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Endogenous preferences, emotions, and the breaking of social capital into economics

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  • Martti Vihanto

    () (Department of Economics, Turku School of Economics)

Abstract

The creation and effects of social capital have seldom been a target for systematic analysis in orthodox economics. The purpose of the paper is to argue that in order to include social capital, along with physical and human, into economic analysis, we have to regard human preferences as endogenous and pay more attention to the contents rather than merely the logic of choice and decisionmaking. The paper limits itself to examining the role of trust in the formation and disruption of social capital. Emotions such as guilt and shame are central in the emergence of trust within social relations. Sources of and means to strengthen trustworthiness are examined in the context of bank loans.

Suggested Citation

  • Martti Vihanto, 2007. "Endogenous preferences, emotions, and the breaking of social capital into economics," Discussion Papers 18, Aboa Centre for Economics.
  • Handle: RePEc:tkk:dpaper:dp18
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    File URL: http://www.ace-economics.fi/kuvat/dp018.pdf
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    References listed on IDEAS

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    1. Uskali Mäki, 2004. "Theoretical isolation and explanatory progress: transaction cost economics and the dynamics of dispute," Cambridge Journal of Economics, Oxford University Press, vol. 28(3), pages 319-346, May.
    2. Mishkin, Frederic S, 1992. "Anatomy of a Financial Crisis," Journal of Evolutionary Economics, Springer, vol. 2(2), pages 115-130, August.
    3. James Jr., Harvey S., 2002. "The trust paradox: a survey of economic inquiries into the nature of trust and trustworthiness," Journal of Economic Behavior & Organization, Elsevier, vol. 47(3), pages 291-307, March.
    4. Frank, Robert H, 1987. "If Homo Economicus Could Choose His Own Utility Function, Would He Want One with a Conscience?," American Economic Review, American Economic Association, vol. 77(4), pages 593-604, September.
    5. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132-132.
    6. Ferrary, Michel, 2003. "Trust and social capital in the regulation of lending activities," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 31(6), pages 673-699.
    7. Israel M. Kirzner, 1997. "Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 60-85, March.
    8. Harvey James, 2002. "The Trust Paradox: A Survey of Economic Inquiries Into the Nature of Trust and Trustworthiness," Microeconomics 0202001, EconWPA.
    9. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
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    More about this item

    Keywords

    social capital; trust; endogenous preferences; emotions; behavioural economics; bounded rationality;

    JEL classification:

    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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