Friday, July 24, 2009

"Rationality" and Development?

His big picture is familiar to readers of Hayek: societies develop NOT through the conscious design of some experts..., but through the “ecological” survival of institutions, norms, rules, firms, and products in a society of freely choosing individuals.
That is from a nice review by Bill Easterly of Vernon Smith's new book Rationality in Economics.

You should read the whole review, if not the book, since Smith tries to show how seemingly irrational behavior by individuals (e.g., cooperation), may actually be rational after all.  In addition, such behavior may promote the emergence of social institutions and economic development.

(I was once on a panel with Smith, whose name I did not recognize, and who was very unassuming. I noticed that he was pretty smart, so I asked him what his research was on. I knew I had blown it when his response started, "Well the work I got the Nobel Prize for was....".  This reminded me of the time I met Chuck Leavell.)