9
Adam Smith: 18th Century Polymath
Roger Frantz
I. Introduction
Adam Smith (1723-1790) was a polymath with several of his key concepts and
theories either garnering recent empirical support and/or having modern theoretical
counterparts. Smith wrote about the origin and proper use of language, grammar, the
history of astronomy and ancient physics, moral philosophy, music, dance, and poetry,
and; economics. Despite the very wide variety of topics there was, in my estimation, a
common themes. One such theme is connections or inter-personal relations between and
among people.
Smith’s most famous book, at least to economists, is the Wealth of Nations (WN). In it,
Smith discusses many things including the workings of a private market. A market is the
exchange of things in which various motives influence market activity. In WN the explicit
motivation to engage in market activity is to improve your own economic conditions.
What is exchanged is money for goods and services. In the Theory of Moral Sentiments
1
(TMS) what is “exchanged” is personal sentiments and moral judgments. The motivation
for inter-personal interactions is the pleasure received from mutual sympathy, to share
emotions with others.
One common theme in Smith’s writings is the connections and interpersonal relations
among people. Four questions related to the common theme in Smith’s writings are
explored in this paper. First, why is language developed? Second, what is the purpose of
1
good communication? Third, why are Newton’s writings considered of extraordinary
importance? Fourth, what is the role of sympathy in human affairs?
II. Four Questions Surrounding the Common Theme in Smith’s Writings
Question # 1: why is language developed?
According to Smith it is so that people can be connected to help each other satisfy
their mutual desires. In Considerations Concerning the Formation of Languages, Smith
says that:
The assignation of particular names, to denote particular objects … would
probably, be one of the first steps towards the formation of language. Two
savages, who had never been taught to speak, but had been bred up remote from
the societies of men, would naturally begin to form that language by which they
would endeavour to make their mutual wants intelligible to each other, by uttering
certain sounds, whenever they meant to denote certain objects (Smith, 2012, p.
305).
In other words, human experience and desire is the chief motivator behind the
spontaneous or unintentional development of language. Smith used the concept of the
rude state of society to discuss how experience and desire affects the spontaneous or
unintentional development of the economy.
The Rude State of Society
A person living in solitary, living without interactions with other persons has no
constant occasion for the help of others, or for language. They would concern themselves
2
only with satisfying his passions without ever reflecting on whether his passions were
moral or not. Of course, solitary living describes how economic man is supposed to make
decisions. Economic man makes decisions free of emotion and free of the opinion of
other people. Economic man’s solitary existence is illustrated by Robinson Crusoe who
lived alone on an island, influenced by no one, speaking with no one.
The “rude state of society,” also known as the “state of nature,” is inhabited by
“savages,” defined as someone who is not civilized, lacking polish or manners, or rude.
In the rude state, society lacks “organization,” an overarching authority, rules and
standards to which people conform. In the rude state people have no conscience and
hence they make no judgments about their or others’ behavior. In the rude state there is
no capital accumulation, and labor keeps everything for themselves. As the rude state
ends civilization begins, and the impartial spectator becomes the basis of our conscience.
At that point we make judgments about ourselves and others. These become the rules of
behavior that we live with. Smith says in the WN that:
In that rude state of society in which there is no division of labour, in which
exchanges are seldom made, and in which every man provides everything for
himself, it is not necessary that any stock should be accumulated or stored up
beforehand in order to carry on the business of the society. When he is hungry, he
goes to the forest to hunt; when his coat is worn out, he clothes himself with the
skin of the first large animal he kills… (Smith, 1937, p. 291).
What is moral behavior? It is whatever keeps the individual alive, safe, warm in the
winter, (well) fed and clothed. Language has very limited value. The rude state is also
3
without specialization. Every man is an island, as it were. Productivity suffers as does
income. In a civilized society, i.e., non-rude state of nature, the division of labor is the
greatest source of productivity improvement. The division of labor which requires human
interactions also requires language:
This division of labour, from which so many advantages are derived, is not
originally the effect of any human wisdom, which foresees and intends that
general opulence to which it gives occasion. It is the necessary… consequence of
a certain propensity in human nature which has in view no such extensive utility;
the propensity to truck, barter, and exchange one thing for another” (Smith, 1937,
p.13).
The division of labor, like language arises spontaneously and is the unintended
consequence of individuals pursuing their self-interest.
It is one thing to need the help of others. It is another thing to want to assist the
fortunes of others. Smith assumed that, as social animals living in civilization, we have
an innate interest in the fortunes of others (Kiesling, 2012). This is expressed in an oft
cited quote from Smith on page 1 of TMS:
How selfish soever a man may be supposed, there are evidently some principles in
his nature, which interest him in the fortune of others, and render their happiness
necessary to him, though he derives nothing from it, except the pleasure of seeing
it (Smith, 1969, p. 1).
