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Elaine Ou

Smart Contracts Don’t Have to Be Dumb

Agreements enforced by computers freak people out. But how they work depends on how they're written.
Just ask Oliver.

Just ask Oliver.

Photographer: Scott Eisen/Getty Images

This year’s winners of the Nobel Prize in Economics, Oliver Hart and Bengt Holmström, have spent a lot of time figuring out how humans can make agreements that stand the test of time. Their work can also help us understand what many view as an inhuman and highly suspect innovation: the smart contract.

Hart and his collaborators pioneered the theory of incomplete contracts -- the idea that humans are simple mortals who lack the ability to negotiate a contract that covers every possible future state of the world . This incompleteness suggests that smart contracts -- software that secures a relationship over a computer network  -- might be a dumb idea. What if I missed a payment on my auto loan because I came down with the plague? How would a computer interpret the unexpected situation with the warmth and compassion of a human?