Vernon L. Smith

Vernon Lomax Smith (born January 1, 1927) is an American economist who is currently a professor of economics and law at Chapman University. He was formerly the McLellan/Regent’s Professor of Economics at the University of Arizona, a professor of economics and law at George Mason University, and a board member of the Mercatus Center. Along with Daniel Kahneman, Smith won the 2002 Nobel Memorial Prize in Economic Sciences for his contributions to behavioral economics and his work in the field of experimental economics, which helped establish “laboratory experiments as a tool in empirical economic analysis, especially in the study of alternative market mechanisms”.

Vernon L. Smith
Smith in January 2011
Born	Vernon Lomax Smith (1927-01-01) January 1, 1927 Wichita, Kansas, U.S.
Education	California Institute of Technology (BS) University of Kansas (MA) Harvard University (PhD)
Academic career
Field	Experimental economics
School or tradition	New classical economics
Doctoral advisor	Wassily Leontief
Influences	Friedrich Hayek Richard S. Howey
Contributions	Combinatorial auction Experimental economics
Awards	Nobel Memorial Prize in Economic Sciences (2002)
Information at IDEAS / RePEc
Academic background
Thesis	A theoretical and empirical inquiry into the economic replacement of capital equipment (1955)

Smith is the founder and president of the International Foundation for Research in Experimental Economics (IFREEE), a member of the Independent Institute’s board of advisors, and a senior fellow at the Cato Institute in Washington D.C. He was elected a Fellow of the Econometric Society in 1987, and was elected to the National Academy of Sciences in 1995. In 2004, Smith was awarded an honorary doctorate by the Universidad Francisco Marroquín, where the Vernon Smith Center for Experimental Economics Research is named for him. He was also a founding board member of the Center for Growth and Opportunity at Utah State University. As of 2023, Smith also sits on the Advisory Board of the Madden Center for Value Creation at Florida Atlantic University.

Early life and education

Smith was born in Wichita, Kansas, where he attended Wichita North High School and Friends University. Grover Bougher, Vernon's mother's first husband, who worked as a fireman on the Santa Fe railroad, died in an accident. The life insurance money provided by the Santa Fe railroad was invested in a farm which became the sole means of survival for Vernon's family during the tough years of the Great Depression. His future interests were influenced by his childhood at the farm.

Smith received his bachelor's degree in electrical engineering from Caltech in 1949, an M.A. in economics from the University of Kansas in 1952, and his Ph.D. in economics from Harvard University in 1955. His Ph.D. thesis title was A theoretical and empirical inquiry into the economic replacement of capital equipment.

Academic career

Smith's first teaching post was at the Krannert School of Management, Purdue University, which he held from 1955 until 1967, attaining the rank of full professor.

Smith also taught as a visiting associate professor at Stanford University (1961–1962) and there made contact with Sidney Siegel, who was also doing work in experimental economics. Smith moved with his family to Massachusetts and got a position first at Brown University (1967–1968) and then at the University of Massachusetts (1968–1972). Smith also received appointments at the Center for Advanced Study in the Behavioral Sciences (1972–1973) and Caltech (1973–1975).

Much of the research that earned Smith the Nobel Memorial Prize in Economic Sciences was conducted at the University of Arizona between 1976 and 2001. In 2001, Smith left Arizona for George Mason University. From 2003 to 2006, he held the Rasmuson Chair of Economics at the University of Alaska Anchorage. In 2008, Smith founded the Economic Science Institute at Chapman University in Orange, California.

Smith has served on the board of editors of the American Economic Review, the Cato Journal, Journal of Economic Behavior and Organization, Science, Economic Theory, Economic Design, and the Journal of Economic Methodology. He also served as an expert for the Copenhagen Consensus.

Academic work

Smith began his work in experimental economics at Purdue University. As Smith describes it:

In the Autumn semester, 1955, I taught Principles of Economics, and found it a challenge to convey basic microeconomic theory to students. Why/how could any market approximate a competitive equilibrium? I resolved that on the first day of class the following semester, I would try running a market experiment that would give the students an opportunity to experience an actual market, and me the opportunity to observe one in which I knew, but they did not know what were the alleged driving conditions of supply and demand in that market.

