McKenzie Fleeman
mdf001@marietta.edu
Vernon L. Smith, professor of economics at Chapman University, gave a presentation on Feb. 22 as a part of the Milton Friedman Lecture Series. Smith won the Nobel Prize in Economic Sciences in 2002 for establishing lab experiments for a tool in economic analyses. Smith has been published in numerous scholarly journals and is a distinguished Fellow of the American Economic Association. Smith received his undergraduate degree in electrical engineering from Caltech along with a master’s degree in economics from the University of Kansas, followed by his Ph.D. in economics at Harvard. Smith is committed to “changing false beliefs” in economics.
“It is an honor to give a lecture in the name of Friedman,” Smith said.
Smith was inspired to study experimental economics by a professor at Harvard, who he did not actually have in class, but had the opportunity to sit in on one of his classes. The class was on monopolistic composition and the professor had an exercise where he gave out values and costs. The professor used the exercise to show that composition did not work.
“If you’re going to show that markets don’t work you need to show it better,” Smith said.
Smith later incorporated a modified version of the experiment into his teaching, but repeated so that students would have the chance to learn.
In the 1960s and 1970s, experimental economics was just getting started. Change was not easy and there was a natural bias toward conformation. That is, people were biased toward things that have worked for them in the past.
“Widely held beliefs can be wrong, but experiments may gradually enable false beliefs to be changed,” Smith said.
During this time, the Michelson-Morley experiment (1887) failed to support the concept of absolute space and time. In addition, Eddington’s solar eclipse experiment (1919) supported Einstein’s GT (1916) and rejected Newton. If precision is high enough, people believe results in physical science.
“It’s all about precision,” Smith said.
While studying social science, you have to study a lot of decisions that the mind has made and because of the diversity of the mind, replication is needed. This is contrasted with physical science, which needs precision to produce believable results.
“I performed my first experiment in January 1956 on the first day of class,” Smith said.
“At the time, message-contract trading process for how people might explore trading opportunities and discover prices had not been explored,” Smith said.
Through these types of experiments, Smith says you can learn how to specialize through markets.
Sophomore Petroleum Engineering major Baffour Nkrumah-Ababio was excited to hear from a Nobel Prize winner.
“When I heard that Vernon Smith was going to be on campus, I immediately restructured my plans to be able to be at the event,” Nkrumah-Ababio said. “I thought it was interesting to see how great minds work. What fascinated me the most about his speech was his dissatisfaction with the status quo that he decided to challenge the pervasive thoughts that plagued most of the professionals in his field to find the real answers.”
Jimmy Wharton, an Economics major, also enjoyed the presentation.
“Dr. Smith was a very warm and intelligent economist,” he said. “I found it quite admirable how he first began developing experimental economics, insomuch as he didn’t invent a completely new idea or theory from nothing, but that he used economic models that had long been around and viewed them in a completely new and revolutionary way that lead to the development of new sub-field of economics.”
