Vernon Smith (b. 1927)

Who They Were

Vernon Smith (born 1927) is an American economist recognised as a founder of experimental economics — the use of controlled laboratory experiments to test economic theory. For much of the twentieth century economics was regarded as a discipline that could not run experiments in the manner of the natural sciences; Smith helped overturn that view by bringing human subjects into the laboratory to study how markets and institutions actually perform. His research examined how different market rules and trading arrangements shape prices and efficiency, giving economists a way to test propositions that had previously only been argued theoretically. In 2002 he shared the Sveriges Riksbank Prize in Economic Sciences with the psychologist Daniel Kahneman. The award recognised two complementary routes to a more empirical economics: Kahneman for integrating psychology into economics, and Smith for the experimental method.

Key Contributions

Smith's central contribution was to establish laboratory experiments as a tool for empirical economic analysis. By placing volunteers in carefully designed market settings with real incentives, he showed that competitive markets could reach efficient outcomes under conditions far more limited than standard theory assumed, and he investigated how alternative trading rules and auction designs affect results. This experimental approach gave economics a systematic way to observe behaviour and test theory directly, rather than relying only on models or historical data. His methods influenced fields ranging from market design to policy evaluation. The 2002 Nobel citation credited him specifically with having established laboratory experiments as a tool of empirical economic analysis, certifying an approach that had previously been treated as marginal within the discipline.

On EconRecall

American economist who founded experimental economics; shared the 2002 Nobel with psychologist Daniel Kahneman. Play the games that feature Vernon Smith: