According to what I call the ‘argument from public bads’, if a researcher deceived subjects in the past, there is a chance that subjects will discount the information that a subsequent researcher provides, thus compromising the validity of the subsequent researcher’s experiment. While this argument is taken to justify an existing informal ban on explicit deception in experimental economics, it can also apply to implicit deception, yet implicit deception is not banned and is sometimes used in experimental (...) economics. Thus, experimental economists are being inconsistent when they appeal to the argument from public bads to justify banning explicit deception but not implicit deception. (shrink)

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 an empirical science.

We advance the thesis that the method of experimental economics can make significant contributions to normative, as opposed to descriptive, business ethics. We contend that there are two basic ways in which experimental economics may make this contribution, and we exemplify these ways by pointing to experimental support of social contract theory as rational foundation for business ethics. These two ways are: (1) adding psychological realism; and (2) testing some quasi-empirical assumptions present in normative theory. (...) In order to make good our methodological claim, we first describe the methodological rules of experimental economics, distinguishing this method from other behavioral business ethics approaches. We also contemplate the possible objection that empirical methods cannot bear on normative ethics because there is no way of bridging the gap between descriptive theory (how people behave) and normative theory (how people ought to behave). (shrink)

The experimental approach in economics is a driving force behind some of the most exciting developments in the field. The 'experimental revolution' was based on a series of bold philosophical premises which have remained until now mostly unexplored. This book provides the first comprehensive analysis and critical discussion of the methodology of experimental economics, written by a philosopher of science with expertise in the field. It outlines the fundamental principles of experimental inference in order (...) to investigate their power, scope and limitations. The author demonstrates that experimental economists have a lot to gain by discussing openly the philosophical principles that guide their work, and that philosophers of science have a lot to learn from their ingenious techniques devised by experimenters in order to tackle difficult scientific problems. (shrink)

Our paper “Experimental Economics: Where Next?” contains a case study of Ernst Fehr and Klaus Schmidt’s work in which it is shown that the claims they make for the theory of inequity aversion are not supported by their data. The current issue of JEBO contains two replies, one from Fehr and Schmidt1 themselves, and the other from Catherine Eckel and Herb Gintis. Neither reply challenges any claims we make about matters of fact in our critique of Fehr and (...) Schmidt on inequity aversion, although it is clear that if they could have refuted any single factual sentence then they would have done so. Both replies therefore implicitly concede that the facts quoted in our case study are correct. All the other issues raised in the two replies are just so much dust kicked up to distract attention from the only question that matters: Is it scientific to proceed like Fehr and Schmidt or is it not? Fehr and Schmidt say yes. So do Eckel and Gintis. The implications are quite far-reaching for those like us who think it is obvious that the answer is no. What other claims asserted by the school of Gintis et al can we trust? (shrink)

Where should experimental economics go next? This paper uses the literature on inequity aversion as a case study in suggesting that we could profit from tightening up our act.

As in other sciences, an economic experiment is an artificial situation created by a researcher for the purpose of answering one or more scientific questions. Experiments of various types are used in economics to understand the causes of poverty and how it might be alleviated. The methods can identify causal relationships between variables and thereby isolate factors that can lead to poverty as well as to document the behavioral consequences of poverty. Experiments can also be used to provide test (...) beds for proposed policies to alleviate poverty. This essay describes a variety of ways in which experiments have been employed to understand and combat poverty. A line of laboratory experiments that considers which economic institutions are conducive to economic growth is discussed in detail. The results show that decentralized markets are conducive to allowing an economy to operate as efficiently as it can. However, in an economy with a theoretical “poverty trap,” the market works more efficiently if accompanied by a democratic voting process and freedom of communication. (shrink)

Recently, game theory and evolutionary game theory - mathematical frameworks from economics and biology designed to model and explain interactive behavior - have proved fruitful tools for philosophers in areas such as ethics, philosophy of language, social epistemology, and political philosophy. This methodological osmosis is part of a trend where philosophers have blurred disciplinary lines to import the best epistemic tools available. In this vein, experimental philosophers have drawn on practices from the social sciences, and especially from psychology, (...) to expand philosophy's grasp on issues from morality to consciousness. We argue that the recent prevalence of formal work on human interaction in philosophy opens the door for new methods in experimental philosophy. In particular, we discuss methods from experimental economics, focusing on a small literature we have been developing investigating signaling and communication in humans. We describe results from a novel experiment showing how environmental structure can shape signaling behavior. (shrink)

This is a slightly longer version of an entry prepared for the 2nd edition of The New Palgrave Dictionary of Economics, edited by Steven Durlauf and Lawrence Blume (Palgrave-Macmillan, forthcoming). Since the New Palgrave does not include acknowledgments, I should use this chance to thank Roger Backhouse, Philippe Fontaine, Daniel Kahneman, Kyu Sang Lee, Ivan Moscati, and Vernon Smith for their help and suggestions in preparing this paper.

