In modern English the term 'smart money' is most commonly used in reference to money invested in the course of business or gambling by people presumed to be knowledgeable about the investment. Less formally, the term is used to show that one statement is more likely true than another: "some people say A, but the smart money is on B."
The modern meaning of 'smart money' dates from 1926, according to Merriam Webster's dictionary, prior to which the meaning was entirely different.
'Smart' can mean 'hurt' as when, after being slapped, the skin smarts.
In law, 'smart money' means 'punitive damages' and, again according to Merriam Webster, dates from 1693. It appears to refer to the 'smart' intended to be felt by the defendant in a claim for damages.
If a corporation or public body acts in an arbitrary or oppressive manner the smart money is on a jury awarding smart money. The intention no doubt is to encourage the tortfeasor to get some smarts.
'If a public corporation, like as individual, acts oppressively, wantonly, abuses power, and a citizen in that way is injured, the citizen, in addition to strict compensation, may have, the law says, something in the way of smart money; something as punishment for the oppressive use of power.'.
147 U.S. 101
13 S.Ct. 261
37 L.Ed. 97
LAKE SHORE & M. S. RY. CO. v. PRENTICE.
January 3, 1893
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And now, by way of apology for being insufficiently humourous in this festive season, may I offer a festive read >
The (Legal) Night Before Christmas.