Through the use of puppets, researchers from the University of Missouri have determined that babies can understand complex social situations and react accordingly.
Puppets were manipulated to demonstrate both positive and negative scenes, in front of 13 month old children.
The researchers studied "gaze time" and deduced toddlers look away when a scene is boring or expected. But, they spend significant time observing a complicated scenario and then react in a happy or sad way, much like an adult.
Click here to read the research.