Speaker
Description
Adam Smith’s Wealth of Nations is considered by many to be a foundational work for classical economics. Recent scholarship claims Smith’s other book, Theory of Moral Sentiments deserves a similar stature for behavioral economics. This paper considers the claim by examining Smith’s use of the endowment effect in his conceptualization of three pillars of his moral system: justice, prudence and beneficence. While writings such as Ashraf, Camerer, and Loewenstein (2005) and Zamir (2010) provide a cursory discussion of Smith’s usage the endowment effect, this paper provides the specific model underlying Smith’s analysis. For Smith, the violation of a person’s perceived endowment creates a loss and constitutes injury. Injuries that create justified resentment are considered injustices. Similar violations that result in foregone gains rather than losses of perceived endowments create disappointment but not resentment and as such do not constitute real injury in Smith’s moral framework. Without injury Smith’s “active principles” are not invoked and no moral action occurs. Support for this conceptual framework is also shown to appear in Smith’s Lectures on Jurisprudence as illustrated by three examples herein. This compilation of evidence for the endowment effect supports the notion that Smith’s Theory of Moral Sentiments may deserve similar stature for behavioral economics as his Wealth of Nations has for classical economics.
| Organization | University of Tampa |
|---|