How do we get others to cooperate with us in trading and exchange? In TMS Smith says
that both are achieved through sympathy and the impartial spectator. More about these
two concepts below.
4
Question # 2: what is the purpose of good communication?
The purpose of good communication is to form a connection between speaker and
listener, or writer and reader. Good communication means that the speaker (writer) and
listener (reader) share the same thoughts and emotions. Language which allows the
reader/listener to experience the author’s state of mind and feel what the author feels has,
according to Smith, more force and beauty. Thus, the author and the recipient are more
apt to understand each other's state of mind: they connect mentally, emotionally, or
spiritually. It was hoped that this, in turn, would increase the likelihood of social
harmony.
Social Intelligence
Smith claims that more than anything else we want to be seen as possessing the
qualities of trustworthy-ness, praiseworthy-ness, and being respected. We are social
animals and we want social approval. Today we know that the human brain is wired to
make intimate connections with another’s brain whenever we engage with that person. In
other words, our brain is designed make us naturally sociable. This sociable nature of the
brain includes our brain’s ability to impact the brain and body of everyone we interact
with, just as they affect our brain and body. As Smith said in TMS, this ability for
interacting individuals to affect each others’ brain and body is stronger as the connection
or knowledge between two people towards each other is stronger. Smith calls this the “
principle.”
Daniel Goleman, author of Emotional Intelligence (1995) says that the connection is
stronger with people who we spend more time together, and who we care about the most.
5
The connection we have with another affects our biology. A strong connection leads us to
laugh at the same jokes, and even affect which genes are activated in our immune system.
Goleman calls the rapport or connection created between two people interacting with
each other as empathy, or sympathy. In TMS Smith makes it clear that the impartial
spectator and the pursuit of sympathy is not infallible, but is more reliable the better that
one person knows the other.
The familiarity heuristic was developed based on the availability heuristic. The
familiarity heuristic is being used as a short-cut decision-making technique when the
familiar is favored over the novel, be it people, places, or things, and; when current
situations which are similar to past situations are favored over other current situations.
The availability heuristic means that things which we remember more easily are judged
as occurring more frequently or being more important. For example, we can remember
more occurrences of homicide than suicide, and surveys show that people believe that
homicide occurs more often than suicide. Yet, in the U.S. suicide occurs about twice as
often as homicide. A concept used by Smith in the 18th century has a modern counterpart
in Goleman’s concept of empathy.
Mirror Neurons
3
The human brain, neocortex, weighs about 3.08 pounds and is the size of a grapefruit.
It contains approximately 100 billion nerve cells, or neurons. Information is brought to a
neuron by dendrites, and it is taken away from the neuron by an axon. Each neuron is
connected to tens of thousands of other neurons; the connecting elements are the brain’s
synapses. The number of connections among neurons is not completely known but it may
be in the area of a staggering 1-2 quadrillion (1015). New connections among neurons,
6
and/or a strengthening of existing connections is achieved every time we add a new
memory about our life. Mirror neurons are located in the brain’s premotor cortex, the
supplementary motor area, the primary somatosensory cortex and the inferior parietal
cortex. Approximately 10-20% of the brain’s neurons are mirror neurons. Smith
unknowingly spoke about mirror neurons in TMS:
When we see a stroke aimed, and just ready to fall upon the leg or arm of another
person, we naturally shrink and draw back on our leg or our own arm (Smith,
1969, p. 4).
Smith felt that such an imitation was “almost a reflex.” Smith couldn’t have known, but
we now know that it is the brain’s mirror neurons which “fire” whether we are engaged
in an activity or we are watching others perform the same activity. In addition when we
are watching others’ actions mirror neurons fire whether the other is performing what
they consider meaningful or meaningless actions. When they are meaningless actions the
behavior mounts to “simulation or pure reflexivity” (Khalil, 2011, p. 88; emphasis
added). In other words, mirror neurons in the brain allow us to “sympathize” or
empathize with others, or “read their minds.” An article published in an APA journal
illustrates the function of mirror neurons with the following quote, very similar to that of
Smith’s quote above, about 250 years previous:
You're walking through a park when out of nowhere, the man in front of
you gets smacked by an errant Frisbee. Automatically, you recoil in
sympathy... Or you see a woman sniff some unfamiliar food and wrinkle
her nose in disgust. Suddenly, your own stomach turns at the thought of
the meal (Winerman, Oct 2005, p ?).