In this article, we discuss recent evidence from experimental economics on the impact of social preferences on workplace behavior. We focus on situations in which a single employer interacts with multiple employees. Traditionally, equity and efficiency have been seen as opposing aims in such work environments: individual pay-for-performance wage schemes maximize of efficiency but might lead to inequitable outcomes. We present findings from laboratory experiments that show under which circumstances partially incomplete contracts can create equitable work environments while (...) at the same time reaching surprisingly efficient outcomes. (shrink)

The growing acceptance and success of experimental economics has increased the interest of researchers in tackling philosophical and methodological challenges to which their work increasingly gives rise. I sketch some general issues that call for the combined expertise of experimental economists and philosophers of science, of experiment, and of inductive‐statistical inference and modeling. †To contact the author, please write to: 235 Major Williams, Virginia Tech, Blacksburg, VA 24061‐0126; e‐mail: [email protected].

The Handbook of Experimental Economic Methodology, edited by Guillaume R. Fréchette and Andrew Schotter, aims to confront and debate the issues faced by the growing field of experimental economics. For example, as experimental work attempts to test theory, it raises questions about the proper relationship between theory and experiments. As experimental results are used to inform policy, the utility of these results outside the lab is questioned, and finally, as experimental economics tries to (...) integrate ideas from other disciplines like psychology and neuroscience, the question of their proper place in the discipline of economics becomes less clear.This book contains papers written by some of the most accomplished scholars working at the intersection of experimental, behavioral, and theoretical economics talking about methodology. It is divided into four sections, each of which features a set of papers and a set of comments on those papers. The intention of the volume is to offer a place where ideas about methodology could be discussed and even argued. Some of the papers are contentious---a healthy sign of a dynamic discipline---while others lay out a vision for how the authors think experimental economics should be pursued. This exciting and illuminating collection of papers brings light to a topic at the core of experimental economics. Researchers from a broad range of fields will benefit from the exploration of these important questions. (shrink)

Professor Vernon L. Smith is a major creator of the new discipline of experimental economics. This collection of his papers from 1962 to 1990 surveys key developments in the field from early attempts to study economic behaviour in now classic double oral auction markets through recent studies of industrial organization and decision making. Topics covered include monopoly and oligopoly, supply and demand theory under posted pricing, uniform pricing, double continuous auction, and sealed bid-offer auctions; hypothetical valuation and market (...) pricing; asset price bubbles; predatory pricing; market contestability and natural monopoly; and the methodology of experimental economics. Taken together, the papers form a history of the study of economics under controlled conditions. (shrink)

Controversies in economics often fizzle out unresolved. One reason is that, despite their professed empiricism, economists find it hard to agree on the interpretation of the relevant empirical evidence. In this paper I will present an example of a controversial issue first raised and then solved by recourse to laboratory experimentation. A major theme of this paper, then, concerns the methodological advantages of controlled experiments. The second theme is the nature of experimental artefacts and of the methods devised (...) to detect them. Recent studies of experimental science have stressed that experimenters are often merely concerned about determining whether a certain phenomeonon exists or not, or whether, when, and where it can be produced, without necessarily engaging in proving or disproving any theoretical explanation of the phenomenon itself. In this paper I shall be concerned mainly with such a case, and focus on the example of preference reversals, a phenomenon whose existence was until quite recently denied by the majority of economists. Their favourite strategy consisted in trying to explain the phenomenon away as an artefact of the experimental techniques used to observe it. By controlled experimentation, as we shall see, such an interpretation has been discredited, and now preference reversals are generally accepted as real. The problem of distinguishing an artefact from a real phenomenon is related to methodological issues traditionally discussed by philosophers of science, such as the theory-ladenness of observation and Duhem's problem. Part of this paper is devoted to clarifying these two philosophical problems, and to arguing that only the latter is relevant to the case in hand. The solutions to Duhem's problem devised by economic experimentalists will be presented and discussed. I shall show that they belong in two broad categories: independent tests of new predictions derived from the competing hypotheses at stake, and ‘no- miracle arguments’ from different experimental techniques delivering converging results despite their being theoretically independent. (shrink)

