Vernon Smith on Rationality in Economics

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4.7 • 4.3K Ratings

🗓️ 3 March 2008

⏱️ 61 minutes

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Summary

Nobel Laureate Vernon Smith of Chapman University and George Mason University talks with EconTalk host Russ Roberts about the ideas in his new book, Rationality in Economics: Constructivist and Ecological Forms. They discuss the social and human sides of exchange, the robust nature of equilibrium in experiments and the real world, the seeming contradiction between Adam Smith's two great works, the unpredictability of how innovation emerges and its rationality, what neuroscience might tell us about economic decision-making, and the challenges of small-group intimate exchange and our interactions with strangers in the extended order of the marketplace.

Transcript

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0:00.0	Welcome to Econ Talk, part of the Library of Economics and Liberty. I'm your host Russ Roberts
0:13.9	of George Mason University and Stanford University's Hoover Institution. Our website is econtalk.org
0:21.2	where you can subscribe, find other episodes, comment on this podcast, and find links to
0:26.5	another information related to today's conversation. Our email address is mailadicontalk.org. We'd
0:33.6	love to hear from you. Before introducing today's guest, I want to encourage all of you listening
0:41.5	out there to fill out a brief survey about econtalk. Just go to our homepage econtalk.org and
0:48.1	in the upper left-hand corner, just under the photo of me, is a link to the survey. Please
0:54.2	click it, fill out the survey so we can continue to make econtalk better. My guest today is Vernon
1:01.0	Smith, Professor of Economics and Law at Chapman University, Professor Emeritus at George Mason
1:08.0	University, and a Nobel Laureate. His latest book and the subject of today's conversation is
1:13.9	rationality in economics. Vernon, welcome back to econtalk. Hi, Russ. I'm very happy to be back.
1:21.0	Your new book is an incredible overview of what I would call the Essence of Economics. How do people
1:26.8	think, behave, choose, trade, what we've learned and have yet to learn from the experimental economics
1:33.8	approach that you've pioneered? And at the heart of the book are two different concepts of what
1:39.3	it means to be rational. A distinction you take from Hayek, a distinction between constructivist
1:46.0	and ecological rationality. And I'd like to start by talking about each of those in turn.
1:51.8	What do you mean by constructivist rationality? Well, by that, I mean to simply characterize
1:59.8	the way we tend to think about problems traditionally in economics. Whether we're mathematically
2:06.9	oriented or not, we tend to think in terms of models that we construct. And the good example
2:18.0	is the paper and pencil model of supply and demand. And that we all use and try to give it life,
2:28.2	I think, with various stories. But one of the things which bothered me in traditionally economics
2:40.3	and led me to do experiments was that I found it difficult to understand the connection
	...

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