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Vernon Smith: economics as a laboratory science Catherine C. Eckel∗ Department of Economics, Virginia Tech, Virginia Polytechnic Institute and State University, Blacksburg, VA 24061, USA
Abstract Vernon Smith shared the Nobel Prize in 2002 with Daniel Kahneman. This article surveys Smith’s contributions to economics. His early efforts led to greater understanding of markets and market institutions, which developed into important contributions to the design of new markets. Subsequent research focused on the complexity of behavior in simple games, including recent forays into “neuroeconomics”. The impact of his work on economic thinking and economic theory is substantial. © 2004 Elsevier Inc. All rights reserved. JEL categories: B3; C9 Keywords: Vernon Smith; Experimental economics; Market institutions; Game theory; Nobel Prize
1. Introduction The Nobel Prize in Economics for 2002 was awarded jointly to Daniel Kahneman and Vernon L. Smith for their contributions to the development of laboratory experimental economics. The press release issued by the Bank of Sweden summarizes the contributions that earned Smith the award: Vernon Smith has laid the foundation for the field of experimental economics. He has developed an array of experimental methods, setting standards for what constitutes a reliable laboratory experiment in economics. In his own experimental work, he has demonstrated the importance of alternative market institutions, e.g., how the revenue expected by a seller depends on the choice of auction method. Smith has also spearheaded “wind-tunnel tests”, where trials of new, alternative market designs—e.g., when deregulating electricity ∗
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markets—are carried out in the lab before being implemented in practice. His work has been instrumental in establishing experiments as an essential tool in empirical economic analysis. –(Press Release: The Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel, October 9, 2002) Vernon Smith is a remarkable scholar and a true pioneer in the quest of economists to understand market institutions (such as auctions) and nonmarket institutions (such as bargaining or voting rules), as well as the structure and motivation of individual behavior. His early contributions focused on markets, and the properties of different ways of organizing exchange. Building on this understanding, in the next phase of his research he applied the principles learned in the laboratory to the design of new institutions, as deregulation created unprecedented opportunities for the emergence of new markets. More recently, his work has focused on behavior of agents in bilateral bargaining situations, involving pairs or small groups of participants. Finally, he has turned his attention to the relationship between brain functions and decision-making. In every phase of his broad research agenda, he has produced important insights and critical methodological innovations. His works are collected in two volumes: Smith (1991, 2000). Economists once thought their science was inherently nonexperimental. Economics has traditionally been taught as an a priori science rather than an observational science. Graduate students have been taught to solve problems by thinking about them, producing precise mathematical theories about them, and convincing others that their models produce useful insights. The data available to test theories is limited by the natural experiments that occur when, say, policies change or some exogenous shock is experienced by a segment of the economy. However, laboratory experiments have made important inroads in the study of economics in the last 20 years or so.1 Smith’s Nobel lecture (Smith, 2003) surveys the territory that has been colonized by laboratory experimental economics. He organizes the research by distinguishing two types of rationality: constructivist, by which he means the sort of rationality built into the standard social science model of ‘economic man’; and ecological, which refers to the effectiveness of an institution or behavioral rule within its ecological context. From the discussion it is clear that his own research began with the constructivist model, but from his experience in the lab, he grew to appreciate that the richness of human behavior required an alternative view.2 Smith’s view of rationality grew out of a profound curiosity about human behavior, and was shaped not only by his experience in the lab, but also by his voracious reading. When I visited the Economic Science Laboratory at the University of Arizona in 1994–1995, I frequently found myself in his office discussing my research, or his, or someone else’s. His office was cluttered with fascinating books. I seldom left without references to several books or articles that I wanted to read, ranging from philosophy to history to psychology to anthropology. 1
Smith (1989) makes this argument, and discusses the different uses of experimental research. In a Distinguished Lecture for the Southern Economic Association, Vernon Smith examines the historical roots of the two views of human nature in Adam Smith’s two books: The Wealth of Nations and the Theory of Moral Sentiments. See Smith (1998). 2
