Vernon L. Smith

Vernon Lomax Smith, born on January 1, 1927, is an American economist. He currently serves as a professor of economics and law at Chapman University. Previously, he held the McLellan/Regent's Professorship in Economics at the University of Arizona, taught economics and law at George Mason University, and sat on the board of the Mercatus Center. In 2002, he shared the Nobel Memorial Prize in Economic Sciences with Daniel Kahneman for their work in behavioral and experimental economics, specifically for establishing laboratory experiments as a tool for empirical economic analysis, particularly in studying alternative market mechanisms.

Smith founded and presides over the International Foundation for Research in Experimental Economics (IFREEE). He is also on the board of advisors for the Independent Institute and a senior fellow at the Cato Institute in Washington, D.C. He became a Fellow of the Econometric Society in 1987 and was elected to the National Academy of Sciences in 1995. In 2004, the Universidad Francisco Marroquín awarded him an honorary doctorate; its Vernon Smith Center for Experimental Economics Research is named after him. He was a founding board member of the Center for Growth and Opportunity at Utah State University, and as of 2023, he serves on the advisory board of the Madden Center for Value Creation at Florida Atlantic University.

Smith was born in Wichita, Kansas, and attended Wichita North High School and Friends University. His mother’s first husband, Grover Bougher, a Santa Fe railroad fireman, died in an accident. The life insurance money from the railroad was invested in a farm, which became the family’s sole support during the Great Depression. His childhood on that farm shaped his later interests. 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 in 1955. His dissertation was titled *A theoretical and empirical inquiry into the economic replacement of capital equipment*.

Smith began teaching at Purdue University’s Krannert School of Management in 1955, becoming a full professor before leaving in 1967. He was a visiting associate professor at Stanford University from 1961 to 1962, where he met Sidney Siegel, who was also working in experimental economics. He then moved his family to Massachusetts, teaching at Brown University (1967–1968) and the University of Massachusetts (1968–1972). He held appointments at the Center for Advanced Study in the Behavioral Sciences (1972–1973) and Caltech (1973–1975). Most of the research that won him the Nobel Prize was conducted at the University of Arizona from 1976 to 2001. He left Arizona for George Mason University in 2001, held the Rasmuson Chair of Economics at the University of Alaska Anchorage from 2003 to 2006, and in 2008 founded the Economic Science Institute at Chapman University in Orange, California.

Smith served on the editorial boards of the *American Economic Review*, the *Cato Journal*, the *Journal of Economic Behavior and Organization*, *Science*, *Economic Theory*, *Economic Design*, and the *Journal of Economic Methodology*. He also acted as an expert for the Copenhagen Consensus.

His work in experimental economics began at Purdue. In his early classroom experiments, he varied certain institutional parameters from those used by Edward Chamberlin, notably running experiments over multiple trading periods to allow student subjects time to train. At Caltech, Charles Plott encouraged him to formalize the methodology, which he did in two key articles. In 1976, "Experimental Economics: Induced Value Theory" appeared in the *American Economic Review* (AER), articulating the principle behind economic experiments for the first time. Six years later, "Microeconomic Systems as an Experimental Science" (also in the AER) expanded these principles, adapting Leonid Hurwicz’s mechanism design framework to experimental economics. In Hurwicz’s formulation, a microeconomic system includes an economic environment (people’s preferences and firms’ production capabilities), an economic institution (or mechanism), and an economic outcome. The key insight is that the institution can affect the outcome. Mechanism design provides a formal way to test an institution’s performance, and Smith’s experimental economics offered a formal empirical method to assess that performance. The paper’s second main contribution is the technique of induced values, used in controlled laboratory experiments in economics, political science, and psychology. This method lets experimenters create a replica of a market in the lab: subjects are told they can produce a commodity at a cost and sell it to buyers, with sellers earning the difference between price and cost, and buyers earning the difference between the commodity’s value to them and its price. Using this technique, Smith and his coauthors have studied how different trading mechanisms perform in allocating resources.