7
The first studies of mirror neurons were done on macaque monkeys. The same
individual neurons in the premotor cortex called F5 fired when the monekey was handed
a peanut and when they watched another monkey receive a peanut (di Pellegrino, G. et
al., 1992, pp. 176-180). The first study on humans was published in 1995. Participants’
hand muscles began readiness to move when they were ready to grasp an object and
when they watched someone else grasping the same object. (Fadiga, et al., 1995). In
another human study participants inhaled butyric acid which smells like rotten butter. The
particpants’ anterior insula area of the brain was stimulated and the participant had a
digusted look on their face, regardless of whether they smelled the butyric acid or they
were watching a video of someone smelling butyric acid (Keysers et al., 2003).
Participants being lightly touched on their leg or watching others being touched on
their leg created a reaction in the same area of the somatosensory cortex (Keysers et al,
2003). An important point is that the reactions of one person to the behavior of another is
involuntary and automatic. Our mirror neurons do not fire as a result of a (conscious)
reasoning process but the result of spontaneous feeling (Galesee, 2008).
Mirror neurons have important implications. First, culture is said to consist of skills
and knowledge transferred from person to person through imitation and language.
Imitation depends upon an ability which is unique to humans: adopting another person’s
point of view. With this adoption comes the ability to understand, and predict, another
person’s thoughts and intentions. Because this ability can lead to outsmarting others
humans have been referred to as the “Machiavellian primate” (Ramachandran, 2011, p.
119).
8
Second, mirror neurons obscure the distinction between ourselves and others. Mirror
neurons in the anterior cingulate portion of the brain respond to pain, hence they are
known as “sensory pain neurons.” These neurons respond similarly whether a person is
experiencing pain or they are watching someone else experiencing pain.
Ramachandron calls these neurons “Gandhi neurons” (op. cit., p. 124). Perhaps what
separates us from others is only our skin. In this case the neurons might be referred to as
“Buddha neurons.” Third, Smith says that sympathy takes place only after the spectator
understands the circumstances affecting the agent. Mirror neurons allow us to understand
the circumstances affecting another because they help us feel what the other feels.
Smith’s concept of the impartial spectator and its role in empathy (sympathy) finds a
modern correlate in the role of mirror neurons.
Question # 3: why are Newton’s writings considered of extraordinary importance?
The mind desires connections because connections yield pleasure. In the History of
Astronomy (HA) Smith says that “It is evident that the mind takes pleasure in observing
the resemblances that are discoverable betwixt different objects” (Smith, 2012, p. 329).
The mind gains pleasure from being able to move from idea to idea effortlessly, and it
can when there are resemblances – connections - betwixt the ideas (objects). In HA Smith
expresses this when he says that the mind gains pleasure when
There is no break, no stop, no gap, no interval. The ideas excited by so coherent a
chain of things seem, as it were, to float though the mind of its own accord,
without obliging it to exert itself, or to make any effort in order to pass from one
of them to another (op. cit., p. 332).
9
How did Newton’s system relate to the qualities of a philosophy which creates pleasure
for the mind? Smith says that the ideas and principles of Newton’s system is considered
to be:
the greatest discovery that ever was made by man, the discovery of an immense
chain of the most important and sublime truths, all closely connected together…
the reality of which we have daily experience (Smith, 2012, p. 384).
The effect of “gaps” in a book manuscript, gaps which were absent in Newton’s
writings according to Smith, is described by Nicholas Kaldor in his review of Frederick
Hayek’s Prices and Production:
On second thoughts the theory was by no means so intellectually satisfying as it
appeared at first. There were admitted gaps here and there in the first published
account… and when one attempted to fill these gaps, they became larger, instead
of smaller, and new and unsuspected gaps appeared – until one was driven to the
conclusion that the basic hypothesis of the theory… must be wrong (Kaldor,
1942, p. 359).
There was no “connection” between Kaldor and Hayek, and it seems intuitively obvious
to the casual observer that the utility Kaldor received reading Hayek was less than what
Smith received reading Newton. What is the experience of reading something which does
not create any gaps? Smith describes the experience of reading the works of Sir Issac
Newton:
The ideas excited by so coherent a chain of things seem, as it were, to float though
the mind of its own accord, without obliging it to exert itself, or to make any
effort in order to pass from one of them to another (Smith, 2012, p. 332).
10
Love of Money
According to Smith the experience of reading something which does not create any
gaps is similar to the experience of observing or thinking about the wealthy. According to
Smith we sympathize with joy more than with sorrow, we can more easily imagine
ourselves being joyful than sad, hence we more easily can be in sympathy with people
who are happy than sad. The wealthy are believed to be very happy. The ease of being in
sympathy with the wealthy is described by Smith as such:
When we consider the condition of the great, in those delusive colours in
which the imagination is apt to paint it. It seems to be almost the abstract
idea of a perfect and happy state. It is the very state which, in all our
waking dreams and idle reveries, we had sketched out to ourselves as the
final object of all our desires. We feel, therefore, a peculiar sympathy with
the satisfaction of those who are in it… What pity, we think, that anything
should spoil and corrupt so agreeable a situation! (Smith, 1969, p. 114).
