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Experimental economics

 

"Theory is when you know everything but nothing works. Practice is when everything works but no one knows why. In our lab theory and practice are combined: nothing works and no one knows”.

(A courtesy from Jean-Marc Tallon, found on the internet. I would love to learn who deserves credit for it.)

 

The section titles link to the supporting material of the lecture, also available in a dedicated drive. Access is restricted to students currently registered for the class.

For any question or query regarding the course: nicolas.jacquemet@univ-paris1.fr

 

In the reference list, stars denote suggested readings. A complete, compact, reference list, is available here. Beyond the material provided on the go, several books are certainly worth having a look at ; they are listed and quickly presented below. None of them is mandatory.


Contents

 

 

Introduction – What is it?

 

 

                                             I.       The emergence of experiments in economics

 

* Guala (2005). Chapter 1: Introdution, in The Methodology of Experimental Economics, Cambridge University Press.

Noussair (2011), Trends in Academic Publishing in Experimental Economics, JoE Conference.

Chamberlin (1948). An Experimental Imperfect Market, JPE.

Smith (1962). An Experimental Study of Competitive Market Behavior, JPE.

Smith, V. L. (1964). Effect of market organization on competitive equilibrium. QJE.

* Cooper, DeJong, Forsythe, Ross (1996). Cooperation without Reputation: Experimental Evidence from Prisoner's Dilemma Games. GEB.

Rosenthal (1981). Games of perfect information, predatory pricing and the chain-store paradox. JET.

Jacquemet N., Zylbersztejn A. (2013). Learning, words and actions: experimental evidence on coordination-improving information. B.E.J.T.E.

Jacquemet N., Zylbersztejn A. (2013). What drives failure to maximize payoffs in the lab? A test of the inequality aversion hypothesis. Working Paper.

* Jacquemet N., Koessler F. (2013) Using or Hiding Private Information? An Experimental Study of Zero-Sum Repeated Games with Incomplete Information. GEB

 

                                       II.           A laboratory experiment, for real

 

Instructions used in the experiment.

 

Ketcham, Smith, Williams (1964). A Comparison of Posted-Offer and Double-Auction Pricing Institutions. REStud.

Vickrey, W. (1961). Counterspeculation, auctions, and competitive sealed tenders. Journal of finance

Jacquemet, N., Joule, R. V., Luchini, S., & Shogren, J. F. (2011). Do people always pay less than they say? testbed laboratory experiments with IV and HG values. JPET

Ketcham, J., Smith, V. L., & Williams, A. W. (1984). A comparison of posted-offer and double-auction pricing institutions. REStud

Capen, E. C., Clapp, R. V., & Campbell, W. M. (1971). Competitive bidding in high-risk situations. Journal of petroleum technology

* Kagel, J. H., & Levin, D. (1986). The winner's curse and public information in common value auctions. AER

Dyer, D., Kagel, J. H., & Levin, D. (1989). A comparison of naive and experienced bidders in common value offer auctions: A laboratory analysis. EJ

Goeree, J. K., & Offerman, T. (2002). Efficiency in auctions with private and common values: An experimental study. AER

* Murphy, J. J., Allen, P. G., Stevens, T. H., & Weatherhead, D. (2005). A meta-analysis of hypothetical bias in stated preference valuation. Environmental and Resource Economics

Taylor, L. O., McKee, M., Laury, S. K., & Cummings, R. G. (2001). Induced-value tests of the referendum voting mechanism. Economics letters

Vossler, C. A., & McKee, M. (2006). Induced-value tests of contingent valuation elicitation mechanisms. Environmental and resource economics

Cummings, R. G., & Taylor, L. O. (1999). Unbiased value estimates for environmental goods: a cheap talk design for the contingent valuation method. AER

List, J. A., & Gallet, C. A. (2001). What experimental protocol influence disparities between actual and hypothetical stated values?. Environmental and Resource Economics.

Jacquemet, N., James, A. G., Luchini, S., & Shogren, J. F. (2011). Social psychology and environmental economics: a new look at ex ante corrections of biased preference evaluation. Environmental and Resource Economics.

Blamey, R. K., Bennett, J. W., & Morrison, M. D. (1999). Yea-saying in contingent valuation surveys. Land Economics.

List, J. A. (2001). Do explicit warnings eliminate the hypothetical bias in elicitation procedures? Evidence from field auctions for sportscards. AER.

