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"Smith, Vernon L."
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A Better Way to Avoid Project Delays
Why do so many managers under estimate the time it will take to complete a significant project? Almost half of business projects fall behind schedule, and up to a third are not completed at all, according to a 2021 report by the Project Management Institute. The Berlin Brandenburg Airport took 14 years to construct instead of the estimated five, and its cost ballooned from a 2009 budget of 2.83 billion euros to over 6 billion euros by the time it was completed. And after the V.C. Summer nuclear plant expansion project in South Carolina was abandoned in 2017, two executives involved in what became known as the \"Nukegate\" scandal pleaded guilty to fraud charges stemming from their efforts to conceal delays. Compared with the control group, on average, people who were exposed to the high anchor repeatedly estimated that it would take them longer to complete the task, whereas the low anchor led to shorter time estimates.
Journal Article
Just versus quick: Constructivist and ecological rationality in a common law system
Justice Gageler explores how lessons from behavioural economics are reflected in the institutional structure in which the judicial function is performed. The structure has what the economist Vernon Smith would call an 'ecological rationality', an internal logic that minimises errors in human judgement. Features of the structure which combine to have this effect include the appointment of judges from senior ranks of the legal profession, the security of judicial tenure and remuneration, the decisional independence of the judge, the personal discipline of the judge, the requirement to give reasons, and the appellate process. These structural features also carry risks to the quality of adjudication, calling for what Smith would call 'constructivist' intervention. Delay in the production of judgments is one of those risks. The challenge in designing a constructivist solution to the problem of delay in the production of judgments is that of striking an appropriate balance between speed and correctness without compromising decisional independence.
Journal Article
Experimental economics and business education: an interview with Nobel Laureate Vernon Lomax Smith
This interview with Nobel Laureate Vernon Lomax Smith covers a variety of topics, from Vernon's early formative experiences growing up on a Kansas farm in the Great Depression to his pathbreaking scholarship in the area of experimental economics. We set the stage for the interview by summarizing Smith's scholarly contributions and early life experience. Our interview begins with a discussion of Smith's childhood education and experiences which shaped his attitude toward scholarship, entrepreneurship, markets, and work. We then turn to Smith's lifelong nurturing of scholarly interests in multiple academic fields including engineering, economics, and philosophy, and probe how this multidisciplinary approach may have led him to eschew the standard thinking about the boundaries of economics and pioneer the field of experimental economics. As Smith has been a student or professor at more than a dozen universities in a career spanning more than seven decades, we probe his philosophies on business education, including the best models for business schools. We then discuss Smith's ability to focus intensely—a phenomenon he labels \"defective switching.\" The final interview questions center on topics which have fascinated Smith throughout his career: Scottish Enlightenment economist Adam Smith, ethics, and management. Our conclusion highlights Smith's contributions and their implications for business education, particularly small business economics and entrepreneurship.
Journal Article
Ethical Maturity and Economic Progress: Adam Smith's Lesson Still Applies
As Vernon Smith argued, \"markets economize on the need for virtue, but do not eliminate it.\" The need for a virtuous, ethically mature citizenry is an important but often-overlooked theme in Adam Smith. Unethical business behavior creates a demand for government regulation ostensibly to fix the problem; however, evidence that government regulation reduces economic growth suggests that this does not so much solve the old problem as it creates new ones. Using what we know about \"rational irrationality\" and people's views on government, we explain why unethical business behavior leads to a higher demand for government intervention and why that intervention is not likely to create a more ethically mature society.
Journal Article
Economic experiments versus physical science experiments: an ontology-based approach
This article applies an ontology-based approach to economic experiments, emphasizing their differences with respect to physical science experiments. To contextualize our discussion, a conciliatory Weberian view of the similarities and differences between natural and social sciences is provided. After that, some ontological features of the social sciences' domain are highlighted, together with their problematic effect on experimental economics. Specifically, we focus on human beings' representational capacities and intentionality, their cultural and conventionally mediated forms of social interaction, and the holistic openness, instability and uncertainty of the social world. Finally, we emphasize the severe under-determination of theory by evidence affecting social science, as well as the related problems of empirical ambiguity, confirmatory biases and propensity to pseudoscientific practices in experimental economics.
Journal Article
The Laboratory as a Discovery Process? Vernon Smith, Hayek, and Experimental Economics
In Rationality in Economics, Vernon Smith argues that experimental methods establish the ecological rationality of markets, thus confirming Friedrich Hayek's assertion that market competition fosters emergent norms and institutions that are preferable to constructivist order. In making this argument, Smith must contend with Hayek's brief dismissal of the value of experimental market demonstrations. Hayek's doubts can be explained by his skepticism of the concept of economic efficiency. In experiments, ecological rationality is operationalized as efficiency, but Hayek rejects efficiency for two reasons. First, even though experiments do not fully specify institutions and equilibrium concepts, their specification of the commodity space, preferences, and technologies obscure the function of competition, which is to elicit this information. Second, Hayek argues that preferences evolve, rendering efficiency-based normative arguments for markets problematic. Consistent with this evolutionary framework, Hayek's arguments for competitive order do not invoke efficiency. Instead, he argues that markets promote human initiative and that widespread human suffering will result from the abandonment of competitive order in those countries that rely on it.
Journal Article
Economic Modeling: Why the Standard Model Survives Bad Performance
The strong recovery in the United States after 1940 has long been attributed to government spending: the buildup to World War II. [...]analysts have generalized that one fiscal-stimulus episode as appropriate policy whenever monetary policy is ineffective. [...]even if fiscal stimulus \"worked\" in 1940, in no sense can we infer that it would have worked in 1930!
Journal Article
Experience and Confidence in an Internet-Based Asset Market Experiment
The experience effect in asset markets is one that was thought to be settled. As subjects gained experience with the interface and each other, they typically exhibit fewer instances of mispricing and at lower magnitudes. But questions regarding trading experience are not easy to address in the lab with the typical subject pool since the kind of experience one can typically generate in the lab is experience with the experimental environment itself—not with external environments. However, in virtual worlds asset markets are highly evolved, providing a subject pool with skilled and experienced traders that can be accessed via the Internet. This study compares experimental asset markets with participants recruited from virtual world trading groups to experimental markets with participants recruited from the virtual world at large. I further examine trader performance and trading behavior within markets. The findings indicate that asset markets with virtual world participants recruited from trading groups are more prone to exhibit bubbles than are markets with virtual world participants recruited at large. Within condition, experienced traders are less likely to follow fundamentals and more likely to engage in strategies that result in loss of earnings. Excess confidence is rejected as an explanation for this pattern, as confidence is found to be related to higher earnings and fundamental value trading strategies.
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