Working Papers

Constrained Optimization or Observation? On What Economists Take as Primary

Economists differ on what they take as primary when constructing the problem of a rational economic order: constrained optimization or observation. The general starting point is to frame the problem with four key assumptions—scarcity, fixed preferences, complete information, and self-interest—so that the optimization problem yields a clear prediction. Observation enters only after the fact, to repair the model when predictions fail. F. A. Hayek and Vernon Smith instead begin with what people actually know and do, making observation primary to economic inquiry. Humanomics extends this stance by grounding human conduct in Adam Smith’s astute observations on fellow-feeling, moral sentiments, and a sense of propriety. Economics as an observational science takes human conduct, not constrained optimization, as primary.

Dissolving the Water-Diamond Paradox: A Conceptual Semantic Analysis of “Money” and “Value” in the Wealth of Nations

With Gian Marco Farese

We examine the conceptual semantics of two key words in Chapter IV of the Wealth of Nations: money and value (specifically, the exchangeable value of goods). Our semantic investigation of the original conceptualization of these words helps resolve interpretive misconceptions in modern economics and provides deeper insight into Adam Smith’s fundamental principles of economics. Using the Natural Semantic Metalanguage methodology, we offer semantic illustrations that clarify Smith’s treatment of money as the universal instrument of human economic transactions and illuminate the polysemy of value in the so-called “water-diamond paradox”. In doing so, we demonstrate the considerable semantic and conceptual complexity underlying these foundational economic concepts.

Humanomics and Its Interlocutors: On Making Observation Primary

In this essay I respond to a set of contributions engaging with the project Vernon Smith and I present in Humanomics (2019). I frame their diverse perspectives around a central choice: whether economists begin with constrained optimization or with observation of human conduct. The stakes extend beyond any single essay to how economists conceive and conduct their inquiry.

Humanomics and Human Action Explanations of Why Human Beings Divide Their Labor

Modern economics, whether in the orthodox tradition of Paul Samuelson or the heterodox tradition of Ludwig von Mises, ultimately looks to explain economic outcomes, that is, the effects of human action. In their own way, neither distinguish the consequences of human action from the origins of human action, and neither have any truck with ethical valuations and moral judgments as part of their modern subjective theory of value. If economics is to be about flesh-and-blood human beings, and why we do what we do, then we need an analytical framework that considers human action in its origin, rather than in just its outcome. Following Adam Smith’s lead, I explain the division of labor with a humanomics account that is moral all the way down.

Linguistic Intervention Unlocks the Economic Gains of Diversity 

With Sheen S. Levine and Simon Siegenthaler

Gains from trade generate prosperity, yet interpersonal exchange can falter along racioethnic lines. We examine this failure in incentivized experimental economies where participants must spontaneously initiate and sustain trading relationships while avatars visibly signal each participant’s selfreported racioethnicity. When gains require cross-racioethnic exchange, diverse economies underperform: welfare and specialization decline as many retreat toward autarky. This underperformance stems not from segregation into racioethnic trading blocs, but from a general collapse in exchange. Exchanges diminish and performance gaps emerge, persist, and widen over time. Communication data show that lower welfare co-varies with less voluminous dialogue characterized by less talk of motivational drives (affiliation, achievement) and transparent state-signaling (needs, deficits, surpluses). We conceptualize this misalignment as communicative friction: observable, interactional patterns, within a shared language, that raise the costs of search, bargaining, and enforcement. A brief linguistic intervention providing specific communicative strategies—designed to amplify those elements—increases communication volume, the targeted categories, and conversational scaffolds (verbs, function words). When cross-racioethnic exchange yields economic gains, the intervention closes the performance gap by restoring specialization and diverse trade; its minimal effects otherwise indicate that it alleviates this specific friction rather than teaching generic language or trading skills. Language thus operates bidirectionally: It both reveals the state of cooperation and causally shapes it. As the primary conduit of culture, language can impede exchange at baseline but facilitate it when aligned. The intervention offers a scalable microgovernance tool that reduces transaction costs. 

You Wouldn’t Steal a Car: Moral Intuition for Intellectual Property

With Joy A. Buchanan

We conduct an experiment to compare how people respond to the appropriation of rivalrous versus nonrivalrous goods. Analysis of chat transcripts indicates that people use language associated with “stealing” exclusively for rivalrous goods. Moreover, taking rivalrous goods precipitates negative emotional shifts in conversations, while appropriating nonrivalrous goods does not. Even though their work is copied extensively, creators of nonrivalrous goods do not seek intellectual property protection when attribution is assured. These findings help explain why digital piracy in the internet age provokes moral judgments distinct from those involving physical theft. They suggest that our moral evaluations originate more from the rivalrousness of the good than from the act of taking itself and therefore challenge the applicability of intellectual property law frameworks formulated before the advent of widespread digital sharing.