Vernon Lomax Smith (born January 1, 1927) is professor of economics at Chapman University School of Law and School of Business 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 and an Adjunct Scholar of the Cato Institute in Washington D.C..
"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."
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 deveoped 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 a 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.
Much of the research that earned Smith Nobel Memorial Prize in Economic Sciences was conducted at the University of Arizona between 1976 and 2002. In 2002 Smith left Arizona for George Mason University. In 2008, Smith founded the Economic Science Institute at Chapman University in Orange, California. He has authored or co-authored over 200 articles and books on capital theory, finance, natural resource economics and experimental economics.
Smith was also one of the first to propose combinatorial auction, with Stephen J. Rassenti and Robert L. Bulfin in 1982.
Smith serves or has served on the board of editors of the American Economic Review, The Cato Journal, Journal of Economic Behavior and Organization, the Journal of Risk and Uncertainty, Science, Economic Theory, Economic Design, Games and Economic Behavior, and the Journal of Economic Methodology. He also served as an expert for the Copenhagen Consensus.
Smith's papers have been published by Cambridge University Press: Papers in Experimental Economics (1991) and Bargaining and Market Behavior: Essays in Experimental Economics (2000).