Experimental Economics

Experimental Economics: Rethinking the Rules

Nicholas Bardsley
Robin Cubitt
Graham Loomes
Peter Moffatt
Chris Starmer
Robert Sugden
Copyright Date: 2010
Pages: 384
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  • Book Info
    Experimental Economics
    Book Description:

    Since the 1980s, there has been explosive growth in the use of experimental methods in economics, leading to exciting developments in economic theory and policy. Despite this, the status of experimental economics remains controversial. InExperimental Economics, the authors draw on their experience and expertise in experimental economics, economic theory, the methodology of economics, philosophy of science, and the econometrics of experimental data to offer a balanced and integrated look at the nature and reliability of claims based on experimental research.

    The authors explore the history of experiments in economics, provide examples of different types of experiments, and show that the growing use of experimental methods is transforming economics into a genuinely empirical science. They explain that progress is being held back by an uncritical acceptance of folk wisdom regarding how experiments should be conducted, a failure to acknowledge that different objectives call for different approaches to experimental design, and a misplaced assumption that principles of good practice in theoretical modeling can be transferred directly to experimental design.Experimental Economicsdebates how such limitations might be overcome, and will interest practicing experimental economists, nonexperimental economists wanting to interpret experimental research, and philosophers of science concerned with the status of knowledge claims in economics.

    eISBN: 978-1-4008-3143-2
    Subjects: Economics, Sociology

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Preface
    (pp. vii-viii)
  4. 1 Introduction
    (pp. 1-45)

    Over the last thirty years, there has been a revolutionary change in the methods of economics. For most of the twentieth century, reports of experiments were almost unknown in the literature. Economics—as viewed by economists, and as viewed by professional methodologists—was generally taken to be a nonexperimental science. This understanding of economics is encapsulated in an incidental remark in Milton Friedman’s famous essay on the methodology of positive economics—an essay that deeply influenced economists’ methodological self-perceptions for at least three decades. Friedman says:

    Unfortunately, we can seldom test particular predictions in the social sciences by experiments explicitly...

  5. 2 Theory Testing and the Domain of Economic Theory
    (pp. 46-94)

    We begin with the classic function of experiments in science: namely, testing theories. As explained in chapter 1, theory testing must be seen in the context of a view of theory in which empirical claims result from it. Even though much of the work of economic theorists consists of formal deductive analysis, such claims arise from applications of the theory: for example, seeing it as informative about, or as predicting, some class of actual phenomena. In this chapter we considerwherethe theory may be applied to test it or, to put the question slightly differently, withwhat types of...

  6. 3 Experimental Testing in Practice
    (pp. 95-140)

    This chapter continues the discussion of experiments in their theory-testing role. While chapter 2 addressed questions about where economic theory can legitimately be tested, this chapter is about what testing (in a given domain) involves and what it delivers. An important theme of the chapter will be that experimental tests (in economics and elsewhere) are always relatively complex affairs that, by virtue of their complexity, never provide acid tests of individual hypotheses. Consequently, judgments about whether a particular hypothesis has withstood or failed some experimental test will always involve some element of interpretation.

    If the evidence cannot entirely “speak for...

  7. 4 Experiments and Inductive Generalization
    (pp. 141-195)

    The two previous chapters have looked at the use of experiments to test theories. When experimental economics was taking off in the 1980s, most practitioners interpreted their work as theory testing. But as experimental methods have become established in economics, there has been a gradual change in practice. Increasingly, experiments are used not only to test preexisting theories but also as part of the process by which theories are created, and even as alternatives to theory as ways of understanding the world. The present chapter considers these other uses of experiments.¹

    The idea that the role of experiments is to...

  8. 5 External Validity
    (pp. 196-243)

    Conditions in experiments usually differ markedly from those in naturally occurring situations. This may give rise to uncertainty and sometimes even skepticism about how, or indeed whether, the results will generalize. This concern and the particular character it assumes in experimental economics are the focus of this chapter. At least within experimental social sciences, laboratory economics seems to be distinguished by the close resemblance that designs often bear to formal models. Notwithstanding the argument of chapter 4, many, perhaps most, designs seek to recreate at least some features of such a model. This might appear especially contrived to an outsider....

  9. 6 Incentives in Experiments
    (pp. 244-285)

    Monetary incentives lie at the heart of controversies in experimental economics and, even more markedly, between it and other disciplines such as psychology. The latter point is graphically illustrated by the practices of the different disciplines. Surveys by Colin Camerer and Robert Hogarth (1999) and Ralph Hertwig and Andreas Ortmann (2001, 2003) indicate that, while the vast majority of experiments appearing in the economics literature use task-related incentives (a concept that we define below), the majority of those appearing in the psychology literature do not. The statistical evidence is quite striking:everyexperimental study published in theAmerican Economic Review...

  10. 7 Noise and Variability in Experimental Data
    (pp. 286-330)

    While much of this book has been concerned with broad issues of methodological principle, this chapter addresses what might seem to be a more specific and practical question associated with the analysis and interpretation of experimental data.

    Proponents of experimental economics often claim that experiments are particularly well suited to testing economic theory, since they give a much greater degree of control than can generally be found in the “natural” economic environment. While that may be true, this chapter will suggest that insufficient consideration has so far been given to the question of which tests are suitable for different kinds...

  11. 8 Conclusion
    (pp. 331-346)

    Over the preceding chapters we have reviewed a wide range of experiments, all carried out with the intention of contributing in some way or other to the understanding of economic behavior. We have considered an equally wide range of arguments—sometimes very general, sometimes specific to particular experimental designs—about how experiments in economics do or do not achieve these intentions. We now draw these threads together to offer an assessment of how well experimental economics is doing and where it is heading. To avoid repetition, our assessment will be stated rather than argued for; the supporting arguments are to...

  12. References
    (pp. 347-368)
  13. Index
    (pp. 369-376)