A Life of Experimental Economics, Volume II: The Next Fifty Years

253 Pages·9.227 MB·English

by  Vernon L. Smith

A LIFE OF
EXPERIMENTAL
ECONOMICS,
VOLUME II
THE NEXT FIFTY YEARS
VERNON L. SMITH
A Life of Experimental Economics, Volume II
Vernon L. Smith
A Life of Experimental
Economics, Volume II
The Next Fifty Years
Vernon L. Smith
Economic Science Institute
Chapman University
Orange, CA, USA
ISBN 978-3-319-98424-7 ISBN 978-3-319-98425-4 (eBook)
https://doi.org/10.1007/978-3-319-98425-4
Library of Congress Control Number: 2018951570
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One cannot take advantage of his fellowman and come out ahead.
It just cannot be done.
—Quintin Lomax
Preface
This narrative, though printed in a second volume, is written without sepa-
ration in the laminar flow of my experience: A seamless re-visitation of my
life and its meaning; a dialog with past events and interconnections that
began with the Nobel Foundation’s request that I write a short biography
for their Web site in 2002. That request parted the wardrobe for only a
moment. I have now worn its sill thin with reentry.
Hayek’s text best captures the personal and intellectual themes of this
volume: “[C]ivilization rests on the fact that we all benefit from knowledge
that we do not possess.” (Hayek, Rules and Order, 1973, p. 14) Through our
social and economic institutions, each individual benefits enormously, if not
predominantly, from knowledge and its fruits that are provided by others; in
particular, “knowledge-how” as contrasted with “knowledge-that.” Although
our social network system is the first and oldest of the two institutions, I
begin in Chapters 19 and 20 with personal new learning in economics, both
micro and macro. I introduce the word “humanomics” to refer to the study
of human social and economic behavior in Chapter 21. There I write on
the discovery of Adam Smith’s model of human social behavior as providing
a foundation for understanding the small group predictive failures of game
theory in the 1980s and 1990s. Humanomics provides an integrated new
synthesis of social and economic behavior long believed to live in unresolved
anomalous conflict.
We begin in 1967 when Joyce and I return to Massachusetts, as citizens
in the community, with a sense of permanence much different from when
I had been a graduate student at Harvard. The twins, Deborah and Eric,
will be in high school, with Torrie soon to follow. Joyce will be entering
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viii Preface
the Unitarian Ministry and a new world of experience for us all, one that
we entered without hesitation, and for which we had long prepared—at
Purdue, all my friends knew I would move with Joyce and family. Those
expectations of great promise are not to be disappointed.
I write of the five years we are once again in the East; years especially
formative for our children who will be in transition to their subsequent
careers and lives of their own. Joyce will fulfill with distinction and honor
her exceptional promise as a student of the Chicago Divinity School.
Events will return us to the West, where I will remain, while Joyce returns
east to become a force in both the Ministry and the American Unitarian
Association.
I will return full time to research and teaching in experimental econom-
ics and be recognized as “father” of its development in 2002, though, as
you will learn in detail, I had an abundance of innovative help from stu-
dents, co-authors, and many scholars along the way. That event will cap 26
years at the University of Arizona, but by then, I will have returned east to
new opportunities at the George Mason University campus in Arlington,
Virginia.
There will be changes in my married and family life that I must tell you
about. And when I once again go West, it will be to new opportunities, new
learning, and in so many ways a new career, including a second Camelot.
We begin the next fifty years.
Orange, USA Vernon L. Smith
Acknowledgements
My personal debts run deep, beginning with John Hughes (The Vital Few),
for 36 years my trusted friend and confidant until his death in 1992. His
mark upon me pervades these volumes.
To Silvia Naser (A Beautiful Mind) and my dear friend of 38 years,
Deirdre McCloskey (The Bourgeois Virtues), who read the earliest drafts of
the manuscript and corrected, nudged and encouraged me in directions that
shaped it to the end.
Tom Hazlett (The Political Spectrum) friend and cherished co-author.
I knew Tom before he knew me because I was an avid reader of his columns