Thinking about the (idealized) life of the wealthy takes us from blissful thought to
blissful thought just as Newton took the reader effortlessly from idea to idea.
Question # 4: what is the role of sympathy in human affairs?
Sympathy allows one to view their own behavior as others see it. It also allows you to
see other’s behavior from your point of view. Do others trust you? Do others want to
interact with you? Are your behaviors acceptable to others? In other words, do you
“connect” with others? Sympathy, placing yourself in the “shoes” of another, can help
you glean the answer to these questions, to engage, and to engage in trustworthy,
11
appropriate behavior. What do free markets accomplish? Connect buyers and sellers;
those making decisions based on the value of the goods as compared with the price paid –
buyers – and those comparing the price received with the marginal cost of production –
sellers. The connection between buyers and sellers occurs so long as the price is greater
or at least equal to the marginal cost of production. Under this condition buyers and
sellers connect, that is, they make mutually advantageous trades. Buyers give money for
goods or services, and sellers give goods and services for money.
Sympathy
The word sympathy has its roots in “feeling with” or “like feeling.” Smith uses the word
sympathy in several ways – pity for others, a natural “fellow-feeling” for others, a similarity of
emotions or sentiments between people, and putting ourselves in another’s “shoes.” In Scotland the
concept of sympathy has a very long history. However, Smith would have heard similar arguments
during his visits to France. French culture at the time elevated the heart over the head and
spontaneity over calculation. The key word used was sensibilite, meaning "the intuitive capacity
for intense feeling" (Schama, 1989, p. 149). The following quote illustrates Smith concept of
sympathy:
Though our brother is upon the rack . . . by the imagination we place
ourselves in his situation, we conceive ourselves enduring all the same
torments, we enter as it were into his body, and become in some measure
the same person with him, and thence form some idea of his sensations,
and even feel something which, though weaker in degree, is not altogether
unlike them (Smith, 1969, p. 47).
12
Through sympathy we imagine being someone else. We “become” them, and experience,
via our imagination, what they are experiencing. We thus are able to read their mind
because it is our mind. [Smith was himself described as having the capacity of
“imaginative transposition,” or sympathy – the ability to “see the motives and the
2
surroundings of another person as they appear to that other person himself” Smith
describes sympathy with these words:
We either approve or disapprove of the conduct of another man according as we
feel that, when we bring his case home to ourselves, we either can or cannot
entirely sympathize with the sentiments and motives which directed it. And, in the
same manner, we either approve or disapprove of our own conduct, according as
we feel that, when we place ourselves in the situation of another man, and view it,
as it were, with his eyes and from his station, we either can or cannot entirely
enter into and sympathize with the sentiments and motives which influenced it.
(Smith, pp. 99-100).
Sympathy arises instantaneously and is not the result of a consideration of our own selfinterest, or any human wisdom. The instantaneous aspect of sympathy gives it a similar
nature to what we call empathy or intuition. Sympathy is what allows us to transcend our
own self-interest and be more concerned with the welfare of others than with our own.
Smith explains how this transcendental experience occurs:
…what is it which prompts the generous, upon all occasions…to sacrifice their
own interests to the greater interests of others? It is not the soft power of
humanity, it is not that feeble spark of benevolence which Nature has lighted up
13
in the human heart, that is thus capable of counteracting the strongest impulses of
self-love. It is a stronger power, a more forcible motive, which exerts itself upon
such occasions. It is reason, principle, conscience, the inhabitant of the breast, the
man within, the great judge and arbiter of our conduct. It is he who, whenever we
are about to act so as to affect the happiness of others, calls to us, with a voice
(Smith, 1969, p. 120).
Smith is not interested in sympathy, per-se, but in the “pleasure of mutual sympathy of
sentiments.” The meaning, source and effects of mutual sympathy are explained by Smith
as follows:
nothing pleases us more than to observe in other men a fellow-feeling with all the
emotions of our own breast; nor are we ever so much shocked as by the
appearance of the contrary… (Smith, 1969, pp. 13-14).
Mutual sympathy means a desire to understand others, and to feel connected with others.
We might want to understand others in order to take advantage of them. But mutual
sympathy is also a way to understand what others consider right and wrong, what others
react to with approval or disapproval. In other words, mutual sympathy can lead to moral
judgments.
