Vernon Smith

Smith laid the foundation for the establishment of the field of experimental economics. He pioneered a series of experimental methods that set the standard for reliable economic research through laboratory experiments. He revealed the importance of alternative research institutions. He was also a pioneer in the theoretical study of "wind tunnel experiments". Therefore, Smith's research results played a powerful role in establishing the experimental method as a necessary tool in empirical economic analysis.

In 1979, Daniel Kahneman collaborated with the late Amos Tversky to jointly propose the "Theory of Expectations." This theory is an important foundation of behavioral economics and can better explain people's economic behavior. Through experimental comparisons, they found that most investors are not standard financial investors but behavioral investors, and their behavior is not always rational or risk-averse. Investors are more risk-averse when the book value of the investment is lost, while when the book value of the investment is profitable, their satisfaction slows down as the income increases. Expectation theory explains many anomalies in financial markets: Alai's paradox, the stock price premium mystery, and option smiles.

His most significant achievement was his study of market mechanisms, which demonstrated the importance of alternative market institutions.

He also laid the foundation for innovative experiments on the equilibrium nature of competitive markets, testing different auction forms, and designing methods to induce value. When he was still studying at Harvard University, he studied under the famous economist Chamberlain and designed an experimental mechanism of a "two-way auction" to describe competitive markets in the direction of his mentor, thus verifying the correctness of the competitive equilibrium price theory. In their cooperation with Pruitt, they proved that the market system does have a role in determining competitive prices. For the first time, their experimental method achieved the condition of "maintaining the market environment unchanged and only changing the market system." This is something that cannot be achieved in any realistic observation. In the 1960s, auction theory developed rapidly in microeconomics and game theory. Smith designed experimental methods to test a series of theoretical propositions such as the equivalence characteristics of several auction forms, and obtained unexpected results.

In 1976, he developed the "derived value method" that would later become a standard tool in experimental economics, and he also pioneered the introduction of the "wind tunnel test method", allowing new attempts such as selective market design to be implemented in the laboratory before being put into practice.

On the afternoon of October 9, 2002, the Royal Swedish Academy of Sciences announced that it would award the 2002 Nobel Prize in Economics to two American scholars, Daniel Kahneman and Vernon Smith, in recognition of their pioneering work in the application of psychoanalysis and experimental economics related to human behavior. The Royal Swedish Academy's press release said that half of this year's Nobel Prize in Economics was awarded to Kahneman because he "fuses the savvy and insight of psychological research with economic science, especially in the study of how people make judgments and decisions under uncertain conditions."

He was awarded the 2002 Nobel Prize in Economics for "pioneering a series of experimental methods that set the standard for reliable economic research through laboratory experiments."