January 25, 2013
Did You Know?: Vernon L. Smith Experimental Economics Laboratory
Tim Cason, founding director of the Vernon L.
Smith Experimental Economics Laboratory. (Purdue University photo/Mark Simons)
More than 50 years ago, an esteemed economist who later won a Nobel Prize began his early, groundbreaking experiments at Purdue.
The Vernon L. Smith Experimental Economics Laboratory, located on the Krannert Building's seventh floor, was founded as a result of its namesake's pioneering work. The lab, renamed after Smith in 2003, honors an academic and research career that began on campus in 1955. Smith taught in the School of Management for the following 12 years, says Tim Cason, the lab's founding director, Distinguished Professor of Economics, and the Robert and Susan Gadomski Chair in Economics.
Shortly after beginning his tenure at Purdue, Smith borrowed techniques from lab experiments in psychology to create the first "classroom" markets. These experiments involved Smith designating half of his class as buyers and half as sellers of fictitious goods.
During the experiments, he gave the student buyers and sellers different ranges of prices and instructed them to negotiate trades until the goods' price and quantity achieved equilibrium, or in economic terms "made a market."
Smith's later experiments added greater laboratory control through monetary payments based on market trades and more sterile, computer-mediated exchanges.
In 2002, Smith shared the Nobel Prize in economic sciences for, among other contributions to the field, his establishment of lab experiments as a tool in empirical economic analysis. Earlier, Smith spent part of 2000 in West Lafayette as a visiting professor.
Cason, who had met Smith while working as a visiting graduate student at the University of Arizona in 1989, reunited with his mentor during that time.
"Smith’s work was revolutionary -- it killed the old myth that economics could not be an experimental science," Cason says. "It also opened up opportunities for economists to use theory and experiments to design new markets and other mechanisms to better allocate resources."
Today, Cason and other Krannert researchers expand on Smith's legacy through experiments that test increasingly complex and sophisticated economic hypotheses and mechanisms before their introduction to real markets.
In recent years, for example, experimental economics research conducted by Purdue faculty members and doctoral students has been used to guide the formation of environmental conservation policy, to assess the procurement and distribution of public goods and to understand the role of gender in managerial decision making, among other issues.Writer: Eric Nelson, 49-49465, email@example.com