Impartial Spectator
The “stronger power ” which Smith says allows us to transcend our selfinterest in favor of the interests of others is made available through our “impartial
spectator,” (IS) that part of us which allows us to be objective about ourselves,
and about others in our external environment. In TMS Smith describes how we
utilize the IS:
14
When I endeavour to examine my own conduct, when I endeavour to pass
sentence upon it, and either to approve or condemn it, it is evident that, in
all such cases, I divide myself, as it were, into two persons; and that I, the
examiner and judge, represent a different character from that other I, the
person whose conduct is examined into and judged of. The first is the
spectator… The second is the agent, the person whom I properly call
myself, and of whose conduct, under the character of a spectator, I was
endeavouring to form some opinion (Smith, 1969, pp. 101-102).
Using the IS is valuable, but focusing only on ourself, our own desires and fears –
the agent - is a natural tendency. The problem is that we tend to overestimate the
importance of our own desires, fears, and feelings, and underestimate those of
others. Smith gives an example about a European receiving news of a devastating
earthquake in China:
Let us suppose that the great empire of China, with all its myriads of
inhabitants, was suddenly swallowed up by an earthquake, and let us
consider how a man of humanity in Europe, who had no sort of connexion
with that part of the world, would be affected upon receiving intelligence
of this dreadful calamity. He would, I imagine, first of all, express very
strongly his sorrow for the misfortune of that unhappy people… And…
when all these humane sentiments had been once fairly expressed, he
would pursue his … pleasure, take his repose or his diversion, with the
same ease and tranquillity, as if no such accident had happened. The most
15
frivolous disaster which could befal himself would occasion a more real
disturbance (Smith, 1969, pp. 233-34).
Placing too much emphasis on ourself is self-deceit; self-deceit arises when we do
not pay attention to our IS: “This self-deceit, this fatal weakness of mankind, is
the source of half the disorders of human life” (Smith, 1969, p. 263).
The impartial spectator has commonalities with mirror neurons, both
create a connection between people and allow us to transcend our personal
interests in favor of taking the view point of another.
Empathic Accuracy
The phenomenon of sympathy – transcending personal interests and taking the
viewpoint of another – has been well researched by psychologists and is known as
spontaneous communication, knowledge-by-acquaintance or empathic accuracy (Ickles,
1997). In addition, they are believed to be related with both intuition and altruism and to
be biological in nature. Buck and Ginsburg (1997) described it in these terms:
We know directly certain inner meanings in others – certain
motivational-emotional states – because others are constructed to express
directly such states and we are constructed so that when we attend, we
“pick up” that expression and know its meaning directly. This
knowledge is based upon phylogenetic adaptation and is conferred
through inheritance ... Therefore, the individuals involved in spontaneous
communication literally constitute a biological unit ... One’s knowledge
of the motivational-emotional states of others via spontaneous
16
communication is as direct and biologically based as one's knowledge of
the feel of one's shoe on one's foot (Buck and Ginsberg, p. 28).
Ickles defined empathy as the “ability to accurately infer the specific content of another
person's thoughts and feelings” (Ickes, 1997, p. 3), and empathic inference is “everyday
mind reading”, it is a
form of complex psychological inference in which observation, memory,
knowledge, and reasoning are combined to yield insights into the thoughts and
feelings of others” (Ickes, 1997, p. 2).
Empathic accuracy is having consistently accurate empathic inferences. Empathic
accuracy takes several forms including judging the personality traits and emotional states
of others, understanding the attitudes and values of others, and correctly inferring the
precise subject matter of another person’s thoughts. Empathic accuracy has thus been
accurately described as involving interpersonal perception. (Those with a high degree of
empathic accuracy are said to be better salespersons than those with less empathic
accuracy.) Evidence shows that friends and other persons in a close personal relationship
are better at reading each other than are strangers. In TMS Smith says that sympathy is
based on observation of others, and the more we know someone the more able we are to
‘enter into all their concerns.’ The literature on empathic accuracy explains that the
reason close associates are more empathic about each other is that friends and others in
close personal relationship have more observations or experiences of the other in a
variety of contexts and over a long period of time.
17
R. F. Dymond (1949, pp. 127-133) defined empathy as the “imaginative
transposing of oneself into the thinking, feeling, and acting of another person and so
structuring the world as he does.” Smith himself was believed to have the ability for
imaginative transposing. Dymond tested empathic ability by measuring the degree of
correspondence between two persons, A and B, as they rate themselves and the other on
personality traits such as self-confidence, (un)selfish, (un)friendly, leader-follower, and
sense of humor. One of the questions asked was how someone else (1) A rates himself as
he sees himself. (2) A rates B as he (A) sees B. (3) A rates B as he believes that B would
rate himself. (4) A rates himself as he believes B would rate him. For B, (5) B rates
himself as he sees himself. (6) B rates A as he (B) sees A. (7) B rates A as he believes
that A would rate himself. (8) B rates himself as he believes A would rate him. A’s
empathic accuracy is higher if the answers to 3 and 4 and close to those for 5 and 6. B’s
empathic accuracy is higher if the answers to 7 and 8, are close to those for 1 and 2.