Lusk, J. L. (2003). Using experimental auctions for marketing applications: a discussion. Journal of Agricultural and Applied Economics.

Jacquemet, N., Joule, R. V., Luchini, S., & Shogren, J. F. (2013). Preference elicitation under oath. Journal of Environmental Economics and Management.

Beauvois, J. L., & Joule, R. V. (1998). La soumission librement consentie. Presses Universitaires de France.

Kiesler, C. A. (1971). The psychology of commitment: Experiments linking behavior to belief. New York: Academic Press.

Kulik, J. A., & Carlino, P. (1987). The effect of verbal commitment and treatment choice on medication compliance in a pediatric setting. Journal of behavioral medicine.

Joule, R. V., Girandola, F., & Bernard, F. (2007). How can people be induced to willingly change their behavior? The path from persuasive communication to binding communication. Social and Personality Psychology Compass.

Joule, R., Bernard, F., & Halimi-Falkowicz, S. (2008). Promoting ecocitizenship: in favor of binding communication. International Scientific Journal for Alternative Energy and Ecology.

Ellingsen, T., & Johannesson, M. (2004). Promises, Threats and Fairness. EJ.

Charness, G., & Dufwenberg, M. (2006). Promises and partnership. Eca.

Vanberg, C. (2008). Why do people keep their promises? An experimental test of two explanations. Eca.

Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1990). Experimental tests of the endowment effect and the Coase theorem. JPE

* Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Ecma

Samuelson, W., & Zeckhauser, R. (1988). Status quo bias in decision making. Journal of risk and uncertainty

 

Part I – Why? The need for experimental methods in economics.

 

 

                                     III.           The need for experimental methods in empirical economics

 

Abowd, J. M., Kramarz, F., & Margolis, D. N. (1999). High wage workers and high wage firms. Ecma.

Heckman, J. J., LaLonde, R. J., & Smith, J. A. (1999). The economics and econometrics of active labor market programs. Handbook of labor economics.

Campbell, D. T. (1969). Reforms as experiments. American psychologist.

Harrison, G. W., & List, J. A. (2004). Field experiments. JEL.

* Shearer, B. (2004). Piece rates, fixed wages and incentives: Evidence from a field experiment. REStud.

 

                                     IV.           The need for experimental methods in economic science

 

* Roth, A. E. (1986). Laboratory experimentation in economics. Economics and Philosophy.

* Samuelson, L. (2005). Economic theory and experimental economics. JEL, 43(1).

Forsythe, R., Horowitz, J. L., Savin, N. E., & Sefton, M. (1994). Fairness in simple bargaining experiments. GEB.

Engel, C. (2011). Dictator games: A meta study. ExpEcon.

Hoffman, E., McCabe, K., & Smith, V. L. (1996). Social distance and other-regarding behavior in dictator games. AER.

Cherry, T. L., Frykblom, P., & Shogren, J. F. (2002). Hardnose the dictator. AER.

Hoffman, E., McCabe, K., Shachat, K., & Smith, V. (1994). Preferences, property rights, and anonymity in bargaining games. GEB.

* Rubinstein, A. (2007). Instinctive and Cognitive Reasoning: A Study of Response Times. EJ.

Piovesan, M., & Wengström, E. (2009). Fast or fair? A study of response times. Economics Letters.

Plott, C. R. (1991). Will economics become an experimental science? Southern Economic Journal, 901-919.

Osborne, M. J., & Rubinstein, A. A course in game theory. 1994. Cambridge/MA.

Normann, H. T., & Wallace, B. (2012). The impact of the termination rule on cooperation in a prisoner’s dilemma experiment. International Journal of Game Theory.

Akerlof, G. A. (1982). Labor contracts as partial gift exchange. QJE.

Akerlof, G. A., & Yellen, J. L. (1990). The fair wage-effort hypothesis and unemployment. QJE.

Shapiro, C., & Stiglitz, J. E. (1984). Equilibrium unemployment as a worker discipline device. AER.

Fehr, E., Kirchsteiger, G., & Riedl, A. (1993). Does fairness prevent market clearing? An experimental investigation. QJE.

Gneezy, U., & List, J. A. (2006). Putting behavioral economics to work: Testing for gift exchange in labor markets using field experiments. Eca.

Falk, A. (2007). Gift exchange in the field. Eca.