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2. Early insights Vernon Smith likes to tell the story of his early experiments (see Smith, 1991, pp. 154–158). As a graduate student at Harvard, he participated in the classroom experiment of Edward Chamberlin. As a teaching exercise, Chamberlin gave students seller costs or buyer values, then instructed them to circulate in the room, and negotiate prices with their counterparts. He then collected the prices, and displayed them, purportedly to illustrate that markets do not work like the perfectly competitive model suggests. When Smith started teaching at Purdue University, he adapted Chamberlin’s experiment to his own classes, making a few changes to make the market more closely resemble a stock market. He also distributed costs and values, but had traders call out bids and offers. A pit boss recorded the bids and offers on the blackboard, and a trade occurred when a buyer accepted a seller’s offer, or a seller accepted a buyer’s bid. He also repeated the market, to allow students to learn the mechanics of the trading situation. He says, “These two changes seemed to be the appropriate modifications to do a more credible job of rejecting competitive price theory” (p. 155). To his surprise, the market converged in a couple of rounds to the predicted competitive equilibrium price and quantity. Thinking this might just be a fluke, he repeated it in another class, with the same result. Finally, imagining that the result might depend on the symmetric producer and consumer surpluses in his particular setup, he ran another market with highly asymmetric surpluses, and once again “the darned thing converged to competitive equilibrium.” In all cases, after a few rounds, all trades were taking place within a few cents of the same price. These early market experiments were published as Smith (1962), which also includes the effects—which also turn out as predicted by the competitive model—of shifts in supply and demand. This exercise is such a strong illustration of the power of competition that many economists use it, or a variation on it, in introductory courses. (For this and other examples of the use of experiments to teach economics concepts see Bergstrom and Miller, 1997 or Charles Holt’s website, http://www.people.virginia.edu/∼cah2k/teaching.html.) These studies shaped Smith’s early thinking about markets, and led to a number of studies comparing different trading institutions. The ‘double oral auction’ institution that he used in his classroom experiment turned out to be the most powerful and efficient trading institution known. For example, compared with the posted offer institution, where sellers post prices and buyers choose whether to buy or not, corresponding to most retail markets, the double oral auction converges more quickly, and responds faster to changes in demand or supply (Ketcham et al., 1984). Smith invented the notion of a ‘disciplining’ institution: the double auction is disciplining in the sense that buyers and sellers quickly know if they have left money on the table, and can modify their decision in the next round. In a posted offer, this is less clear, and in other settings, such as sealed bid auctions, the discipline is even less evident. (Many more examples of such comparisons are provided in the two collections of his papers, noted above.) The power of the double auction is not easily understood theoretically. Notably, most of industrial organization theory leaves out any consideration of trading rules, focusing instead on market structure or on the implications of game theory with small numbers of firms. Another of Smith’s contributions is to point out the important interactions between market structure and trading institutions in producing market outcomes. In Smith (1981),
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he presents a comparison of monopoly under double auction and posted offer institutions. In the double auction, the price converges very close to competitive equilibrium after a few rounds; however in the posted offer markets, the monopolist is able to sustain monopoly prices. In posted-bid markets, where buyers post bids to buy, the price again deteriorates to the competitive price. This result stands outside standard economic theory. A major contribution of Smith’s work is the insight that “institutions matter.”
3. Designing markets From these and other insights into the workings of markets, the next step was to actually design and implement new markets. An early example of this is Rassenti et al. (1982). Here, Smith and his colleagues design and test in the lab a market to allocate airport time slots. This market uses a computerized algorithm to transform airlines’ contingency bids for combinations of slots into individual slot prices, which can be combined into prices for packages of slots. McCabe et al. (1989), present a designer market for pricing natural gas, taking into account the physical constraints imposed by production and pipeline facilities. In both cases, the lab provides a venue for “wind-tunnel” testing of alternative market institutions—algorithms, trading rules, etc. The ability to test the properties of designed markets in the lab can prevent policy makers from making the potentially large, costly mistake of implementing a market whose performance properties are unknown. The deregulation of markets all over the world presented many opportunities for the development of such “smart markets”. In addition to the markets above, Smith has been involved in the design of many other markets, including water markets in California, the Arizona Stock Exchange, and electricity markets in Australia and other countries. (See Rassenti et al., 2003 for a laboratory experimental comparison of alternative institutions for pricing electricity.) Both theorists and experimentalists contributed substantially to the design of the FCC’s auctions of the microwave spectrum used for cellular phones, among other uses.3 Smith and his colleagues examine the properties of these auctions in Banks et al. (2003), and show that under certain preference structures another auction mechanism may be superior. This paper illustrates the potential for wind tunnel testing of highly complex market mechanisms under alternative preferences of bidders.
4. Social preferences The 1980s saw a series of experimental studies examining behavior in simple games involving small groups of subjects. Much of it concentrated on testing the predictions of game theory in highly structured two-person games. In 1982, Werner Güth et al. (1982) published a paper testing the ultimatum game in the lab that provoked a research agenda attempting to answer his results. In this game there are two players, with clearly defined 3 Daniel Newlon, program director of the Economics Program at the National Science Foundation for many years and an early and strong supporter of experimental economics, is fond of saying that this auction raised more money for the US federal government that total federal spending on economics research.
