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Methodological individualism underpins economic analysis. In his paper in this volume, however, Douglas Glen Whitman demonstrates that group selection can be reconciled with methodological individualism. This essay extends Whitman’s analysis in two ways. First, it summarizes and restates the necessary conditions for group selection to play a role in the evolution of human preferences and societies. Second, it discusses the role of group selection in Hayek’s thought, with a particular focus on the role of group selection in the evolution of legal rules and the rule of law. The viability of group selection is demonstrated to be an empirical question.

This paper explores the interface between institutional theory and Austrian theory. We examine mainstream institutionalism as exemplified by D. C. North in his work with Wallis and Weingast on the elite compact theory of social order and of transitions to impersonal rights, and propose instead an Austrian process-oriented perspective. We argue that mainstream institutionalism does not fully account for the efficiency of impersonal rules. Their efficiency can be better explained by a market for rules, which in turn requires a stable plurality of governance providers. Since an equilibrium of plural providers requires stable power polycentricity, the implication goes against consolidating organized means for violence as a doorstep condition to successful transitions. The paper demonstrates how to employ Ostroms’ Bloomington School Institutionalism to shift, convert, and recalibrate mainstream institutionalism's themes into an Austrian process-oriented theory.

The authors offer a new approach to segment credit card customers by classifying customers into two unobserved (latent) segments: opportunistic and needy.

The authors develop a finite mixture model to estimate customers’ tendency to borrow using the three alternatives available to them—promotional cash advances, regular cash advances and retail balances.

The results support the presence of at least two segments among credit card customers. The authors find that relative to opportunistic individuals, needy customers are typically more sensitive to interest rates. Additionally, the results indicate that offering promotional cash advances to current credit card customers increases their sensitivity to regular interest rates. Furthermore, the findings indicate that needy customers tend to have a higher stickiness in their debt. In the post-estimation analyses, the authors observe that needy customers generate more revenue than opportunistic customers. Interestingly, the bank does not perform well in targeting needy individuals and targets both groups with the same probability.

The authors argue that teaser rates attract at least two segments of borrowers—the “needy” segment, which is more likely to be cash-strapped, and the “opportunistic” segment, which looks at these teaser rates as an opportunity. However, banks do not observe segment membership. Hence, the authors offer a new approach to identifying these segments and show that understanding the behavior of these latent segments could help a bank target profitable customers more effectively.

The modern revival of “Austrian economics” dates to the South Royalton conference of 1974 (Vaughn, 1994, pp. 103–111). At that time, neoclassical orthodoxy excluded evolutionary concepts. It was, in Ludwig Lachmann’s memorable phrase, “late classical formalism” (1977, p. 35). Opposition to neoclassical orthodoxy was part of the definition of Austrian economics. It formed part of our identity. Today it is no longer clear what “orthodoxy” is or whether current mainstream economics is “neoclassical” at all (Colander et al., 2004). One of the more salient changes in mainstream economics over the last 30 years is the introduction of evolutionary ideas. Mainstream economics is rich with evolutionary concepts. Evolutionary game theory, for example, is certainly a part of today’s standard toolbox. Thirty years ago, it did not even exist.¹ Some of the evolutionary ideas entering mainstream economics are similar or identical to ideas from the Austrian tradition. In this situation, it is no longer clear what the Austrian differentiae are. I hope this volume will help to sort out some of the issues relating to Austrian economics and one group of evolutionary ideas, namely, those of evolutionary psychology.

This study examines the effect of credit card teaser rates on consumer indebtedness and the revenue generated by new customers.

A unique dataset from a national bank in the United States of America is utilized to employ a relatively new method called the covariate balancing propensity score matching, which measures the causal effects of teaser rates.

The results indicate that offering teaser rates improves the revenue generated by customers by indirectly increasing indebtedness. Such offers increase customers' willingness to borrow at regular interest rates that are significantly higher than the teaser rate – the “spillover effects.” Interestingly, customers who pay off their promotional balances before the termination of the promotional period borrow even more at regular rates than customers who do not pay off their balances timely.

The results can assist managers of credit card companies in measuring the value of teaser rates more accurately. Furthermore, the results have implications for public policy aimed at reducing credit card debt by enhancing the understanding of credit card customers' borrowing behavior.

To the authors' knowledge, this is the first study that documents the direct and indirect impacts of teaser rates on credit card customers' borrowing behavior and the resulting bank revenue.

The phenomenon of the ethnically homogeneous middleman group (EHMG) or ethnic trade network – the Chinese merchants in Southeast Asia, the Gujarati-Indians merchants in East Africa, the Jewish merchants in medieval Europe, etc. – is ubiquitous in stateless societies, pre-industrial and in less-developed economies (Curtin, 1984). Neoclassical (Walrasian) theory of exchange cannot explain the existence of merchants let alone the phenomenon of the EHMG. This is because Neoclassical theory of exchange is a static theory of frictionless, perfectly competitive markets with the Walrasian auctioneer costlessly coordinating the plans of anonymous producers (sellers) and consumers (buyers) so as to achieve equilibrium. There is no role for merchants in the Neoclassical theory of exchange.