Vernon Smith on Markets and Experimental Economics


Listen to the EconTalk podcast Vernon Smith on Markets and Experimental Economics and consider these questions.

1. The interview begins with Professor Smith describing two of the conventional stories usually told via standard (neoclassical) economic theory. What are these two stories, and why does Smith find them misleading?

2. Smith says of the first experiment he ran with his students, "This is some kind of magic." What role do the individual participants' goals play in this magical market-clearing? Why do people still deny a (quantifiable) model even after participating in such an experiment?

3. Smith says of the reaction to his 1962 (first) paper on experimental results, "If you believe in markets, you don't necessarily need evidence." What does he mean?

4. Describe the influence of computers on experimental economics beginning in the 80s.

5. Interviewer Roberts says Smith and his colleagues have been "uncovering the outlines of the invisible hand". What does this tell us about the way institutions influence human decision making?

6. How does Smith describe his newest experiments with colleague Bart Wilson? What three types of outcomes (economies) emerge in these experiments, and what possibilities for study emerge out of this "new world"?

7. In discussing influences on his scholarship, Smith recalls that he asked of Leontief, "What is utility good for?" What was Leontief's response, and how does this represent Smith's overall approach to his work?

8. Why does Smith suggest that Hayek's work is less easily understood (than is work in experimental economics)? How does he describe the close relationship between Hayek's work and his own?

9. How does behavioral economics differ from experimental, and what role does the notion of "ecological rationality" play in this distinction?

10. Describe the insights for public policy Smith believes his work offers.