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roles. Player 1 proposes a split of a fixed amount of money. Player two may accept or reject Player 1’s proposal. If accepted, the money is split as planned. If he rejects, both players receive a payoff of zero. The subgame perfect Nash equilibrium of this game is for Player 2 to accept all positive offers, and knowing this, for Player 1 to offer Player 2 the smallest possible positive amount. However, Guth’s results were substantially at odds with the rational actor model of standard game theory.4 His subjects made offers of 40–50% of the pie, and rejections of offers of 30% or less were common. This and other similar results led to a series of papers in the 1980s that attempted to induce subjects to behave rationally. Guth’s results proved surprisingly robust to higher stakes, repetition to allow for learning, framing considerations, and the invention of the dictator game. In the dictator game, Player 1 again proposes a division of a fixed pie, but Player 2 is a passive recipient. In his Nobel lecture, Smith (2003) refers to this preponderance of results as the failure of constructivist rationality in two-person and small group settings. (See Güth and Tietz, 1990; Thaler, 1988; Roth, 1996; Camerer and Thaler, 1995 for surveys of some of the now vast literature on these games.) In January 1992, at the ASSA meetings in New Orleans, the presentation of a paper called “Fairness in Bargaining” met with great excitement. In this paper, published as Hoffman et al. (1994), Smith and his colleagues presented a protocol that led most subjects to behave in a selfish, payoff-maximizing manner. The paper focuses on key assumptions underlying game theory: anonymity, and one-shot interaction. While both ultimatum and dictator game data were presented, it was the dictator game procedure that led to their most interesting and controversial results. Their “double blind” protocol ensures that subjects’ decisions are anonymous both to their counterparts, and to the experimenters. In addition, the game is played only once, and that point is made very clear by the instructions and protocol. Under these conditions, 2/3 of subjects kept the entire $10 pie, and an additional 20% kept $9/$10. This is in sharp contrast to others’ results, such as Forsythe et al. (1994), who found dictator offers only slightly less generous than ultimatum offers. This paper illustrated the critical importance of paying close attention to the assumptions of a theory, as well as the role lab experiments can play in testing theory on its own domain. Anonymity ensures that subjects have no reason to give money to the other person. Nothing can be inferred about the counterpart, except that they are probably from the same subject pool, and there is no reputational advantage to pursuing a non-payoff-maximizing strategy. Single-period play ensures that there is no role for rational (i.e., payoff-enhancing) reputation building within the game. The double-blind procedure thus removes almost any reason for subjects to be generous to their counterparts, and makes the experience of playing the game for the subjects more like the game in the experimenter’s mind. A later paper (Hoffman et al., 1996) dissects the procedure, and shows that all of its components are important. While the double-blind procedure has not become standard practice, this work served to illustrate the importance of ensuring that the assumptions of a theory are met in 4 Since game theory payoffs are denominated in utilities rather than monetary units, it can be argued that these results are not at odds with standard game theory, which can’t really be tested with monetary payoffs. See Weibull (1998), for an elaboration of this point. However, if this is the case, then game theory is nearly devoid of empirical content. See Smith (1976), for a theoretical framework and defense of inducing preferences in laboratory experiments with monetary payoffs.
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order to structure a legitimate test of the theory. It also showed how far one might have to go to test a theory on its own terms, so far that some criticized the paper for leading subjects, for almost telling them, “Be selfish! That is what we (the experimenters) want you to do!” Smith notes that working on this paper changed his thinking about human behavior, and caused him to examine the ways in which game theory can be improved to more accurately predict behavior. His later work incorporates considerations of social norms and cultural experience in shaping behavior. He (Smith, 2000, p. 80) says: “. . . [W]hat is needed, perhaps, is to reevaluate the experimenter/theorist’s premise that subjects will view such experimental situations as single-trial games without a history or a future connected to the subject’s reputational self-image.” Perhaps it is impossible to take people out of the repeated game of life.
5. The future Among the subjects now under investigation by Vernon Smith is a new area of investigation that combines cognitive science with economics, and is dubbed “neuroeconomics.” This work is based on the premise that all human motivation is seated in the brain. On the website of Smith’s home institute, the Interdisciplinary Center for Economic Science (ICES), they note: “The fundamental question that we ask is: how does the embodied brain produce economic behavior? We hypothesize that answers to this question will allow us to understand, and build, economic institutions that serve as extensions of our minds’ capacity to make sound economic decisions and enable social exchange. This approach is in stark contrast to standard economic models that treat economic institutions as constraints on economic behavior” (Behavioral and Neuro-economics, 2004). To illustrate this approach, I will describe one of their experiments. In McCabe et al. (2001), subjects are put into a functional MRI scanner to test the role of the prefrontal cortex in processing strategic inferences about the subject’s counterpart. The subjects play a two-person game involving trust and reciprocity against both a human partner and a computer partner. The authors theorize that the prefrontal cortex should be involved if the counterpart is a human, and not otherwise. Interestingly, they find some support for this case among subjects who attempt cooperation with their counterpart, and no support among subjects who are non-cooperators. Once again, Smith is on the forefront of pathbreaking research.