Human beings are highly irrational, at least if we hold to an economic standard of ‘rationality’. Experimental economics studies the irrational behavior of human beings, with the aim of understanding exactly how our behavior deviates from the Homo economicus, as ‘rational man’ has been called. Insofar as philosophical theories depend upon rationality assumptions, experimental economics is the source of both problems and (at least potential) solutions to several philosophical issues. This article offers a programmatic and highly (...) biased survey of some of these issues, with the hope of convincing the reader that experimental economics is well-deserving of careful study by philosophers. (shrink)

The discovery of the altruistic punishment mechanism as a replicable experimental result is a genuine achievement of behavioural economics. The hypothesis that cooperation in hunter-gatherer societies is sustained by altruistic punishment is a scientifically legitimate conjecture, but it must be tested against real-world observations. Guala's doubts about the evidential support for this hypothesis are well founded.

Any experimental field consists of preparing special conditions for examining interesting objects for research. So naturally, the particular ways in which scientists prepare their objects determine the kind and the content of knowledge produced. This book provides a framework for the analysis of experimental practices - the Social Epistemology of Experiment - that incorporates both the ‘material’ and the ‘social’ dimensions of knowledge production. The Social Epistemology of Experiment is applied to experimental economics and in so (...) doing, it introduces the epistemic role of the participation of human subjects in experiments and the causal efficacy of institutions in constraining and enabling human behaviour. It also develops the role of the social and socially established practices in overcoming the methodological difficulties associated with experimenting with humans subjects in the social sciences as well as the effect of scientists’ interventions in the laboratory worlds. This book provides an historical and contextualized account of the emergence of experimental economics, the methodological discussions that have informed and constituted it, its main research programmes, and stylized facts. The analysis of its three main research programmes – market experiments, game theory experiments and individual decision-making experiments – shows how economics experiments are particularly tailored to produce knowledge about market institutions and individual behaviour in contexts where there might be conflicts of individual and social goals, and also about the processes of individual decision-making. (shrink)

This article explores some issues having to do with the use of experimental results from one‐shot games to reach conclusions about the existence of social preferences that are taken to figure in the explanation of cooperation in repeated interactions in real life. †To contact the author, please write to: Division of Humanities and Social Sciences, California Institute of Technology, Pasadena, CA 91125; e‐mail: [email protected].

Can human social cognitive processes and social motives be grasped by the methods of experimental economics? Experimental studies of strategic cognition and social preferences contribute to our understanding of the social aspects of economic decisions making. Yet, papers in this issue argue that the social aspects of decision-making introduce several difficulties for interpreting the results of economic experiments. In particular, the laboratory is itself a social context, and in many respects a rather distinctive one, which raises questions (...) of external validity. (shrink)

Even though standard economic theory traditionally ignored any motives that may drive incentivized social decision making except for the maximization of personal consumption utility, the idea that ‘preferences for fairness’ (following social norms) might have an economically tangible impact appeared relatively early. I trace the evolution of these ideas from the first experiments on bargaining to the tests of the hypothesis that pro-sociality in general is driven by the desire to adhere to social norms. I show how a recent synthesis (...) of economics approach with psychology, sociology, and evolutionary human biology can give rise to a mathematically rigorous, psychologically plausible, and falsifiable theory of social norms. Such a theory can predictwhich norms should emerge in each specific (social) context and is capable of organizing diverse observations in economics and other disciplines. It provides the first glimpse at how a unified theory of normative decision making might look like. (shrink)

Focusing on the work of Friedrich von Hayek and Vernon Smith, we discuss some conceptual links between Austrian economics and recent work in behavioral game theory and experimental economics. After a brief survey of the main methodological aspects of Austrian and experimental economics, we suggest that common views on subjectivism, individualism, and the role of qualitative explanations and predictions in social science may favour a fruitful interaction between these two research programs.

