theory of finance
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In order to understand the precise predictions of the Leverage Cycle theory, in this last class we explicitly solve two mathematical examples of leverage cycles. We show how supply and demand determine leverage as well as the interest rate, and how impatience and volatility play crucial roles in setting the interest rate and the leverage. Mathematically, the model helps us identify the three key elements of a crisis. First, scary bad news ...more
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Edmund Burke was an English politician who wrote his Reflections on the Revolution in France to express his disdain for the destructive havoc wrought by the French Revolution. As a traditionalist-conservative, he thinks about social change in a cautious and incremental way and characterizes the social contract as binding on those who are living, those who are dead, and those who are yet to be born. Studying the anti-Enlightenment differs f...more
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John Stuart Mill's synthesis rights and utility follows naturally in the vein of neoclassical utilitarianism, and it attempts to compensate for many of the shortcomings of Bentham's classical utilitarianism. In the end, it turns out to be a doctrine that does not look very similar to Bentham's at all. An important component of Mill's doctrine is his harm principle, which states that the only purpose for which one can interfere with the lib...more
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The sanitary movement was an approach to public health first developed in England in the 1830s and '40s. With increasing industrialization and urbanization, the removal of filth from towns and cities became a major focus in the struggle against infectious diseases. As pioneered by Edwin Chadwick, the sanitary movement also embraced an explicit political objective, according to which urban cleansing took on a figurative as well as a literal...more
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Professor Shapiro continues his examination of Jeremy Bentham's formulation of classical utilitarianism, with a focus on the distributive implications of the theory of "maximizing the greatest happiness of the greatest number." He engages students in a discussion of a guiding principle of classical utilitarianism, the principle of diminishing marginal utility, and some traditional critiques of this principle. Professor Shapiro examines the...more
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Part 1 - A Lesson in Lying: Immanuel Kant believed that telling a lie, even a white lie, is a violation of one’s own dignity. Professor Sandel asks students to test Kant’s theory with this hypothetical case: if your friend were hiding inside your home, and a person intent on killing your friend came to your door and asked you where he was, would it be wrong to tell a lie? This leads to a video clip of one of the most famous, recent exampl...more
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The cultural transition from the romantic era of consumption to the era of tuberculosis derived not only from the germ theory of disease and the triumph of contagionism over anticontagionism, but also from political considerations. Worries over population decline and growing working-class militancy were aggravated by what now appeared to be a social disease, or a disease of poverty. One of the strategies deployed against the disease was th...more
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In this lecture on feminist criticism, Professor Paul Fry uses Virginia Woolf's A Room of One's Own as a lens to and commentary on the flourishing of feminist criticism in the twentieth century. The structure and rhetoric of A Room of One's Own is extensively analyzed, as are its core considerations of female novelists such as Austen, Eliot, and the Brontës. The works of major feminist critics, such as Ann Douglas, Mary Ellman, Kate Millet...more
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In this lecture, Professor Paul Fry turns his attention to the relationship between authorship and the psyche. Freud's meditations on the fundamental drives governing human behavior are read through the lens of literary critic Peter Brooks. The origins of Freud's work on the "pleasure principle" and his subsequent revision of it are charted, and the immediate and constant influence of Freudian thought on literary production is asserted. Br...more
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The form of medicine that arose in fifth-century Greece, associated with the name of Hippocrates and later popularized by Galen, marked a major innovation in the treatment of disease. Unlike supernatural theories of disease, Hippocrates' method involved seeking the causes of illness in natural factors. This method rested upon an analogy between the order of the universe and the composition of the body's "humors." Health, on this view, was ...more
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This lecture explains what an economic model is, and why it allows for counterfactual reasoning and often yields paradoxical conclusions. Typically, equilibrium is defined as the solution to a system of simultaneous equations. The most important economic model is that of supply and demand in one market, which was understood to some extent by the ancient Greeks and even by Shakespeare. That model accurately fits the experiment from the last...more
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In the first half of the lecture, we consider the chain-store paradox. We discuss how to build the idea of reputation into game theory; in particular, in setting like this where a threat or promise would otherwise not be credible. The key idea is that players may not be completely certain about other players' payoffs or even their rationality. In the second half of the lecture, we stage a duel, a game of pre-emption. The key strategic ques...more