that appeared in Reason magazine beginning in 1989.
Andreas Ortmann, economic theorist, experimentalist, and intellectual
historian par excellence in all, who’s comments, reviews—both published and
private—have never failed to be rewarding to me.
Steve Hanke (http://sites.krieger.jhu.edu/iae/), wise counselor on mone-
tary and fiscal policy, whose private and published reviews have encouraged
and supported my dedication to these volumes.
Charles Plott (Collected Papers on the Experimental Foundations of
Economics and Political Science. In three volumes), who, because I could out-
fish him, suspected that there might be something to experimental econom-
ics and became a co-conspirator in its development in the 1970s. Charlie
invented experimental political economy.
Shyam Sunder (Theory of Accounting and Control), methodologist, exper-
imentalist, whose passion in the search for foundations has long been an
inspiration.
ix
x Acknowledgements
E. Roy Weintraub (How Economics Became a Mathematical Science),
reviewer, whose wide-ranging interests included me.
My Amazon reviewers, each in his own tongue:
Paul Johnson, friend and colleague, University of Alaska, Anchorage;
Herb Gintis (Individuality and Entanglement: The Moral and Material
Bases of Social Life) with whom I share gloriously radical roots and a pas-
sion for moral wisdom.
Roger Farley, investor and portfolio manager, whom I do not know. But
we resonate well.
Pete and Jackie Steele, a breed of the many ordinary people that have
made America. May we never lose their unwavering integrity, love of life,
and of the good land.
Stephen Semos for his careful editing, fact checking, and many sugges-
tions for improving style and content down to the final crescendo.
Candace Smith, devoted companion in our explorations of love, under-
standing, and faith developing.
And to co-authors and students galore—Steve Gjerstad, Dave Porter,
Stephen Rassenti, Arlington Williams, and more whose imprint is in these
pages.
And a very special debt to the Liberty Fund for inviting me to many of
their Socratic colloquia, over the last forty years, on topics and figures in
the philosophy and history of the struggle for liberty. I want to acknowledge
my frequent use of quotations from Adam Smith (Dugald Stewart edition,
1853) and David Hume, published by Liberty Fund and that are available
for quotation and free electronic download access.
You will encounter many more in these pages. “This is remembrance—
revisitation; and names are keys that open corridors no longer fresh in the
mind, but nonetheless familiar in the heart” (Beryl Markham, West with the
Night).
Praise for A Life of Experimental
Economics, Volume II
“We learn from giants on whose shoulders we stand. There can be no doubt
that 2002 Nobel Prize winner Vernon L. Smith is one of them. A Life of
Experimental Economics, Vol I: Forty Years of Discovery; Vol II: The Next Fifty
Years, is a much expanded version of his 2008 memoir Discovery in which
he recounted his journey from birth until 2005. As many other reviewers
did then, I called that earlier version a must-read and have recommended
it to many of my colleagues and students as well as folks from other walks
of life since. The new work reviews, and in places revises, that memoir and
then adds several chapters that have been inspired by Vernon’s more recent
interests in the nature and causes of housing bubbles on the one hand and
his attempt to draw out the insights to be had for modern economics from
Adam Smith’s Theory of Moral Sentiments on the other. The new volumes
trace matter-of-factly the amazing journey from five-year old farm boy in
the Great Depression to the towering, very public intellectual that Vernon
is today. It does so—mostly—in the same conversational tone that made
Discovery such a joy to read. (Yes, of course, the best pie this side of heaven
is made from freshly cut rhubarb. And, yes, one should not mix strawberries
with the rhubarb. Ever.) Be prepared to not agree with Vernon’s opinions on
all of the numerous issues discussed as we progress through the decades—
many of his opinions are informed by a very libertarian streak indeed—but
as provocative as they might be, they were formed in a lifetime of extraordi-
nary achievements and extraordinary insights into human nature and insti-
tutions, as well as a deeply humanistic attitude.”
—Andreas Ortmann, Professor of Experimental and Behavioural
Economics, School of Economics, UNSW Business School, Australia
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