‌Rediscovering Adam Smith

How The Theory of Moral Sentiments can explain emerging evidence in experimental economics

Working Paper 2011:04

Author: Douglas E. Stevens (Florida State University)

Emerging evidence in experimental economics has been difficult to explain using traditional economic theory. In particular, experimental tests of economic theory have provided evidence consistent with the existence of internalized social norms such as reciprocity, fairness, and honesty. Even in single period settings where traditional economic predictions are most likely to hold, participants frequently exhibit “repeated play behavior” and achieve cooperative solutions that surpass game theoretic predictions based on narrow self-interest. I discuss how the moral theory in Adam Smith’s first book, The Theory of Moral Sentiments, can explain this evidence. I begin by reviewing the historical context behind Adam Smith and the Scottish Enlightenment. Next, I present the moral theory in The Theory of Moral Sentiments within this historical context. Next, I present the emerging evidence in experimental economics that has been difficult to explain using traditional economic theory. Finally, I discuss how The Theory of Moral Sentiments can be used to explain this emerging evidence.