (ET) where the negative economic transaction is taxed corresponding to the harm implied to society. The harm of the Green-house effect by CO2 emission is calculated as the difference between the unit price of the harming component and the best alternative. On CO2-emission, the typical alternative to fossil energy is renewables such as sun and wind. ET must equalize the price difference between these alternatives to give business the necessary incentive to substitute fossil energy in the direction of non-fossil sources. Bookweb: https://www.igi-global.com/book/applied-doughnut-economics-neuroeconomic-psychology/254905#table-of-contents 1 So far, no real news about Economics! However, ET on the global CO2-emission is a gigantic challenge compared to known experiences from local ET. The primary challenge is no longer either the ecological or economic aspects, but ambiguity of the democratic political culture to implement an appropriate ET: The left wing fears social downloading of the economic burden while the right wing fears it harms national economic competitiveness. These prejudices are so strong even at the national level that it seems extremely difficult to establish the necessary international collaboration in due time eg. on the Paris Agreement 2015. This extraordinary situation requires a new economic and political pluralism as rolled out in this new Textbook in Economics whereof the crucial novelties add up in 3 points: (1) The Big Five Taxonomy of behavioral psychology frames a pluralist behavioral economics (PBE) with 5 different types of economic agents as based on Goldberg [1993] (2) Expansion of PBE to the level of economic-political ideologies as based on the large-scale experiences with Communism in Eastern Europe [Maddison, 2003] and the ecological crisis (3) New Economics as structured with a view on human capital value [Becker et al., 1993] 1 Neuroeconomic Psychology for Behavioral Economics A review of Neuroeconomics advances a neuroeconomic model of economic decisionmaking [Larsen, 2017]. The dynamics of cognitive integration is tripartite as illustrated in Figure 1. The X-axis represents the ambivalent state of passion as internally inhibited by fear which is the central part of the Autonomic Nervous System (ANS). The Y-axis represents Cognition as indicated by the degree of Lateralization (Hemispheric asymmetry in the EEG). The overall state of integration of ANS and COGNITION is the typical resting position on the integration curve that indicates individual Temper or `Risk-aversion`. Neuroeconomic trials on Complex (Intertemporal) respective Explorative choices show that the best cognitive integration is accomplished for a moderate arousal of ANS. In this way Risk-willingness or Temper appears as a basic economic decision-making parameter. Legend: The cognitive Peak is evidenced by: 1 Intertemporal Choices demonstrate dominance of risk-aversion with low cognition. 2 Explorative choices demonstrate dominance of passion over cognition. Figure 1. Neuroeconomic Model of Economic Choices `Willingness to take risks in general` is operated on a scale from 0 through 10 in a representative survey on ‘risk attitudes’ with 20,000 respondents [2Dohmen et al., 2012]. The correlation for a on important life domains are: 1) Car driving (r=0.49), 2) Financial matters (r=0.50), 3) Careers (r=0.61), 4) Sports/leisure (r=0.56), and 5) Health (r=0.48). The Dohmen-scale has an average of 4.4 with SD=2.25. More factors affect the ‘General risk willingness’, however, the single far most important factor is gender as females are moderately more risk-averse than males (Average: Male=5 and Female=4). The wiring of the brain shows gender differences where males have strong Frontal-Posterior connections which promote stringent goal-directed thinking while females have better interhemispheric connections promoting collaborative and balanced thinking. It is directly illustrated by Figure 1 how a rising complexity of politics, eg. by the Green-house effect, reduces the cognitive decision-making capacity. Further, behavioral psychology specifies 5 different groups of personality (‘Big Five’) by statistical correlation studies [Goldberg, 1993]. The relationship between `Risk-willingness` (Figure 1) and the ‘Big Five’ is studied in correlation studies [Becker et al., 2012]. A positive correlation exists between `Risk-willingness` and `Extraverts` and 'Open-minded', while negative correlation exists with `Risk-averters` and `Conscientious`. Figure 2 illustrates the `Big Five` as ordered by `Risk-willingness`width `Extraverts` and `Risk-averters` as the respective poles with `Agreeables` in the center [Larsen, 2019]. Note: The psychological term `Neuroticism` is replaced by `Risk-averse` in Economics. Figure 2. `Big Five` Personality Traits The social validity of the `Big Five Taxonomy` is demonstrated in a study of students in different Academic Majors using the `Big Five` Taxonomy [Vedel, 2016]. The psychological differences across Majors are often moderate (about 0.5 standard deviation), but especially open-mindedness differentiates strongly among Majors. Relevant findings are: ● ● ● ● Students of political science score high on both Open-mindedness and Extraversion Students of economics, law and medicine score high on Extraversion Students of science (including engineering) score high on Agreeable Students of psychology/arts/humanities score high on Open-mindedness and Risk-aversion Students of economics are more Extraverted than students of other majors. A later study elaborates the characteristics of students of Economics/Business as more infected by the `Dark Triad` (Narcissism, Psychopathy