In framing the experiment, Smith varied certain institutional parameters seen in the first classroom economics experiments as conducted by Edward Chamberlin: in particular, he ran the experiments for several trading periods, to give the student subjects time to train.

At Caltech, Charles Plott encouraged Smith to formalize the methodology of experimental economics, which he did in two articles. In 1976, "Experimental Economics: Induced Value Theory" was published in the American Economic Review (AER). It was the first articulation of the principle behind economic experiments. Six years later, these principles were expanded in "Microeconomic Systems as an Experimental Science," also in the AER. This paper adapts the principles of mechanism design, a microeconomic system developed by Leonid Hurwicz, to the development of economic experiments. In Hurwicz's formulation, a microeconomic system consists of an economic environment, an economic institution (or economic mechanism), and an economic outcome. The economic environment is simply the preferences of the people in the economy and the production capabilities of the firms in the economy. The key insight in this formulation is that the economic outcome can be affected by the economic institution. The mechanism design provides a formal means for tests of the performance of an economic institution, and experimental economics, as developed by Smith, provided a means for formal empirical assessment of the performance of economic institutions. The second main contribution of the paper is to the technique of induced values, the method used in controlled laboratory experiments in economics, political science, and psychology, which allows experimental economists to create a replica of a market in a laboratory. Subjects in an experiment are told that they can produce a "commodity" at a cost and then sell it to buyers. The seller earns the difference between the price received and its cost. Buyers are told that the commodity has a value to them when they consume it, and they earn the difference between the value of the commodity to them and its price. Using the technique, Smith and his coauthors have examined the performance of alternative trading mechanisms in resource allocation.

In February 2011, Smith participated in the "Visiting Scholars Series" at the Nicholas Academic Centers in Santa Ana, California, conducted in collaboration with Chapman University. Smith and his colleague Bart Wilson conducted experiments designed to expose high school students from underserved neighborhoods to market dynamics and how concepts such as altruism influence economic behavior.

Smith has authored or coauthored articles and books on capital theory, finance, natural resource economics and experimental economics. He was also one of the first to propose the combinatorial auction design, with Stephen J. Rassenti and Robert L. Bulfin in 1982.

In January 2009, Smith signed a public petition opposing the passage of the American Recovery and Reinvestment Act. In a 2010 Econ Journal Watch study, Smith was found to be one of the most active petition-signers among US economists.

The Vernon Smith Prize for the Advancement of Austrian Economics is named after him and is sponsored by the European Center of Austrian Economics.

Vernon Smith is renowned for his seminal contributions to the elucidation of spontaneous order within the field of economics. He posits spontaneous order as the organic emergence of structure and coherence from apparent disorder, a phenomenon ubiquitously observed in both social and economic contexts. Smith has expounded upon the notion of spontaneous order in the context of his pedagogical endeavors as well. In his instructive course titled "Spontaneous Order and the Law" at the Fowler School of Law, Chapman University, he illuminates how social norms and legal frameworks emerge organically through human interaction, gradually coalescing from apparent chaos into structured societal systems.

In recent years, Vernon L. Smith’s research has expanded to include the study of Neuroeconomics as seen in Law & Neuroeconomics Smith (2000), where he integrates economic theory with neuroscience to understand decision-making processes. Vernon Smith’s work in this area has led to new insights into how brain activity influences economic decisions. Additionally, he has been instrumental in promoting the use of experimental methods in economics education, advocating for a hands-on approach to learning economic concepts. Some of these contributions were used in Neuroeconomics Lab books published by Academic Press (2014).

Personal life

In February 2005, Smith publicly attributed features of his personality to Asperger syndrome after a process of self-diagnosis.