6. Conclusions Throughout the history of experimental economics, there has been a rich dialog between experiment and theory. Experimental economics has never wandered too far away from theory. Many studies illustrate the predictive power of economic theory; others have produced a stream of results that differ consistently and systematically from theory. These results have had an enormous influence on the thinking of economists, and have led to the development of new theory. For example, results showing that subjects choose egalitarian outcomes over selfish payoff-maximization have led to the development of alternative theories (e.g., Fehr
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and Schmidt, 1999; Bolton and Ockenfels, 2000; Rabin, 1993). These in turn have led to the design of more experiments to try to distinguish between them. Each field grows in tandem with the other. Smith’s insight about the richness of human motivation is shared by a growing fraction of the economics profession. In the 1980s, most of the papers presented at the Economic Science Association (the professional association of experimental economists) concerned auctions, industrial organization, and to a lesser extent, collective decision making mechanisms. At the association’s recent meeting, the most common topic of the sessions concerned some form of cooperative behavior, including two-person bargaining, trust, and public goods provision. More generally, the field of behavioral economics, which incorporates principles and regularities from psychology into models of economic behavior, has grown considerably, fueled in large part by the consistent lab results showing the importance of nonmonetary motivation (cooperation, trust, conformance to social norms) in the behavior of subjects.5 Since the time of Smith’s early experiments, laboratory methods have become a standard and accepted part of the economist’s toolkit. The extensive invasion of experimental research into every field of economics is documented in Kagel and Roth (1995), and the forthcoming Handbook of Experimental Economics Results, edited by Charles Plott and Smith. The first comprehensive textbook for teaching experimental economics, Davis and Holt (1993), is widely used in both graduate and undergraduate courses. The journal, Experimental Economics, is now in its sixth year. Experimental papers are published in virtually every general and field journal. Economics has become an experimental science.
References Banks, J., Olson, M., Porter, D., Rassenti, S., Smith, V., 2003. Theory, experiment and the Federal Communications Commission spectrum auctions. Journal of Economic Behavior and Organization 51, 303–350. Behavioral and Neuro-economics, 2004. Interdisciplinary Center for Economic Science website: http://www.icesgmu.net/subcategory.php/97.html. Bergstrom, T., Miller, J.H., 1997. Experiments with Economic Principles. McGraw-Hill. Bolton, G.E., Ockenfels, A., 2000. ERC: a theory of equity, reciprocity, and competition. American Economic Review 90 (1), 166–193. Camerer, C.F., Thaler, R.H., 1995. Ultimatums, dictators and manners. Journal of Economic Perspectives 9 (2), 209–219. Davis, D.D., Holt, C.A., 1993. Experimental Economics. Princeton University Press, Princeton, NJ. Fehr, E., Schmidt, K.M., 1999. A theory of fairness, competition and cooperation. Quarterly Journal of Economics 114 (3), 817–868. Forsythe, R., Horowitz, J.L., Savin, N.E., Sefton, M., 1994. ‘Fairness in simple bargaining experiments’. Games and Economic Behavior 6, 347–369. Güth, W., Tietz, R., 1990. Ultimatum bargaining behavior: a survey and comparison of experimental results. Journal of Economic Psychology 11 (3), 417–449. Güth, W., Schmittberger, R., Schwarze, B., 1982. An experimental analysis of ultimatum bargaining. Journal of Economic Behavior and Organization 3 (4), 367–388. Kagel, J., Roth, A.E., 1995. Handbook of Experimental Economics. Princeton University Press, Princeton, NJ. 5
The award of the second-most prestigious prize in economics, the John Bates Clark Medal, in 2001 to Matthew Rabin for his work in behavioral economics illustrates the recognition of this field.
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Rabin, M., 1993. Incorporating fairness into game theory and economics. American Economic Review 83 (5), 1281–1302. Roth, A.E., 1996. Bargaining experiments. In: Kagel, J.H., Roth, A.E. (Eds.), The Handbook of Experimental Economics. Princeton University Press, Princeton, NJ, pp. 253–348. Thaler, R., 1988. Anomalies: the ultimatum game. Journal of Economic Perspectives 2, 195–206. Weibull, J.W., 1998. Evolution, rationality and equilibrium in games. European Economic Review 42 (3–5), 641–649.
