Dr. Vernon Smith & Dr. Stephen Rassenti
One of Vernon Smith’s earliest memories involves fixing a broken clock. “I was under the age of six at the time, and I vividly remember the thrill of taking apart the clock, putting it back together and seeing it work again,” says the Nobel laureate. “Although today I realize physics was at play, at the time it was pure magic to find that actions create reactions.”
Today, Smith, who has joint appointments with the Argyros School of Business & Economics and the School of Law, is still driven by a deep desire to find out why and how things work. It was this curiosity about the effect of social connections on economics that led to his 2002 Nobel Prize in Economic Sciences and in 2008 to his founding Chapman’s Economic Science Institute (ESI).
Smith’s pioneering work examined for the first time how human behavior affects economies, which launched economics from a static science to an experimental social science. The research is somewhat complicated for the average person, but the bottom line is clearly grasped–human motives and actions dictate economic outcomes.
The genesis of Smith’s theory started in the fall of 1948 during his last year studying electrical engineering at Cal Tech. At the time, he became interested in economics and human behavior and less enamored with the study of mechanical objects. “When I graduated in the spring of 1949, I was pretty sure I didn’t want to stay in engineering, so I made the decision to go back to Kansas University and get a Master’s degree in Economics,” says Smith. After that he attended Harvard and upon graduation accepted an appointment at Purdue in Economics, where he began teaching.
“I realized that I didn’t really know anything about the relationship between economic theory–even elementary supply and demand–and what people actually do in the markets,” he recalls. “I became intrigued and did some investigating and found that it wasn’t just a failure in my understanding, but there had been no research on the topic.” Over the years since that initial discovery, his work has covered a broad range of economic subjects, including asset markets in the 1980s, and not surprisingly, the current economic crisis, which has spurred a host of studies.
“The fact is that the stock market .com crash didn’t bring down the economy,” he says. “Investment brokers and the Securities and Exchange Commission prevented that a long time ago. You can’t buy stock with other people’s money, because you are subject to strict margin requirements, but in the run–up to the crisis you were able to buy homes with other people’s money, and that’s where the problems start.”
While Smith is in demand as a speaker and does travel extensively, his first allegiance is to his work in the lab and sharing his knowledge with students. “I think it’s important to continue to discover new things, because if you don’tbalance educating yourself with speaking, you’ll soon find that you’re talking about things that are no longer relevant and immediate,” he says.
Dr. Stephen Rassenti
After receiving his bachelor’s degree in mathematics, Chapman’s head of the Economic Science Institute (ESI), Stephen Rassenti, worked as a carpenter in his native Canada. Fortunately for the world of Economic Science, after six years wielding a hammer he changed his focus and attended the University of Arizona where he met Vernon Smith.
“I was studying for a PhD in systems engineering and had a minor in economics,” says Rassenti. “I took a class in economics with Vernon, and that really piqued my interest in the topic. In 1984, after two years working with Bell Laboratories, Vernon offered me a position as a research scientist in the economics lab, and we’ve been working together ever since.”
After Arizona, Smith and Rassenti moved the economics lab to George Mason University in Virginia and then to Chapman. “Our move to Chapman was especially exciting because the University has been very accommodating, and the school’s vision dovetails with ours,” he says.
For Rassenti, an exciting part of his work in Economic Science has been the human element. “Engineers presume that when they ask people something they will get perfect information that will enable them to execute plans based on the answers they receive, but the problem is people don’t always tell you the truth, which is where the behavioral element comes in.”
Rassenti is especially pleased that the work he does has a positive influence. “The experiments we do in ESI have a dramatic financial impact in the real world,” he says. “We have the tools in the laboratory to test items such as healthcare or energy policies in order to see whether viable options are being proposed, which can potentially save the country billions of dollars, and that’s very gratifying.”
Built in 1904, Wilkinson Hall is the oldest structure on the Chapman University campus. This two–story, 26,510–square foot building, which is listed in the National Registry for Historical Buildings, was originally built to house Orange Union High School’s turn–of–the–century students. The impressive neo–classical structure was the high school’s only building for several years until enrollment increased substantially and new buildings were added, culminating with the construction of Memorial Hall in 1921, which was situated directly behind Wilkinson. The following year, Wilkinson was moved 300 feet northeast to its current location–a better vantage point in the center of campus with a less formal quad. Kress House Moving Company of Los Angeles relocated the building for $8,300.
Wilkinson Hall houses the Economic Science Institute (ESI), and the departments of English, Humanities and Social Sciences.
Economic Science Institute
When it comes to economics and how we spend our money, questions abound. Chapman University’s Economic Science Institute (ESI) is dedicated to seeking answers to these age–old queries. The mission of the institute, which is located on the first floor of Wilkinson Hall, is to study and understand human socioeconomic behavior. Founded in 2008 by Vernon Smith and his colleagues Stephen Rassenti, John Dickhaut, David Porter and Bart Wilson, the seeds for ESI were planted many years before. In 1956 while teaching an introductory economics class at Purdue, Smith conducted his first experiment which eventually led to his groundbreaking theory of Experimental Economics. That theory resulted in his receiving the 2002 Nobel Prize in Economic Sciences.
Vernon Smith and Stephen Rassenti, director of ESI, share their backgrounds and insight into the development of Chapman’s Experimental Economics laboratory.