A series of recent debates in experimental economics have associated demand effects with the artificiality of the experimental setting and have linked it to the problem of external validity. In this paper, we argue that these associations can be misleading, partly because of the ambiguity with which “artificiality” has been defined, but also because demand effects and external validity are related in complex ways. We argue that artificiality may be directly as well as inversely correlated with demand (...) effects. We also distinguish between the demand effects of experimentation and the reactions that they may trigger and that might endanger experimental validity. We conclude that economists should pay more attention to the way in which subjects construe the experimental task and learn to exploit subjects’ reactivity to expectations in their experiments. (shrink)

“This book aims to show that methodology is important and useful for experimental economists, but also that philosophers of science can learn from experimental economics”. With these words Francesco Guala makes clear right from the start what moved him to write this important book. The book is divided into two parts. The first part is dedicated to the theme of “inferences within the experiment,” and the second to “inferences from the experiment.” Each part is divided into five (...) chapters. (shrink)

I draw lessons from experimental economics. I argue that the lack of mathematical formalism cannot be usefully thought as the cause of the underappreciation of contextual and generalizability considerations. Instead, this lack is problematic because it hinders a clear relationship between theory and quantitative predictions. I also advocate a pragmatic policy-focused approach as a partial remedy to the generalizability problem.

Francesco Guala has developed some novel and radical ideas on the problem of external validity, a topic that has not received much attention in the experimental economics literature. In this paper I argue that his views on external validity are not justified and the conclusions which he draws from these views, if widely adopted, could substantially undermine the experimental economics enterprise. In rejecting the justification of these views, the paper reaffirms the importance of experiments in (...) class='Hi'>economics. (shrink)

The Dictator Game, one of the best-known designs in experimental social science, has been extensively criticized, and declared by some to be defunct, on the grounds that its results are the product of a research artefact. Critics of the DG argue that the behaviour observed in the game is not the outcome of genuine pro-social preferences but must, instead, be interpreted as a response to the cues given by the experimental design, where these cues signal that the game (...) is about ‘sharing’. Despite this criticism, the DG continues to be extensively used, and some have defended its validity as an instrument capable of measuring the role of social pressure and social norms against economic motivations. This article examines the assumptions implicit in the claim that the DG results are artefactual and spells out the conditions under which the game can be used to test hypotheses about pro-social... (shrink)

This second Cambridge University Press collection of papers by Vernon L. Smith, a creator of the field of experimental economics, includes many of his primary authored and coauthored contributions on bargaining and market behavior between 1990 and 1998. The essays explore the use of laboratory experiments to test propositions derived from economics and game theory. They also investigate the relationship between experimental economics and psychology, particularly the field of evolutionary psychology, using the latter to broaden (...) the perspective in which experimental results are interpreted. The volume complements Professor Smith's earlier work by demonstrating the importance of institutional features of markets in understanding behavior and market performance. Specific themes investigated include rational choice, the notion of fairness, game theory and extensive form experimental interactions, institutions and market behavior, and the study of laboratory stock markets. (shrink)

Laboratory experimentation was once considered impossible or irrelevant in economics. Recently, however, economic science has gone through a real ‘laboratory revolution’, and experimental economics is now a most lively subfield of the discipline. The methodological advantages and disadvantages of controlled experimentation constitute the main subject of this thesis. After a survey of the literature on experiments in philosophy and economics, the problem of testing normative theories of rationality is tackled. This philosophical issue was at the centre (...) of a famous controversy in decision theory, during which a methodology of normative falsification was first articulated and used to assess experimental results. In the third chapter, the methodological advantages of controlled experimentation are illustrated and discussed with examples taken from the experiments on the so-called ‘preference reversal’ phenomenon. Laboratory testing allows to establish with a high degree of certainty that certain phenomena lie behind the experimental data, by means of independent testing, elimination of alternative hypotheses, and the use of different instruments of observation. The fourth chapter is devoted to a conceptual analysis of the problem of ‘parallelism’. This is the problem of inferring from the occurrence of a phenomenon in the laboratory, to its instantiation also in non-laboratory environments. Experimental economists have discussed parallelism at length, and their views are presented and criticised. Eventually, it is argued that parallelism is a factual matter and as such can only be established on empirical grounds. The fifth chapter provides an example of how one can argue for parallelism, focusing on the case of experimentation on the ‘winner’s curse’ phenomenon. The role of experiments as ‘mediators’ between theoretical models and their target domain of application is illustrated, and the structure of parallelism arguments analysed in detail. Finally, in the last chapter, economic experiments are compared to simulations, in order to highlight their specific characteristics. (shrink)