Bibliography of Vernon Smith Archibald, C.M., Malvy, P.F., 1966. Bidding theory and the treasury bill auction: does price discrimination increase bill prices? Review of Economics and Statistics 48, 141–146. Backerman, S., Rassenti, S.J., Smith, V.L., 1997. Efficiency and income shares in high demand energy network: who receives the congestion rents when a line is constrained? Pacific Economic Review 5 (3), 331–347. Backerman, S., Denton, M., Rassenti, S., Smith, V.L., 2001. Market power in a deregulated electrical industry. Journal of Decision Support Systems 30 (3), 357–381. Banks, J., Olson, M., Porter, D., Rassenti, S.J., Smith, V.L., 2003. Theory, experiment and the FCC spectrum auctions. Journal of Economic Behavior and Organization 51 (3), 303–350. Bronfman, C., McCabe, K.A., Porter, D., Rassenti, S.J., Smith, V.L., 1996. An experimental examination of the Walrasian tatonnement mechanism. Rand Journal of Economics 27, 681–699. Brown-Kruse, J., Rassenti, S.J., Reynolds, S.S., Smith, V.L., 1994. Bertrand-Edgeworth competition in experimental markets. Econometrica 62 (2), 343–371. Buccola, S., Smith, V.L., 1987. Uncertainty and partial adjustment in double auction markets. Journal of Economic Behavior and Organization 8, 587–601. Bulfin, R.L., Rassenti, S.J., Smith, V.L., 1982. A combinatorial auction mechanism for airport time slot allocation. Bell Journal of Economics 13, 402–417. Burnham, T., McCabe, K.A., Smith, V.L., 2000. Friend-or-foe intentionality priming in an extensive form trust game. Journal of Economic Behavior and Organization 93 (1), 57–73. Caginalp, G., Porter, D., Smith, V.L., 1998. Initial cash/stock ratio and stock prices: an experimental study. Proceedings of the National Academy of Sciences of the United States of America 95 (2), 756–761. Caginalp, G., Porter, D., Smith, V.L., 1999. Experimental asset markets. In: Earl, P., Kemp, S. (Eds.), The Elgar Companion to Consumer Research and Economic Psychology. Elgar, Cheltenham, UK. Caginalp, G., Porter, D., Smith, V.L., 2000. Momentum and overreaction in experimental asset markets. International Journal of Industrial Organization 18, 187–204. Caginalp, G., Porter, D., Smith, V.L., 2000. Overreactions, momentum, liquidity and price bubbles in laboratory and field stock markets. Journal of Psychology and Markets 1 (1). Campbell, J., LaMaster, S., Smith, V.L., Van Boening, M., 1991. Off-floor trading, disintegration and the bid-ask spread in experimental markets. Journal of Business 64, 495–522. Coopinger, V., Smith, V.L., Titus, J., 1980. Incentives and behavior in English, Dutch, and sealed-bid auctions. Economic Inquiry 18 (1), 1–22. Coricelli, G., McCabe, K., Smith, V.L., 2000. Theory-of-mind mechanism in personal exchange. In: Hatano, G., Okada, N., Tanabe, H. (Eds.), Proceedings of the 13th Annual Toyota Conference on Affective Minds. Elsevier, Amsterdam (Chapter 26 in Affective Minds). Coursey, D., Smith, V.L., 1983. Price control in posted-offer markets. American Economic Review 73 (1), 218–221. Coursey, D.L., Isaac, M., Smith, V.L., 1984. Natural monopoly and the contestable markets hypothesis: some preliminary results from laboratory experiments. Journal of Law and Economics 2791–3113. Cox, J., Dinkin, S., Smith, V.L., 1999. The winner’s curse and public information in common value auctions: comment. American Economics Review 89 (1), 319–324. Cox, J., Dinkin, S., Swarthout, J., 2001. Endogenous entry and exit in common value auctions. Experimental Economics 4, 163–181.