and Machiavellianism) in contrast to students of psychology [Vedel & Thomsen, 2017]. The most flexible center-profile is the Open-minded due to her unique ability to interpret novel impressions in a context of well-known experiences [Gountas & Corciari 2012 and Kern et al. 2019], see Figure 3 based on the marketing curve [Rogers, 1962]. This group-based key function is quite different from the Neoclassical paradigm of `Bounded Rationality (BR) [Simon, 1957] with the Agreeable as prototype. Figure 3. Market Penetration Curve 2 Democratic Inclusiveness In Democracy, the societal power is typically divided between an 1) Elected Parliament, 2) Executive Government appointed by the Parliament and 3) Independent Judicial System. The overall target of the democratic culture is set as `Inclusiveness` of economic-political ideologies as alternative to classical left- versus right-wing fighting [Gare, 2003]. The first benchmark of `Democratic Inclusion` is protection of minority rights by gender, race and ethnicity. Already, this is implemented by most industrialized democracies. The second benchmark is that broad coalitions across the center agrees on public finance of collective needs eg. healthcare. This is implemented in democracies with a tradition for strong social democrate movements for instance Scandinavia and some Northern Continental countries such as Germany, UK and Canada in contrast to the market-based healthcare system in the USA. The third inclusion benchmark is coalitions across the center for effective interventions towards the Green-house effect which actually is debated in most of the countries at benchmark 2. The ongoing rise of the `Creative Class` [Fllorida, 2002] supports the development of democratic inclusiveness by a rising level of education and especially a larger share of Open/minded [Larsen, 2019]. Figure 4 illustrates the full spectrum of complementary rather than contradictory - economic-political ideologies following Barry-Jones [2001]. Note: Extremist ideologies (Communism and Neoliberalism) are either ineffective or catastrophic. However, already center-oriented ideologies such as `Social Liberalism` and `Social Democrats` do have a long history, too. PS! China claims to be a socialist market economy. However, the graph does not apply to China because China is not a representative democracy. Figure 4. Post-Industrial Political Spectrum 3 Economics as Dissemination of Human Capital Human Capital (HC) is the stock of habits, knowledge, social and personality attributes (including creativity) embodied in the ability to perform labour so as to produce economic value [Becker, 1990]. HC is evidenced as an independent econometric growth factor that accounts for 12-15% of GDP [Schutt, 2003]. Structuring Economics with a view on HC turns courses in Economics into an independent growth factor. Larsen advances [2021] the following structure of Economics to maximize the HC-value: ● Part 1 BUSINESS ECONOMICS comprizing Chapter 1 Pluralist Behavioral Economics and Chapter 2 From Local to Globalized Markets In all Part 1 restructures classical Microeconomics departing from Neuroeconomic Psychology. This implies too, focus on critical new microeconomic behaviors as `Simple Living [Luhr, 1997] and Pilot-in-plane entrepreneurship [Saraswathy, 2001]as well as the basic change of market conditions by Globalization. ● Part 2 DOUGHNUT ECONOMICS comprizing Chapter 3 New Welfare Economy and Chapter 4 Economic Ecology Part 2 restructures Macroeconomics from the Doughnut point of view where important externalities as 1) Income inequality by globalization and 2) The Green-house effect must be internalized in Economics as systemic market failures [Raworth, 2017]. Further, is the latest experiences with calculation models for a Pigouvian Tax on CO2 Emission summarized by economic specialists from the Danish Climate Council. ● Part 3 HUMAN RESOURCE DEVELOPMENT (HRD) extends the mainstream scope of Economics with com[lementary cognitive training heuristics for 1) Sensitivity to Big Five, 2) Long-term Memorization, 3) Visualization for improved performance and 4) Stress Management by Meditative In-depth-relaxation. The development of the specified heuristics is complemented by Appendices from leading specialists in the respective fields. PhD in psychology Anna Pazek-Vedel reviews the Big Five Taxonomy. The heuristic on Long-term memorization (LTM) refers directly to the Working Memory model [Baddeley, 2010]. Visualization refers to Sportsmedicine. Professor Emeritus Are Holen summarizes the theory of meditative In-depth relaxation. Finally, the border to the Humanities is bridged with an introductory plain summary on the economic history where Artist and PhD Hiltrud Schinzel illustrates the major phases. References Baddeley A (2010): Working Memory. Curr Biol 20(4): 136-40. Barry-Jones RJ (Ed. 2001): "Inclusive Democracy" 732-40 entry in Routledge Encyclopedia of International Political Economy. Routledge. Becker A, Decker T, Dohmen T et al, (2012). The Relationship between Economic Preferences and Psychological Personality Measures. Annu Rev Econ 4:453-78. Becker GS (1993). Human Capital. A Theoretical and Empirical Analysis, with Special Reference to Education (3rd ed.). University of Chicago Press. Dohmen, T, Falk A et al. (2012). Individual Risk Attitudes: Measurement, Determinants and Behavior. JEEA. Florida R (2012). The Rise of the Creative Class-Revisited:10th Anniversary Edition. Basic Books. Francese M, Mulas-Granados C (2015): Functional Income Distribution and Its Role in Explaining Inequality. IMF. 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