Vernon L. Smith

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Vernon L. Smith : biography

01 January 1927 –

Vernon Lomax Smith (born January 1, 1927) is professor of economics at Chapman University’s Argyros School of Business and Economics and School of Law in Orange, California, a research scholar at George Mason University Interdisciplinary Center for Economic Science, and a Fellow of the Mercatus Center, all in Arlington, Virginia. Smith shared the 2002 Nobel Memorial Prize in Economic Sciences with Daniel Kahneman. He is the founder and president of the International Foundation for Research in Experimental Economics, a Member of the Board of Advisors for The Independent Institute, and a Senior Fellow at the Cato Institute in Washington D.C.. In 2004 Smith was honored with an honorary doctoral degree[https://www.ufm.edu/cms/es/honorary-doctoral-degrees Honorary Doctoral Degrees at Universidad Francisco Marroquín] at Universidad Francisco Marroquín, the institution that named the Vernon Smith Center for Experimental Economics Research after him.

Notes

Biography

Education

Smith was born in Wichita, Kansas where he attended Wichita North High School and Friends University. He 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.http://nobelprize.org/nobel_prizes/economics/laureates/2002/smith-autobio.html

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. It was there that his work in experimental economics began. As Smith describes it:

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.

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), 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). At Caltech, Charlie 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). This 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 neatly adapts the principles of a microeconomic system developed by Leonid Hurwicz – a recent winner of the Nobel Memorial Prize in Economic Sciences – to the development of economic experiments. In Hurwicz’ 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. Mechanism design provide a formal means for tests of the performance of an economic institution, while experimental economics – as developed by Smith – provided a means for formal empirical assessment of the performance of economic institutions. There is a second key contribution of his influential paper Microeconomic Systems as an Experimental Science" though that goes beyond adaptation of the concepts of mechanism design developed by Hurwicz. In his paper, Smith describes the technique of induced values. This is the method used in controlled laboratory experiments in economics, political science, and psychology. This technique is what 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 earn the difference between the value of the commodity to them and its price. Using this technique, Smith and his coauthors have examined the performance of alternative trading mechanisms in resource allocation.