 

 

Part II – How ? Laboratory experiments in practice

 

 

                                       V.           Designing an experiment: internal validity issues

 

Smith, V. L. (1982). Microeconomic systems as an experimental science. AER.

Friedman, D. (1994). Experimental methods: A primer for economists. Cambridge University Press.

Isaac, R. M., Walker, J. M., & Thomas, S. H. (1984). Divergent evidence on free riding: An experimental examination of possible explanations. Public choice.

* Siakantaris, N. (2000). Experimental economics under the microscope. Cambridge Journal of Economics.

Camerer, C. F., & Hogarth, R. M. (1999). The effects of financial incentives in experiments: A review and capital-labor-production framework. Journal of risk and uncertainty.

Samuelson, W., & Zeckhauser, R. (1988). Status quo bias in decision making. Journal of risk and uncertainty.

Kahneman, D., & Tversky, A. (1979). Prospect theory: An analysis of decision under risk. Eca.

Fehr, E., & Schmidt, K. M. (1999). A theory of fairness, competition, and cooperation. QJE.

* Andreoni, J. (1995). Cooperation in public-goods experiments: kindness or confusion? AER.

Falk, A., Fehr, E., & Fischbacher, U. (2003). On the nature of fair behavior. Economic Inquiry.

Cotter, S. C. (1979). A screening design for factorial experiments with interactions. Biometrika.

Requate, T., & Waichman, I. (2011). “A profit table or a profit calculator?” A note on the design of Cournot oligopoly experiments. Experimental Economics.

Cooper, D., & Kagel, J. H. (2003). Lessons learned: generalizing learning across games. AER.

Cooper, D. J., & Kagel, J. H. (2009). The Role of Context and Team Play in Cross-Game Learning. Journal of the EEA.

Nyarko, Y., & Schotter, A. (2002). An experimental study of belief learning using elicited beliefs. Eca.

Gächter, S., & Renner, E. (2010). The effects of (incentivized) belief elicitation in public goods experiments. Experimental Economics.

Rey-Biel, P. (2009). Equilibrium play and best response to (stated) beliefs in normal form games. GEB.

Rutström, E. E., & Wilcox, N. T. (2009). Stated beliefs versus inferred beliefs: A methodological inquiry and experimental test. GEB.

Blanco, M., Engelmann, D., Koch, A. K., & Normann, H. T. (2010). Belief elicitation in experiments: is there a hedging problem?. Experimental Economics.

Levitt, S. D., & List, J. A. (2011). Was there really a Hawthorne effect at the Hawthorne plant? An analysis of the original illumination experiments. American Economic Journal: Applied Economics.

* Zizzo, D. J. (2010). Experimenter demand effects in economic experiments. Experimental Economics.

Mayo, E. (1949). Hawthorne and the western electric company, in The Social Problems of an Industrial Civilisation, Routledge.

Chou, E., McConnell, M., Nagel, R., & Plott, C. R. (2009). The control of game form recognition in experiments: understanding dominant strategy failures in a simple two person “guessing” game. Experimental Economics.

Ferraro, P. J., & Vossler, C. A. (2010). The source and significance of confusion in public goods experiments. The B.E. Journal of Economic Analysis & Policy.

* Plott, C. R., & Zeiler, K. (2007). Exchange asymmetries incorrectly interpreted as evidence of endowment effect theory and prospect theory?. AER.

Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1990). Experimental tests of the endowment effect and the Coase theorem. JPE.

 

                                     VI.           Conducing an experiment

 

Practicalities

 

Non parametric testing procedures: a summary

 

Fischbacher, U. (2007). z-Tree: Zurich toolbox for ready-made economic experiments. Experimental economics.

Siegel, S., & Castellan, N. J. J.(1988). Nonparametric Statistics for the Behavioral Sciences.

 

 

Part III – What for? What laboratory experiments tell us

 

 

                                   VII.           About the real world: external validity issues

 

Smith, V. L. (1982). Microeconomic systems as an experimental science. AER.

Schram, A. (2005). Artificiality: The tension between internal and external validity in economic experiments. Journal of Economic Methodology.

Plott, C. R. (1982). Industrial organization theory and experimental economics. JEL.

* Siakantaris, N. (2000). Experimental economics under the microscope. Cambridge Journal of Economics.

* Guala, F. (2002). On the scope of experiments in economics: comments on Siakantaris. Cambridge Journal of Economics.

Anderhub, V., Müller, R., & Schmidt, C. (2001). Design and evaluation of an economic experiment via the Internet. JEBO.

