Rationality in Economics

Vernon L. Smith was awarded the Nobel Prize in Economic Science in 2002 for having established laboratory experiments as a tool in empirical economic analysis, especially in the study of alternative market mechanisms. He holds joint appointments with the Argyros School of Business and Economics and the School of Law at Chapman University, California, where he also is part of the team that will create and run the Economic Science Institute there. Cambridge University Press published his Papers in Experimental Economics in 1991 and a second collection, Bargaining and Market Behavior, in 2000.

• Part I. Rationality, Markets, and Institutions: 1. Rediscovering the Scottish philosophers; 2. On two forms of rationality; Part II. Impersonal Exchange: The Extended Order of the Market: 3. Relating the two concepts of a rational order; 4. Market institutions and performance; 5. Asymmetric information and equilibrium without process; 6. Spectrum auctions and combinatorial designs: theory and experiment; 7. Psychology and markets; 8. What is rationality?; Part III. Personal Social Exchange: 9. Emergent order without the law; 10. The effects of context on behavior; Appendix: behavioral deviation from prediction: error, confusion, or evidence of brain function?; 11. Investment trust games: effects of gains from exchange in dictator giving; 12. Reciprocity in trust games; Part IV. Order and Rationality in Method and Mind: 13. Rationality in science; 14. Neuroeconomics: the internal order of the mind; 15. A summary.

'The journey that brought Vernon Smith to his Nobel Prize is not over. It obviously brought us constructive tools, in the form of controlled experimental methods that allow economists to see the lay of the behavioral land more clearly than before. But this magisterial review of the whole journey, including precursors, reminds us that the scope of economics has always been much wider than the straw man that behaviorists like to attack. Properly understood, experimental methods force all economists to think of constructivist and ecological rationality as complementary ways of understanding behavior, rather than as fundamentally inconsistent views of behavior. The journey, then, has really just begun.' Glenn W. Harrison, College of Business Administration, University of Central Florida