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Affluent Christian Investor | December 18, 2017

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Economic Experiments Catching Up With Adam Smith

Adam Smith (circa 1800) {{PD-US}}

Adam Smith (circa 1800) {{PD-US}}

This occasional blog will be devoted to my understanding of the work of Adam Smith.

I cannot claim to be either a philosopher or an Adam Smith scholar; rather, I have been drawn into penetrating Smith’s incredible thought process ever since it dawned on me that his model of the emergence and cultural implications of human sociability is deeply, freshly, and predictively relevant to our lab discoveries of the last 60 years. Smith articulates a model that has enabled me to better understand the results of the extensive form two-person experimental games that had begun streaming into our laboratories in the 1980s and 1990s from around the world; results that would be regarded as falsifying the predictions of the standard neo-classically-based, utilitarian, game-theoretic models.

Max-U, as Deirdre McClosky calls it, had performed well in the earlier (1960s-1970s) supply and demand experiments for perishables, but that mechanism failed to extend to the smaller two-person game environment. Moreover, the two-person game interactions were entirely compatible with perspectives that had been developed independently by cognitive and social psychologists.

That intellectual and empirical enterprise has rewarded me with a hitherto missing perspective on neo-classical economics and the wrong turn it took in displacing, rather than supplementing, Smith’s contributions in The Theory of Moral Sentiments (1759; TMS), and Wealth of Nations (1776: WN). I now see Smith’s two works as seamlessly connected, although Smith seems not to have plainly indicated that connection at the time.

Dr. Vernon L. Smith was awarded the Nobel Prize in Economic Sciences in 2002 for his groundbreaking work in experimental economics. Dr. Smith has joint appointments with the Argyros School of Business & Economics and the School of Law, and he is part of a team that will create and run the new Economic Science Institute at Chapman. Dr. Smith has authored or co-authored more than 250 articles and books on capital theory, finance, natural resource economics and experimental economics. He serves or has served on the board of editors of the American Economic Review, The Cato Journal, Journal of Economic Behavior and Organization, the Journal of Risk and Uncertainty, Science, Economic Theory, Economic Design, Games and Economic Behavior, and the Journal of Economic Methodology. He is past president of the Public Choice Society, the Economic Science Association, the Western Economic Association and the Association for Private Enterprise Education. Previous faculty appointments include the University of Arizona, Purdue University, Brown University, the University of Massachusetts, and George Mason University, where he was a Professor of Economics and Law prior to joining the faculty at Chapman University. Dr. Smith has been a Ford Foundation Fellow, Fellow of the Center for Advanced Study in the Behavioral Sciences and a Sherman Fairchild Distinguished Scholar at the California Institute of Technology. In 1991, the Cambridge University Press published Dr. Smith's Papers in Experimental Economics, and in 2000, a second collection of more recent papers, Bargaining and Market Behavior. Cambridge published his Rationality in Economics: Constructivist and Ecological Forms in January 2008. Dr. Smith has received an honorary Doctor of Management degree from Purdue University, and is a Fellow of the Econometric Society, the American Association for the Advancement of Science, and the American Academy of Arts and Sciences. Dr. Smith is a distinguished fellow of the American Economic Association, an Andersen Consulting Professor of the Year, and the 1995 Adam Smith Award recipient conferred by the Association for Private Enterprise Education. He was elected a member of the National Academy of Sciences in 1995, and received CalTech's distinguished alumni award in 1996. He has served as a consultant on the privatization of electric power in Australia and New Zealand and participated in numerous private and public discussions of energy deregulation in the United States. In 1997 he served as a Blue Ribbon Panel Member, National Electric Reliability Council. Dr. Smith completed his undergraduate degree in electrical engineering at the California Institute of Technology, his master's degree in economics at the University of Kansas, and his Ph.D. in economics at Harvard University.

 

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