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Cox, J., Roberson, B., Smith, V.L., 1982. Theory and behavior of single object auctions. In: Grether, D., Smith, V.L. (Eds.), Research in Experimental Economics, vol. 2. JAI Press, Greenwich. Cox, J., Smith, V.L., 1983. OCS leasing and auctions: incentives and the performance of alternative bidding institutions. Supreme Court Economic Review 2, 43–87. Cox, J.C., Smith, V.L., Walker, J., 1982. Auction market theory of heterogeneous bidders. Economic Letters 9, 319–325. Cox, J., Smith, V.L., Walker, J., 1983. Tests of a heterogeneous bidders theory of first price auctions. Economic Letters 12, 207–212. Cox, J., Smith, V.L., Walker, J., 1984. Theory and behavior of multiple unit discriminative auctions. Journal of Finance 39, 983–1010. Cox, J., Smith, V.L., Walker, J., 1985. Expected revenue in discriminative and uniform price sealed-bid auctions. In: Plott, C. (Ed.), Research in Experimental Economics, vol. 3. JAI Press, Greenwich. Cox, J.C., Smith, V.L., Walker, J.M., 1985. Experimental development of sealed-bid auction theory calibrating controls for risk aversion. American Economic Review 75, 160–165. Cox, J., Smith, V.L., Walker, J., 1987. Bidding behavior in first price auctions: use of computerized Nash competitors. Economic Letters 23, 239–244. Cox, J., Smith, V.L., Walker, J., 1988. Theory and individual behavior in first price auctions. Journal of Risk and Uncertainty 1 (1), 61–99. Cox, J.C., Smith, V.L., Walker, J.M., 1990. Inducing risk neutral preferences: an examination in a controlled market environment. Journal of Risk and Uncertainty 3 (1), 5–24. Cox, J.C., Smith, V.L., Walker, J.M., 1992. Theory and behavior of first price auctions: comment. American Economic Review 82, 1392–1412. Day, R., Smith, V.L., 1993. Experiments in Decision, Organization and Exchange. Elsevier Science Publishers, North Holland. Deng, G., Franciosi, R., Kujal, P., Michelitsch, R., Smith, V.L., 1995. Fairness: effect on temporary and equilibrium prices in posted offer markets. Economic Journal 105 (431), 938–950. Deng, G., Franciosi, R., Kujal, P., Michelitsch, R., Smith, V.L., 1996. Experimental tests of the endowment effect. Journal of Economic Behavior and Organization 30, 213–227. Denton, M., Rassenti, S.J., Smith, V.L., 2001. Spot market mechanism design and competitivity issues in electric power. Journal of Economic Behavior and Organization 44, 435–453. Denton, M.J., Rassenti, S.J., Smith, V.L., et al., 2001. Market power in a deregulated electrical industry. Decision Support Systems 30 (3), 357–381. Dinar, A., Howit, R., Rassenti, S.J., Smith, V.L., 1998. Development of water markets using experimental economics. In: Dinar, A., Easter, K.W., Rosengrant, M. (Eds.), Markets for Water Potential and Performance. Kluwer Academic Publishers, Boston, MA. Dinar, A., Howitt, R.E., Murphy, J.J., Rassenti, S.J., Smith, V.L., 2000. The design of “smart” water market institutions using laboratory experiments. Environmental and Resource Economics 17, 375–394. Durham, Y., Rassenti, S.J., Smith, V.L., 1994. Experimental design of computer coordinated markets for network industries. In: Hillebrand, E., Stender, J. (Eds.), Many Agent Simulation and Artificial Life. IOS Press, pp. 149–168. Durham, Y., Rassenti, S.J., Smith, V.L., Van Boening, M., Wilcox, N., 1996. Can core allocations be achieved in avoidable fixed cost environments using two-part pricing competition. In: Thore, S., Thompson, G. (Eds.), Annals of Operations Research, Special Issue on Computational Economics. Durham, Y., Hirsheifer, J., Smith, V.L., 1998. Do the richer get richer and the poor poorer? Experimental tests of a model of power. American Economic Review 88, 970–983. Gjerstad, S., Ledyard, J., Smith, V.L., Willams, A., 2000. Concurrent trading in two experimental markets with demand interdependence. Economic Theory 16 (3), 511–528. Gunnthorsdottir, A., McCabe, K.A., Smith, V.L., 2002. Using the Machiavellianism instrument to predict trustworthiness in a bargaining game. Journal of Psychology and Economics 23, 49–66. Hoffman, E., McCabe, K.A., Shachat, K., Smith, V.L., 1994. Preferences, property rights, and anonymity in bargaining games. Games and Economic Behavior 7 (3), 346–380. Hoffman, E., McCabe, K.A., Smith, V.L., 1995. Ultimatum and dictator games. Journal of Economic Perspectives 9, 236–239.
