Vernon L. Smith

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Vernon L. Smith

Vernon Lomax Smith (born on January 1, 1927) is an American economist, who with Daniel Kahneman was awarded the 2002 Nobel Memorial Prize in Economic Sciences "for having established laboratory experiments as a tool in empirical analysis, especially in the study of alternative market mechanisms." (source; nobelprize.org)

Quotes[edit]

  • Hayek, in my view, is the leading economic thinker of the 20th century.
    • Vernon L. Smith, in "Reflections on Human Action after 50 years", in Cato Journal, Vol. 9, No. 2. (Fall 1999)
  • 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

"Relevance of laboratory experiments to testing resource allocation theory," 1980[edit]

Smith, Vernon L. "Relevance of laboratory experiments to testing resource allocation theory." Evaluation of Econometric Models. Academic Press, 1980. 345-377.

  • Microeconomics, including the study of individual choice and of group choice in market and nonmarket processes, has generally been considered a field science as distinct from an experimental science. Hence microeconomics has sometimes been classified as "non-experimental" and closer methodologically to meteorology and astronomy than to physics and experimental psychology (Marschak, 1950, p. 3; Samuelson, 1973, p. 7). But the question of using experimental or nonexperimental techniques is largely a matter of cost, and generally the cost of conducting the most ambitious and informative experiments in astronomy, meteorology, and economics varies from prohibitive down to considerable. The cost of experimenting with different solar system planetary arrangements, different atmospheric conditions, and different national unemployment rates, each under suitable controls, must be regarded as prohibitive.
    • p. 345
  • Three precepts are offered to constitute a foundation for the use of laboratory experimental methods in testing hypotheses about the behavior of allocation mechanisms.
    • p. 346
  • Nonsatiation (Smith, 1976a). Given a costless choice be ween two alternatives which differ only in that the first yields more of the reward medium (e.g., currency) than the second, the first will always be chosen (preferred) over the second by an autonomous individual, i.e., utility U(M) is a monotone increasing function of the reward medium.
    • p. 346
  • Complexity. In general individual decision makers must be assumed to have multidimensional values which attach nonmonetary subjective cost or value to (1) the process of making and executing individual or group decisions, (2) the end result of such decisions, and (3) the rewards (and perhaps behavior) of other individuals involved in the decision process.
    • p. 348
  • Parallelism: Propositions about the behavior of individuals and the performance of institutions that have been tested in laboratory microeconomies apply also to nonlaboratory environments where similar ceteris paribus conditions prevail.
    • p. 349

"Microeconomic systems as an experimental science," 1982[edit]

Smith, Vernon L. "Microeconomic systems as an experimental science." American Economic Review 72.5 (1982): 923-955.

  • It is not possible to design a laboratory resource allocation experiment without designing an institution in all its detail.
    • p. 923
  • In defining a microeconomic system two distinct component elements will be identified: an environment and an institution. The environment consists of a list of N economic agents {l,...,N}, a list of K + 1 commodities (including resources) {O,l,...,K}, and certain characteristics of each agent ... Hence, a microeconomic environment is defined by the collection of characteristics e = (e',...,e”).
    • p. 925

"Theory, experiment and economics," 1989[edit]

Smith, Vernon L. "Theory, experiment and economics." The Journal of Economic Perspectives (1989): 151-169.

  • Economics as currently learned and taught in graduate school and practiced afterward is more theory-intensive and less observation-intensive than perhaps any other science. I think the statement that "no mere fact ever was a match in economics for a consistent theory" accurately describes the prevailing attitude in the profession (Milgrom and Roberts, 1987, p. 185).
    • p. 151
  • When the theory performs well you also think, “Are there parallel results in naturally occurring field data?” You look for coherence across different data sets because theories are not specific to particular data sources. Such extensions are important because theories often make specific assumptions about information and institutions which can be controlled in the laboratory, but which may not accurately represent field data generating situations. Testing theories on the domain of their assumptions is sterile unless it is part of a research program concerned with extending the domain of applications of theory to field environments
    • p. 151
  • In economics the tendency of theory to lag behind observation seems to be endemic, and, as theorists, few of us consider this to be a "terrible state." But as noted by Lakatos (1978, p. 6), "where theory lags behind the facts, we are dealing with miserable degenerating research programmes."
    • p. 168
  • Theory should be ever more demanding of our empirical resources. Simultaneously, data should be ever more demanding of the empirical relevance of theory and of the theorist's expertise in working imaginatively on problems of the world, rather than on stylized problems of the imagination.
    • p. 168

"Constructivist and ecological rationality in economics," 2002[edit]

Vernon L. Smith, "Constructivist and ecological rationality in economics." Prize Lecture, December 8, 2002; Republished in: American Economic Review (2003): 465-508.

  • Ecological rationality uses reason – rational reconstruction – to examine the behavior of individuals based on their experience and folk knowledge, who are ‘naïve’ in their ability to apply constructivist tools to the decisions they make; to understand the emergent order in human cultures; to discover the possible intelligence embodied in the rules, norms and institutions of our cultural and biological heritage that are created from human interactions but not by deliberate human design. People follow rules without being able to articulate them, but they can be discovered.
    • p. 509
  • One of the most intriguing discoveries of experimental economics is that (1) as we have seen, people invariably behave non-cooperatively in small and large group ‘impersonal’ market exchange institutions; (2) many (up to half in single play; over 90% in repeat play) cooperate in ‘personal’ exchange (two-person extensive form games); (3) yet in both economic environments all interactions are between anonymous players.
    • p. 528
  • Rules emerge as a spontaneous order–they are found–not deliberately designed by one calculating mind. Initially constructivist institutions undergo evolutionary change adapting beyond the circumstances that gave them birth. What emerges is a form of “social mind” that solves complex organization problems without conscious cognition.
    • p. 552

"Mildest autism has 'selective advantages'," 2005[edit]

Vernon L. Smith is joined by Prof. Jeff Tollaksen (l) and Judge Jack Mandel (r) during a break in Smith's lecture on Experimental Economics at the Nicholas Academic Centers, 2011.

Interview by Sue Herera. "Mildest autism has 'selective advantages'" NBC News, 25 February 2005

  • The vast majority of individuals with Asperger Syndrome need help — without that help they won't be able to do very well. The individuals that I know have to overcome a great deal of difficulty to maximize their potential and get the things in life they deserve.
  • I can switch out and go into a concentrated mode and the world is completely shut out. If I'm writing something, nothing else exists... Perhaps even more importantly, I don't have any trouble thinking outside the box. I don't feel any social pressure to do things the way other people are doing them, professionally. And so I have been more open to different ways of looking at a lot of the problems in economics.
  • I think it's different kinds of minds, and the recognition that certain mental deficiencies may actually have some selective advantages in terms of activities. We've lost a lot of the barriers that have to do with skin color and with various other characteristics. But there's still not sufficient recognition of mental diversities. And we don't all have to think alike to be communal and to live in a productive and satisfying world.

External links[edit]

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