Works

• Gjerstad, Steven D.; Smith, Vernon L. (2014). Rethinking Housing Bubbles. New York: Cambridge University Press. ISBN 978-0521198097.
• Gjerstad, Steven; Smith, Vernon L. (2012). "At Home in the Great Recession". In Miniter, Brendan (ed.). The 4% Solution: Unleashing the Economic Growth America Needs. New York: Crown Business. pp. 345–377. ISBN 9780307986146.
• Gjerstad, Steven D.; Smith, Vernon L. (2013). "Balance Sheet Crises: Causes, Consequences, and Responses" (PDF). Cato Journal. 33 (3): 437–470. Retrieved 2017-10-21.
• Plott, Charles R., and Vernon L. Smith, ed. (2008). Handbook of Experimental Economics Results, v. 1, Elsevier. Description and preview.
• Rassenti, Stephen J.; Smith, Vernon L.; Bulfin, Robert L. (1982). "A Combinatorial Auction Mechanism for Airport Time Slot Allocation" (PDF). The Bell Journal of Economics. 13 (2): 402–417. doi:10.2307/3003463. JSTOR 3003463.
• Smith, Vernon L. (1962). "An Experimental Study of Competitive Market Behavior". Journal of Political Economy. 70 (2): 111–137. doi:10.1086/258609. JSTOR 1861810. S2CID 54718519.
• _____ (1976). "Experimental Economics: Induced Value Theory" (PDF). American Economic Review. 66 (2): 274–279.
• Smith, Vernon L. (1980). "Relevance of Laboratory Experiments to Testing Resource Allocation Theory" (PDF). In Kmenta, Jan; Ramsey, James B. (eds.). Evaluation of Econometric Models. Academic Press. pp. 345–377. ISBN 978-0-12-416550-2.
• _____ (1982). "Microeconomic Systems as an Experimental Science" (PDF). American Economic Review. 72 (5): 923–955.
• _____ (1991). Papers in Experimental Economics [1962–88], Cambridge. Description and chapter-preview links.
• _____ (2000). Bargaining and Market Behavior: Essays in Experimental Economics [1990–98], Cambridge. Description and chapter-preview links.
• _____ (2003). Smith, Vernon L. (2003). "Constructivist and Ecological Rationality in Economics". American Economic Review. 93 (3): 465–508. CiteSeerX 10.1.1.501.5291. doi:10.1257/000282803322156954. S2CID 16505135.
• _____ ([1987] 2008a). "experimental methods in economics." The New Palgrave Dictionary of Economics, 2nd Edition, Abstract.
• _____ (2008b). "experimental economics," The New Palgrave Dictionary of Economics, 2nd Edition, Abstract.
• Williams, Arlington W.; Ledyard, John O.; Gjerstad, Steven; Smith, Vernon L. (2000). "Concurrent Trading in Two Experimental Markets with Demand Interdependence". Economic Theory. 16 (3): 511–528. CiteSeerX 10.1.1.22.1763. doi:10.1007/s001990050002. JSTOR 25055346. S2CID 195227181. Reprinted in Timothy N. Cason and Charles Noussair, ed. (2001), Advances in Experimental Markets, pp. 15– 32.
• Chorvat, T., McCabe, K., & Smith, V. (2005). Law and Neuroeconomics. Supreme Court Economic Review

See also

• List of economists

External links

• Dr. Vernon L Smith at Chapman University School of Law
• Member of the Board of Advisors at The Independent Institute
• Senior Fellow at Cato Institute
• "Vernon L. Smith (1927– )". The Concise Encyclopedia of Economics. Library of Economics and Liberty (2nd ed.). Liberty Fund. 2008.
• Roberts, Russ. "Vernon Smith Podcasts". EconTalk. Library of Economics and Liberty.
• "Vernon L. Smith Papers, 1938–2007 and undated". Rubenstein Library, Duke University. Retrieved 2017-10-21.
• Vernon L. Smith publications indexed by Google Scholar
• Vernon L. Smith on Nobelprize.org
• Spontaneous Order
• Neuroeconomics
• Academic Press
• Neuroeconomics Lab

Articles

• "Default is not the end of the world" Interview with Vernon Smith by Luis Martin (Winter 2011)
• Reflections On Human Action After 50 Years by Vernon L. Smith, Cato Journal, Fall 1999
• "Using Experiments to Inform the Privatization/Deregulation Movement in Electricity," by Stephen J.Rassenti, Vernon L. Smith, and Bart J.Wilson, Cato Journal, Winter 2002
• The Clinton Housing Bubble, Vernon L. Smith, The Wall Street Journal, December 18, 2007
• From Bubble to Depression?, Steven Gjerstad and Vernon L. Smith, The Wall Street Journal, April 6, 2009