Major achievements

• He developed methods for laboratory experiments in economics, which has helped understanding of economic behavior. Smith formalized the methodology of experimental economics. His book "Experimental Economics: Induced Value Theory" was the first articulation of the principle behind economic experiments. Later he expanded this principles and adapted them to the development of economic experiments. Mechanism design provide a formal means for tests of the performance of an economic institution, while experimental economics provided a means for formal empirical assessment of the performance of economic institutions. Smith describes the technique of induced values. This is the method used in controlled laboratory experiments in economics, political science, and psychology. This technique is what allows experimental economists to create a replica of a market in a laboratory. Subjects in an experiment are told that they can produce a "commodity" at a cost, and then sell it to buyers. The seller earns the difference between the price received and its cost. Buyers are told that the commodity has a value to them when they consume it, and earn the difference between the value of the commodity to them and its price. Using this technique, Smith and his coauthors have examined the performance of alternative trading mechanisms in resource allocation.

• Smith shared the 2002 Nobel Memorial Prize in Economic Sciences with Daniel Kahneman.