Smith’s concepts of sympathy and the impartial spectator having a modern correlate in
mirror neurons and empathic accuracy.
III. Dictator, Ultimatum, and Trust Games: 20th-21st Centuries’ Confirmation of
Adam Smith’s 18th Century Writings.
Two hundred and fifty years after TMS, what do we now know about the phenomena
discussed by Smith? Can we “read minds”? Are we better at it the more we know
someone? Do people care about what others think of us? Do we learn about right and
wrong from others? Do we sacrifice for others so as to appear “fair”?
18
Economics, and game theory, assumes that people can predict the actions of others by being
able to view their circumstance from their perspective. This later ability is known as the “theory of
mind,” or “mentalizing.” Sharing the feelings of others is known as empathy, or sympathy.
Dictator Games
In the dictator game, one player, P1, the “seller,” determines how to divide a given
amount of cash between himself and another player, P2, the “buyer.” P2 simply receives
the amount allocated to him by P1. There is no negotiation between P1 and P2 as to the
final allocation of the money. P1 is acting according to prediction of orthodox economic
behavior if he offers P2 $0. Results of experiments shows that on average P1 offers P2
20% of the available cash. Hence P1 often expresses altruistic behavior.
Hoffman, McCabe, and Smith (1966) tested the amount of money offered in dictator
games when the amount of “social distance” varies for P1. Social distance measures the
degree to which individuals and/or groups are separated from each other but not
necessarily separated by location. Hoffman, McCabe, and Smith define social distance as
“the degree of reciprocity that subjects believe exist within a social interaction” (1996, p.
654). In complete isolation there isn’t any expectation of reciprocity. How does game
theory test for social distance/reciprocity? Hoffman, McCabe, and Smith varied both
instructions and procedures in their $10 dictator game. Their double blind experiment
creates conditions for complete anonymity for everyone’s decisions, even from the
experimenter. In their single blind versions the experimenter knows each person’s
decisions. Their results show that the amount of cash offered is lower in the double blind
versions, that is, as anonymity or social distance increases.
19
Hoffman, McCabe, and Smith ( 2008) provided instructions to the seller, P1, in some
versions of their $10 dictator game. The instructions included this, “…consider what
choice you expect the buyer to make,” and “…consider what you think the buyer expects
you to choose” (2008, pp. 413-414). In the first instruction Hoffman, McCabe, and Smith
are, in essence, asking the seller to read the mind of the buyer about the buyers choice. In
the second instruction they are asking the seller to read the mind of the buyer about what
the buyer thinks the seller will do. According to Hoffman, McCabe, and Smith these
instructions amount to “mind reading,” defined as an “intuitive ability to take the
perspective of another person” (2008, p. 414).
In these versions of their dictator game the seller is “alerted to consciously focus on
the strategic possibility of rejection and make more generous offers” (2008, p. 414). As
Smith says, people want to be praiseworthy. As Hoffman, McCabe, and Smith say,
“reputational image” is important to people. When sellers think about what others think
about them they are participants in “social exchange.” This causes them to act according
to the norm of fairness or reciprocity. The seller’s offers increase, concern for others
increases, concern for self-interest decreases. When the sellers are completely
anonymous, social distance is large, self-interest dominates. The authors also report other
research by Hoffman, McCabe, Shachat, and Smith (1994) showing that with complete
isolation 64% of offers are for $0 while 8% are for $4 or more ($10 is the available
amount of cash). Without isolation 18% of the offers made by P1 are for $0, while 32%
are for $4 or more. Isolation enhances self-interest. This is consistent with Smith’s theory
that in the “rude state,” a state of social isolation, there aren’t any moral judgments, and
an individual’s actions are totally self-interested. It is also consistent with Smith’s
20
assertion that sympathy and the impartial spectator are more accurate when the two
people involved have more knowledge of the other.
Eckel and Grossman (1996) conducted $10 dictator game with one change. In
Treatment 1 the participants enjoyed anonymity, and believed that the other person was
an individual. In Treatment 2 the “sellers” were told that the other participant was the
American Red Cross (ARC). In Treatment 1, 30 of 48 sellers, kept (all) $10. Seven of 48
kept $9, and not one seller kept $0, that it, they gave all the money to the other. The
average amount of available money which they gave the other was 10.6%. In Treatment
2, the seller was allocated between himself and the ARC. Only 13 of 48 kept $10, five of
48 kept $9, and five of 48 kept $0. The average amount of money given to the ARC was
30.1%. EG conclude that the increase in giving in Treatment 2 is the result of altruistic
behavior or a sense of fairness. Giving this a Smithian interpretation we can say that one
wants to be a “good” person when interacting with an organization such as ARC, vis-àvis an anonymous individual.
