Vernon L. Smith

Lore & Background

Smith was born in Wichita, Kansas, and attended Wichita North High School and Friends University. His family's survival during the Great Depression was aided by life insurance money from the Santa Fe railroad, invested in a farm. He earned a bachelor's degree in electrical engineering from Caltech in 1949, an M.A. in economics from the University of Kansas in 1952, and a Ph.D. in economics from Harvard University in 1955, with a thesis titled 'A theoretical and empirical inquiry into the economic replacement of capital equipment.'

Smith began his academic career at Purdue University's Krannert School of Management, where he first conducted classroom market experiments. He later taught at Stanford University, Brown University, the University of Massachusetts, and Caltech. Much of his Nobel-winning research was conducted at the University of Arizona between 1976 and 2001. He also held positions at George Mason University and the University of Alaska Anchorage, and in 2008 founded the Economic Science Institute at Chapman University.

Smith's work formalized experimental economics through key papers, including 'Experimental Economics: Induced Value Theory' (1976) and 'Microeconomic Systems as an Experimental Science' (1982). He also contributed to the study of spontaneous order, neuroeconomics, and combinatorial auction design. He has served on the board of editors of several journals and as an expert for the Copenhagen Consensus.

Reader's Guide

Vernon L. Smith's significance lies in his foundational role in establishing experimental economics as a rigorous empirical discipline. By adapting mechanism design principles from Leonid Hurwicz, Smith created a framework for testing economic institutions in controlled laboratory settings. His technique of induced values allowed researchers to replicate market conditions and evaluate alternative trading mechanisms, fundamentally changing how economists study resource allocation. Smith's work demonstrated that economic outcomes are influenced by institutional rules, not just preferences and technology. His 2002 Nobel Prize, shared with Daniel Kahneman, recognized this transformation. Beyond experimental methods, Smith explored spontaneous order, showing how structure emerges from apparent disorder in social and economic systems. His later research in neuroeconomics integrated neuroscience with economic theory to understand decision-making. Smith's legacy includes the Vernon Smith Center for Experimental Economics Research at Universidad Francisco Marroquín and the Vernon Smith Prize for the Advancement of Austrian Economics. His career illustrates the power of empirical methods to test and refine economic theory.

Did You Know?

• Smith won the 2002 Nobel Memorial Prize in Economic Sciences along with Daniel Kahneman.
• He was elected a Fellow of the Econometric Society in 1987 and to the National Academy of Sciences in 1995.
• Smith founded the Economic Science Institute at Chapman University in 2008.
• He was one of the first to propose the combinatorial auction design, with Stephen J. Rassenti and Robert L. Bulfin in 1982.

Notable Quotes (Wikiquote)

"Vernon L. Smith, in "Reflections on Human Action after 50 years", in Cato Journal, Vol. 9, No. 2. (Fall 1999)." — Vernon L. Smith "Vernon L. Smith (2002) in: "Vernon L. Smith - Biographical". Nobelprize.org. Nobel Media AB 2013. Web. 13 Jun 2014." — Vernon L. Smith "quoted in Nobel Economist Pans Start-Up Chile Concept (2011)." — Vernon L. Smith "Smith, Vernon L. "Relevance of laboratory experiments to testing resource allocation theory." Evaluation of Econometric Models. Academic Press, 1980. 345-377." — Vernon L. Smith