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Hoffman, E., McCabe, K.A., Smith, V.L., 1996. Social distance and other regarding behavior in dictator games. American Economic Review 86 (3), 653–660. Hoffman, E., McCabe, K.A., Smith, V.L., 1996. On expectations and monetary stakes in ultimatum games. International Journal of Game Theory 25 (3), 289–301. Hoffman, E., McCabe, K.A., Smith, V.L., 1997. Reciprocity: the behavioral foundations of socio-economic games. In: Albers, W., Guth, W., Hammerstein, P., Moldovanu, B., Selten, R., Van Dame, E. (Eds.), Understanding Strategic Interaction. Springer-Verlag, pp. 328–344. Hoffman, E., McCabe, K.A., Smith, V.L., 1998. Behavioral foundations of reciprocity: experimental economics and evolutionary psychology. Economic Inquiry 36 (3), 335–352. Hoffman, E., McCabe, K.A., Smith, V.L., 1998. Experimental law and economics. In: Newman, P. (Ed.), The New Palgrave Dictionary of Economics and Law, vol. 2. pp. 116–122. Hoffman, E., McCabe, K.A., Smith, V.L., 1999. Social distance and other-regarding behavior in dictator games: reply. American Economic Review 89 (1), 340–341. Hoffman, E., McCabe, K.A., Smith, V.L., 2000. The impact of exchange context on the activation of equity in ultimatum games. Experimental Economics 3 (1), 5–9. Ketcham, J., Smith, V.L., Williams, A.W., 1984. A comparison of posted offer and double auction pricing institutions. Review of Economic Studies 51, 595–614. King, R.R., Smith, V.L., Van Boening, M., Williams, A.W., 1993. The robustness of bubbles and crashes in experimental stock markets. In: Day, R., Chen, P. (Eds.), Non Linear Dynamics and Evolutionary Economics. Oxford, pp. 183–200. Knez, P., Smith, V.L., Williams, A.W., 1985. Individual rationality, market rationality, and value estimation. American Economic Review 75, 397–402. Knez, M., Smith, V.L., 1987. Hypothetical valuations and preference reversals in the context of asset trading. In: Roth, A. (Ed.), Laboratory Experiments in Economics—Six Points of View. Cambridge University Press. Kurzban, R., McCabe, K., Smith, V.L., et al., 2001. Incremental commitment and reciprocity in a real-time public goods game. Personality and Social Psychology Bulletin 27 (12), 1662–1673. Isaac, R.M., Smith, V.L., 1985. In search of predatory pricing. Journal of Political Economy 93, 320–345. McCabe, K., Houser, D., Ryan, L., Smith, V.L., Trouard, T., 2001. A functional imaging study of cooperation in two-person reciprocal exchange. Proceedings of the National Academy of Sciences of the United States of America 98, 11832–11835. McCabe, K.A., LePore, M., Smith, V.L., 2000. Intentionality detection and mindreading: why does game form matter? Proceedings of the National Academy of Sciences of the United States of America 97 (8), 4404–4409. McCabe, K.A., Rassenti, S.J., Smith, V.L., 1989. Designing ‘smart’ computer assisted markets: an experimental auction for gas networks. European Journal of Political Economy 5, 259–283. McCabe, K.A., Rassenti, S.J., Smith, V.L., 1990. Auction design for composite goods: the natural gas industry. Journal of Economic Behavior and Organization 14, 127–149. McCabe, K.A., Rassenti, S.J., Smith, V.L., 1990. Auction institutional design: theory and behavior of simultaneous multiple unit generalizations of the Dutch and English Auctions. American Economic Review 80 (5), 1276– 1283. McCabe, K.A., Rassenti, S.J., Smith, V.L., 1991. Lakatos and experimental economics. In: Marchi, N., Blaug, M. (Eds.), Appraising Economic Theories. Edward Elgar Publishing, London. McCabe, K.A., Rassenti, S.J., Smith, V.L., 1991. Experimental research on deregulated markets for natural gas pipeline and electric power transmission networks. Research in Law and Economics 13, 161–189. McCabe, K.A., Rassenti, S.J., Smith, V.L., 1991. Smart computer-assisted markets. Science 254, 534–538. McCabe, K.A., Rassenti, S.J., Smith, V.L., 1991. Testing Vickrey’s and other simultaneous multiple unit versions of the English auction. Research in Experimental Economics 4. McCabe, K.A., Rassenti, S.J., Smith, V.L., 1992. Designing call auction institutions: is double Dutch the best? Economic Journal 102, 9–23. McCabe, K.A., Rassenti, S.J., Smith, V.L., 1993. Designing a uniform price double auction: an experimental evaluation. In: Friedman, D., Rust, J. (Eds.), The Double Auction Market: Institutions, Theories and Evidence. Addison-Wesley/SFI, Reading, pp. 307–332. McCabe, K.A., Rassenti, S.J., Smith, V.L., 1994. Institutional design for electronic trading. In: Schwartz, R., Walter, I. (Eds.), Structure and Integration in Securities Markets. Irwin Business One.