Ultimate Game
In the ultimatum game, P1 allocates a given amount of cash between himself and P2.
P2 may accept or reject the offer. If P2 rejects the offer, then both receive $0. On strictly
utilitarian/individual maximizer grounds, P1 should offer P2 as little as possible, and P2
should take whatever is offered. In experiments based on the ultimatum game, P2 rejects
offers they consider too low, and P1 offers more than a strict utilitarian would offer. The
median/mode offer by P1 is approximately 40% to 50% of the available cash. P2
typically rejects any offer for less than 20% of the available cash.
21
In a “two-part” version of the dictator game, P1 (P2) in round 1 becomes P2 (P1) in
round 2. Ben-Ner, et. al. (2002) found that in round 2, P2 offers an amount similar to
what P1 offered in round 1. This correlation was stronger when the same people were
paired together in rounds 1 and 2. The players display reciprocity, not strict utilitarianism.
In The Evolution of Cooperation, Robert Axelrod shows that reciprocity is the best
strategy for maximizing the group payoff (P1 and P2) in a prisoner’s dilemma game.
Each person sent to Axelrod a 200 round prisoner’s dilemma game with a strategy
dictating what P1 and P2 will do on each round. In the game each person had the choice
of cooperating with or defecting from the other in each rounds of the game. P1 (P2) can
get the most points if they effect and P2 (P1) cooperates. In this case P1 (P2) gets 5 and
P2 (P1) gets 0. The least number of points (1) occurs to both if both defect. If they both
cooperate then both get 3 points. The winning strategy, “Tit-for-Tat,” was a strategy of
reciprocity, was the simplest strategy, and had three rules: (1) always cooperate on the
first move, (2) never be the first to defect, (3) do whatever the other does on their
previous move. So if P1 (P2) cooperates on round 2 then P2 (P1) cooperates on round 3.
If P1 defects then P2 defects on their next move. A second contest was undertaken and
the winner, again, was Tit-for-Tat.
Trust Game
In the trust game P1 decides who will decide how to divide a given sum of money. In
McCabe, Rigdon, and Smith (2003), P1 can (1) split $40 evenly with P2 which brings the
game to an end. Or (2) P1 can allow P2 the choice of (a) taking $30 of $45 for P2,
leaving P1 with $15, or; (b) P2 can split $50 evenly between P2 and P1. Player 1 faces a
$5 opportunity cost to interact with Player 2. P1 can earn $20 if P1 chooses the $20, $20
22
split with P2). However, if they interact and P1 gives P2 their choice, then P1 could end
up with $15 (in the $15, $30 split chosen by P2. Their results show that option (1) the
$20, $20 split - occurred approximately 1/3 of the time while option 2 – P2 chooses occurred 2/3 of the time. When P2 chooses, they choose the $30, $15 (a) option
approximately 1/3 of the time and the even split option - $25, $25 - 2/3 of the time. In
other words, P2 follows P1’s trust in P2 with their own generosity. When P1’s actions are
unknown to P2, then P2 can’t reward trusting behavior and less cooperative behavior
ensues. In this case P2 picks the $25, $25 solution approximately 1/3 of the time, and the
$30 (for P2), $15 solution approximately 2/3 of the ti me. In TMS, Smith says that:
Actions of a beneficent tendency, which proceed from proper motives, seem alone
to require reward, because such alone are the approved objects of gratitude, or
excite the sympathetic gratitude of the spectator (Smith, 1969, p. 155).
When P1 trusts P2 to give them their choice, P1 acts out of trust, P1 display the quality of
trustworthiness. This is one of the qualities which people want most to possess. Again we
see an example of an idea put forth by Smith which is “verified” by modern game theory.
IV. Some Concluding Thoughts
Adam Smith was a polymath. He wrote leading treatises on ethics and economics, two
fields which some would suggest are incompatible with each other. He wrote on language
and grammar, history, music, dance, and poetry. His work on language and economics
came to (at least) one common idea – that language and the economy via the division of
labor developed unintentionally and guided by self-interest.
23
Perhaps more important than his ideas which so influenced his world, there are modern
correlates of some of these ideas. Smith’s concepts of sympathy and the impartial
spectator are similar to the modern notions of empathy and social intelligence, mirror
neurons, and empathic accuracy. Smith’s assertion that the impartial spectator is more
accurate when people are “closer” to the other find evidence for this in dictator games.
