Vernon Smith

Vernon Lomax Smith (Wichita, Kansas, January 1, 1927) is an American economist and professor of economics and business law at Chapman University. He was previously a 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 shared the 2002 Nobel Prize in economics for his contributions to behavioral economics and his work in the field of experimental economics. He worked to establish "laboratory experiments as a tool in empirical economic analysis, especially in the study of alternative market mechanisms."

Early years 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 firefighter on the Santa Fe Railroad, died in a tragic accident that turned out to be pivotal. Money from life insurance provided by the Santa Fe Railroad was invested in a farm that became the Vernon family's sole means of survival during the harsh years of the Great Depression. Although the farm was hard work and hard times for Vernon's parents, Vernon liked adventurous experiences. His lifelong interest in learning how things work stemmed from his childhood on the farm.

Smith received a BS in electrical engineering from Caltech in 1949, an MS in economics from the University of Kansas in 1952, and a PhD in economics from Harvard University in 1955.

Academic career

Smith's first teaching position was at Purdue University's Krannert School of Management, which he held from 1955 to 1967, reaching the rank of tenured professor.

Smith also taught as a visiting associate professor at Stanford University (1961-1962) and there he came into contact with Sidney Siegel, who was also working on 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 at Caltech (1973-1975).

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

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

Academic work

It was at Purdue that Smith's work in experimental economics began. As Smith describes it:

In the autumn semester of 1955, I taught Principles of Economics, and it seemed a challenge to convey the basic microeconomic theory to students. Why and how could a market approach a competitive balance? I decided that the first day of class of the next semester would try to carry out a market experiment that would give students the opportunity to experience a real market, and to me the opportunity to observe one in which I knew, but they did not know what the supposed driving conditions of supply and demand were in that market.

In setting up the experiment, Smith varied certain institutional parameters seen in early classroom economics experiments conducted by Edward Hastings Chamberlin: in particular, he conducted the experiments during various trading periods, to give student subjects time to train..

At Caltech, Charles Plott encouraged Smith to formalize the methodology of experimental economics, which he did in two papers. In 1976 "Experimental Economics: Induced Value Theory" in the American Economic Review (AER). It was the first articulation of the principles on which economic experiments are based. Six years later, these principles were expanded upon in "Microeconomic Systems as an Experimental Science," also at the AER. This document adapts the principles of mechanism design, a microeconomic system developed by Leonid Hurwicz, to the development of economic experiments. According to 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 people in the economy and the production capacities of firms in the economy. The key idea of this formulation is that the economic outcome can be affected by the economic institution. Mechanism design provides a formal means of testing the performance of an economic institution, and experimental economics, as developed by Smith, provided a means of formal empirical evaluation of the performance of economic institutions. The article's second major contribution is the induced value technique, the method used in controlled laboratory experiments in economics, political science, and psychology that 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 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 value to them when they consume it, and they earn the difference between the commodity's value to them and its price. Using this technique, Smith and his co-authors have examined the performance of alternative trade mechanisms on 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 her colleague Bart Wilson conducted experiments designed to expose high school students from disadvantaged neighborhoods to market dynamics and how concepts like altruism influence economic behavior.

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

In January 2009, Smith signed a public petition against 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 bears his name and is sponsored by the European Center for Austrian Economics.

Personal life

In February 2005, Smith publicly attributed personality traits to Asperger syndrome after undergoing a self-diagnosis process.