Resumen: El presente artículo es la primera parte de un trabajo que estudia la conexión entre el castigo y las normas en estudios experimentales en economía. Estos asumen que la transgresión de normas de justicia y equidad es la causa de la aplicación del castigo. A pesar de que hay evidencia empírica que refuerza tal conexión, existen razones para pensar que su validez ecológica puede verse socavada debido a ciertos artefactos experimentales. Estos artefactos experimentales se refieren a dos conjuntos de (...) problemas vinculados con la validez ecológica: primero, la “irrelevancia normativa” del castigo, esto es, que los participantes de los juegos económicos experimentales utilizan la opción de castigo por motivos no relacionados a la transgresión de normas; y segundo, la ilegitimidad del castigo, producto de la falta de procedimientos adecuados para la asignación de roles y de la ambigüedad normativa.: This article focuses on the connection between punishment and norms. Experimental studies in economics assume that transgression of norms of justice and equity is the cause of the application of punishment. While such a connection is evident, there are reasons to believe that external validity of such inference may be undermined due to certain experimental artefacts. These experimental artefacts refer to two sets of problems linked to ecological validity: first, the "normative irrelevance" of punishment, that is, that participants in experimental economic games use the option of punishment for reasons unrelated to the transgression of norms; and second, the illegitimacy of punishment, as a result of the lack of adequate procedures to the allocation of roles and normative ambiguity. I conclude with recommendations about how to tackle these problems. (shrink)

It is sometimes argued that experimental economists do not have to worry about external validity so long as the design sticks closely to a theoretical model. This position mistakes the model for the theory. As a result, applied economics designs often study phenomena distinct from their stated objects of inquiry. Because the implemented models are abstract, they may provide improbable analogues to their stated subject matter. This problem is exacerbated by the relational character of the social world, which (...) also sets epistemic limits for the social science laboratory more generally. (shrink)

The Internet and social media have opened niches for political exploitation of human dispositions to hyper-alarmed states that amplify perceived threats relative to their objective probabilities of occurrence. Researchers should aim to observe the dynamic “ramping up” of security threat mechanisms under controlled experimental conditions. Such research necessarily begins from a clear model of standard baseline states, and should involve adding treatments to established experimental protocols developed by experimental economists. We review these protocols, which allow for joint (...) estimation of risk preferences and subjective beliefs about probabilities and their distributions. Results we have obtained on such estimates, from populations in various countries, are gathered for comparison. Most people show moderate risk aversion in non-alarmed states. We also find universal heterogeneity in risk preference structures, with substantial sub-samples weighting probabilities in such a way as to display “probability pessimism”, while others make risky choices in accordance with expected utility theory. (shrink)

In the previous issue of Analyse & Kritik (2020, vol. 42, issue 1) Alexander Vostroknutov (3-39) aims at a ‘synthesis’ of economics with ‘psychology, sociology, and evolutionary human biology.’ This paper argues that his approach needs to be complemented at least by work from sociologists and social psychologists. Starting with problems of defining and measuring norms it is then claimed that a theory of norms should address the origin, change and effects of norms and model micromacro processes. This should (...) also be the goal of a theory of institutions (which are defined here as sets of norms-norms in the sense of accepting oughtness statements). We show how the social psychological value expectancy theory can be applied to model the variety of incentives that could play a role in explaining the effects of norms. Regarding the origin Coleman’s theory of norms is applied to show how Vostroknutov’s dissatisfaction-norms hypothesis can be improved. (shrink)

It is sometimes argued that experimental economists do not have to worry about external validity so long as the design sticks closely to a theoretical model. This position mistakes the model for the theory. As a result, applied economics designs often study phenomena distinct from their stated objects of inquiry. Because the implemented models are abstract, they may provide improbable analogues to their stated subject matter. This problem is exacerbated by the relational character of the social world, which (...) also sets epistemic limits for the social science laboratory more generally. (shrink)

It is sometimes argued that experimental economists do not have to worry about external validity so long as the design sticks closely to a theoretical model. This position mistakes the model for the theory. As a result, applied economics designs often study phenomena distinct from their stated objects of inquiry. Because the implemented models are abstract, they may provide improbable analogues to their stated subject matter. This problem is exacerbated by the relational character of the social world, which (...) also sets epistemic limits for the social science laboratory more generally. (shrink)

Setting aside its conceptual issues, it remains an open question whether the internal point of view is a good descriptive tool for the behaviour of ordinary citizens or if a sanction‐based explanation of legal compliance is sufficient. This paper will discuss strains of experimental literature corroborating Hart’s criticism of sanction‐based accounts and suggesting that compliance with norms is indeed a shared practice sensitive to social influence. Legal institutions can interact with this shared practice in a way that cannot be (...) reduced to pure incentives. Sanction‐based theories cannot account for norm compliance: They face a challenge in explaining the complex behavioural patterns observed in the minimalistic setting of laboratories. (shrink)