Trust game experiments show that people act in a trustworthy manner when given the
opportunity, affirming Smith’s belief that trustworthiness is one of the most important
qualities sought by individuals. Smith scholars can undoubtedly suggest many other
examples of Smith’s ideas having modern counterparts and/or empirical support.
References
Ben-Ner, A., Putterman, L., Kong, F., and Magan, D. (2004). “Reciprocity in a Two-Part
Dictator Game.” Journal of Economic Behavior & Organization, Volume 53, # 3:
333–352.
Buck, R., & Ginsburg, B. (1997). “Communicative genes and the evolution of empathy.”
In W. Eckles (Ed.), Empathic Accuracy, pp. 17–43 (New York: The Guilford Press).
di Pellegrino, G., Fadiga, L., Fogassi, L., Gallese, V., and Rizzolatti, G. (1992).
“Understanding motor events: a neurophysiological study.” Experimental Brain
Research, Vol. 91, # 1: 176-180.
Dymont, R. (1949). “A Scale of Measurement of Empathic Ability,” Journal of Consulting Psychology, 13: 127–133.
Catherine C. Eckel, C., and Grossman, P. (1996). “Altruism in Anonymous Dictator
Games.” Games and Ecomomic Behavior, vol. 16: 181-191.
24
Fadiga , L. Fogassi , L., Pavesi , G., and Rizzolatti, G. (1995). “Motor facilitation during
action observation: a magnetic stimulation study.” Journal of Neurophysiology, vol.
73: 2608-2611
Gallese, Vittorio (2008). “Mirror neurons and the social nature of language: The neural
exploitation hypothesis.” Social Neuroscience, vols 3–4, 317–333.
Goleman, Daniel (1995). Emotional Intelligence.Why It Can Matter More Than IQ (New
York: Bantam Books).
Hoffman, Elizabeth, McCabe, Kevin, Shachat, Keith and Smith, Vernon (1994).
“Preferences, Property Rights, and Anonymity in Bargaining Games.” Games and
Economic Behavior, 1994, vol. 7, issue 3: 346-380.
Hoffman, E., McCabe, K., and Smith, V. (2008). “Social Distance and Other-Regarding
Behavior in Dictator Games.” American Economic Review, vol. 86: 653-660.
Ickles, William (1997). Empathic Accuracy. (New York: Guilford Press).
Kaldor, N. (1942). “Professor Hayek and the Concertina-Effect.” Economica, New
Series, Vol. 9, No. 36: 359-382.
Keysers, C., Wicker, B., Gazzola, V., Anton, J., Fogassi, L., and Galesse, V. (2004). “A
Touching Sight.” Neuron, vol 42: 335-346.
Khalil, E. (2011). “The Mirror neuron Paradox: How Far is Understanding From
Mimicking.” Journal of Economic Behavior and Organization, vol. 77: 86-96.
Kiesling, L. (2012). “Mirror Neuron Research and Adam Smith’s Concept of Sympathy:
Three Points of Correspondence.” Review of Austrian Economics, vol 25: 299-313.
25
McCabe, K., Rigdon, M. L., and Smith, V. L. (2003). “Positive Reciprocity and
Intentions in Trust Games.” Journal of Economic Behavior and Organization, vol. 52
(#2): 267-275.
Myers, M. (1983). The Soul of Modern Economic Man. Ideas of Self-Interest from
Thomas Hobbes to Adam Smith (Chicago: University of Chicago Press).
Otteson, James (2002). Adam Smith’s Marketplace of Life (Cambridge: Cambridge
University Press).
Ramachandran, V. S. (2011). The Tell-Tale Brain (New York: W. W. Norton & Co.,
Inc.).
Schama, S. (1989). Citizens. A Chronicle of the French Revolution (New York: Alfred A.
Knopf).
Smith, Adam (1937 [xxxx]). The Wealth of Nations (New York: Modern Library).
Smith, Adam (1969 [xxxx]). The Theory of Moral Sentiments (Indianapolis: Liberty
Classics).
Smith, Adam (2012 [xxxx]). “Considerations Concerning the Formation of Languages,”
In Essays Philosophical and Literary, pp. 305-325. (London: Forgotten Books).
Smith, Adam (2012 [xxxx]). “History of Astronomy.” In Essays Philosophical and
Literary, pp. 344-384. (London: Forgotten Books).
Winerman, Lea (2005). “The Mind’s Mirror.” Monitor on Psychology, Vol 36, No. 9
(October): 48.
Notes
26
1. Smith’s market model can be found in Otteson 2002.
2. See Myers 1983.
3. Humans have three brains, also known as the triune brain: the neocortex, the limbic
system, and the reptilian brain.
27