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McCabe, K.A., Rassenti, S.J., Smith, V.L., 1994. Designing a real time computer assisted auction for natural gas networks. In: Cooper, W., Whinston, A. (Eds.), New Directions in Computational Economics. Kluwer Academic Publishers, pp. 41–54. McCabe, K.A., Rassenti, S.J., Smith, V.L., 1996. Game theory and reciprocity in some extensive form experimental games. Proceedings of the National Academy of Sciences of the United States of America 93, 13421–13428. McCabe, K.A., Rassenti, S.J., Smith, V.L., 1998. Reciprocity, trust and payoff privacy in extensive form bargaining. Games and Economic Behavior 24, 10–24. McCabe, K.A., Rassenti, S.J., Smith, V.L., 1999. Designing auction institutions for exchange. IIE Transactions 31 (9), 803–811. McCabe, K., Smith, V.L., 1999. Who do you trust? Boston Review. McCabe, K.A., Smith, V.L., 2000. A comparison of na¨ıve and sophisticated subject behavior with game theoretic predictions. Proceedings of the National Academy of Sciences of the United States of America 97 (7), 3777– 3781. McCabe, K., Smith, V.L., 2000. Strategic analysis by players in some games: what information do they use. In: Ostrom, E. (Ed.), Trust and Reciprocity: Interdisciplinary Conceptual and Empirical Lessons. McCabe, K.A., Smith, V.L., 2001. Goodwill accounting in economic exchange. In: Gigerenzer, G., Selten, R. (Eds.), Bounded Rationality: The Adaptive Toolbox, G. MIT Press. Miller, R., Plott, C., Smith, V.L., 1977. Intertemporal competitive equilibrium: an empirical study of speculation. Quarterly Journal of Economics 91, 599–624. Olson, M., Rassenti, S., Rigdon, M., Smith, V.L., Zeilger, M., 1999. Market design and motivated human trading behavior in electricity markets. In: Proceedings of the 32th International Conference on Systems Sciences. Plott, C., Vernon, L., Smith, V.L. (Eds.), 2004. Handbook of Experimental Economics Results. Elsevier Science, Ltd., in press. Porter, D., Rassenti, S., Roopnarine, A., Smith, V.L., 2003. Combinatorial auction design. Proceedings of the National Academy of Sciences of the United States of America, early edition, published July 31, 2003, 10.1073/ pnas.1633736100. Plott, C., Smith, V.L., 1978. An experimental examination of two exchange institutions. Review of Economic Studies 45, 133–153. Plott, C., Smith, V.L., 1979. Further comments on the application of laboratory experimental methods to political choice. In: Russell, C.S. (Ed.), Collective Decision Making. Johns Hopkins Press, Baltimore, pp. 167–169. Porter, D., Smith, V.L., 1994. Stock market bubbles in the laboratory. Applied Mathematical Finance 1, 111– 127. Porter, D., Smith, V.L., 1995. Futures contracting and dividend uncertainty in experimental asset markets. Journal of Business 68 (4), 509–541. Rassenti, S.J., Reynolds, S.S., Smith, V.L., 1994. Cotenancy and competition in an experimental auction market for natural gas pipeline networks. Economic Theory 4, 41–65. Rassenti, S.J., Smith, V.L., 1986. Electric Utility Deregulation. Pricing Electric, Gas and Telecommunication Services, The Institute for the Study of Regulation. Rassenti, S.J., Smith, V.L., 1998. Deregulating electric power: market design issues and experiments. In: Chao, H., Huntington, H.G. (Eds.), Designing Competitive Electricity Markets. Kluwer Academic Publishers, Boston, MA. Rassenti, S.J., Smith, V.L., 1999. Turning on the Lights: Deregulating the Market for Electricity. National Center for Policy Analysis, Report #228. Rassenti, S.J., Smith, V.L., Szidarovszky, F., 2000. Adaptation and convergence of behavior in repeated experimental Cournot games. Journal of Economic Behavior and Organization 41, 117–146. Rassenti, S.J., Smith, V.L., Van Boening, M., 1998. Numerical computation of equilibrium bid functions in a first price auction with heterogeneous risk attitudes. Experimental Economics 1, 147–159. Rassenti, S.J., Smith, V.L., Wilson, B., 2001. Demand side bidding will control market power and decrease the level and volatility of prices. Regulation. Rassenti, S.J., Smith, V.L., Wilson, B., 2001. Demand side bidding will reduce the level and volatility of electricity prices. The Independent Review. Rassenti, S.J., Smith, V.L., Wilson, B., 2002. Using experiments to inform the privatization/deregulation movement in electricity. The Cato Journal 21 (3), 515–544.
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