Arguments for Competitive Order in the Laboratory: Smith, Hayek, and Ecological Rationality

Vernon Smith (2008) argues that his experimental work is a demonstration of Friedrich Hayek’s ‘ecological rationalism’. This assertion is difficult to square with Hayek’s apparent dismissal of the possibility of demonstrating ‘ecological rationality’ in a laboratory (documented in Smith 2008). The disagreement is rooted in two different meanings of the term ‘ecological rationality’: first, as a description of the contingent reasonableness of evolved norms and behaviors (ER1), and second, as an argument that reliance on evolutionary processes is ‘rational’ for policymakers (ER2). Smith’s laboratory methods can demonstrate in a partial but significant way ER1, but can only demonstrate ER2 if efficiency is accepted as a measure of desirability. Hayek is primarily skeptical of experimental demonstrations of ER2, because in his analysis preferences are emergent, not fixed, and efficiency is normatively problematic. Hayek implicitly affirms this point in the arguments he makes for markets, which do not rely on preferences or efficiency.