Before his pioneering experiments on market equilibrium, Vernon Smith believed that the market equilibrium concept:
A) described reality.
B) might describe reality.
C) did not describe reality.
D) may have described reality.

Question

Quizplus · Accepted Answer

Vernon Smith's early work in economics was influenced by the traditional belief that markets operated efficiently and that the invisible hand ensured that economic agents always acted in their own best interest. However, after conducting experiments on market behavior, Smith realized that the concept of market equilibrium did not accurately describe the way people dealt with uncertainty and risk in real-world market situations. He found that people in markets often behaved in ways that were unpredictable and irrational, and that markets did not always reach a stable equilibrium. Thus, Smith rejected the idea that market equilibrium accurately described reality.

Before His Pioneering Experiments on Market Equilibrium, Vernon Smith Believed