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Quotation of the Day…

… is from page 468 of my emeritus colleague Vernon Smith’s profound 2002 Nobel Prize lecture, “Constructivist and Ecological Rationality in Economics,” as this lecture appears in the June 2003 issue of the American Economic Review (footnotes deleted):

In market experiments – where cooperation can occur through the coordination function of prices produced by, but simultaneously resulting from, interaction with individual choice behavior – the results are more commonly in accord with standard competitive models that maximize group welfare. This professional victory is hollowed by the failure of standard theory to predict the “surprisingly” weak conditions under which the results obtain.

DBx: Vernon here reports on the results of decades of his (and many other experimental-economists’) experiments. The ‘surprise’ to which Vernon refers is a surprise experienced chiefly by mainstream economists – economists whose training leads them to believe that markets work well only if and when there apply in reality such ‘strong’ assumptions as perfect knowledge and many traders on both sides of the market. Experimental economics has discovered – and economic history has repeatedly confirmed – that many of the assumptions that mainstream economists specify as being necessary for the successful operation of markets are, in fact, generally unnecessary.


Please join me in wishing Vernon a very happy 95th birthday. He was born on New Year’s Day, 1927, and is today going as strongly and as creatively as he was when I first met him in the mid-1980s. (Vernon is pictured above, in Stockholm in December 2002, with his amazing wife and one of my dearest friends, Candace.)