Horton, J. J., Rand, D. G., & Zeckhauser, R. J. (2011). The online laboratory: Conducting experiments in a real labor market. Experimental Economics.

Hergueux, J., & Jacquemet, N. (2012). Social preferences in the online laboratory: A randomized experiment. Working Paper.

Glaeser, E. L., Laibson, D. I., Scheinkman, J. A., & Soutter, C. L. (2000). Measuring trust. QJE.

Johnson, N. D., & Mislin, A. A. (2011). Trust games: A meta-analysis. Journal of Economic Psychology, 32(5), 865-889.

Holt, C. A., & Laury, S. K. (2002). Risk aversion and incentive effects. AER.

Andersen, S., Ertaç, S., Gneezy, U., Hoffman, M., & List, J. A. (2011). Stakes matter in ultimatum games. AER.

* Cherry, T. L., Frykblom, P., & Shogren, J. F. (2002). Hardnose the dictator. AER.

Jacquemet, N., Joule, R. V., Luchini, S., & Shogren, J. F. (2009). Earned wealth, engaged bidders? Evidence from a second-price auction. Economics Letters.

Jacquemet, N., Joule, R. V., Luchini, S., & Shogren, J. F. (2011). Do people always pay less than they say? testbed laboratory experiments with IV and HG values. Journal of Public Economic Theory.

Brüggen, A., & Strobel, M. (2007). Real effort versus chosen effort in experiments. Economics Letters.

Frank, B., & Schulze, G. G. (2000). Does economics make citizens corrupt?. JEBO.

Montmarquette, C., Rullière, J. L., Villeval, M. C., & Zeiliger, R. (2004). Redesigning teams and incentives in a merger: An experiment with managers and students. Man Sc.

List, J. A. (2003). Does market experience eliminate market anomalies?. QJE.

List, J. A. (2004). Neoclassical theory versus prospect theory: Evidence from the marketplace. Eca.

Henrich, J., Heine, S. J., & Norenzayan, A. (2010). The weirdest people in the world. Behavioral and Brain Sciences.

Falk, A., & Fehr, E. (2003). Why labour market experiments?. Labour Economics.

Piovesan, M., & Wengström, E. (2009). Fast or fair? A study of response times. Economics Letters.

Levitt, S. D., & List, J. A. (2011). Was there really a Hawthorne effect at the Hawthorne plant? An analysis of the original illumination experiments. American Economic Journal: Applied Economics.

Carpenter, J., Liati, A., & Vickery, B. (2010). They Come To Play Supply Effects in an Economic Experiment. Rationality and society.

Frank, B. (1998). Good news for experimenters: subjects do not care about your welfare. Economics Letters.

 

                                 VIII.           About economic theory: induction

 

* Binmore, K. (1999). Why experiment in economics?. EconJ.

* Nagel, R. (1995). Unraveling in guessing games: An experimental study. AER.

Costa-Gomes, M. A., & Weizsäcker, G. (2008). Stated beliefs and play in normal-form games. Rev Econ Stud.

Costa-Gomes, M. A., & Crawford, V. P. (2006). Cognition and behavior in two-person guessing games: An experimental study. AER.

Crawford, V. P., & Iriberri, N. (2007). Fatal attraction: Salience, naivete, and sophistication in experimental" Hide-and-Seek" games. AER.

Jacquemet, N., Luchini, S., & Zylbersztejn, A. (2013). Bounded rationality and strategic uncertainty in a simple dominance solvable game. Working Paper.

 

                                     IX.           About public policies: liberal paternalism and institutional design

 

* Sunstein, C. R., & Thaler, R. H. (2003). Libertarian paternalism is not an oxymoron. The University of Chicago Law Review.

Madrian, B. C., & Shea, D. F. (2001). The power of suggestion: Inertia in 401 (k) participation and savings behavior. QJE.

Thaler, R. H., & Benartzi, S. (2004). Save more tomorrow™: Using behavioral economics to increase employee saving. JPE.

* Mitchell, G. (2005). Libertarian paternalism is an oxymoron. Northwestern University Law Review.

* Munnell, A. H. (2003). A Non-libertarian Paternalist's Reaction to "Libertarian Paternalism is Not an Oxymoron". Federal Reserve Bank of Boston

* Shogren, J. F. (2006). A rule of one. American Journal of Agricultural Economics.

Cherry, T. L., Crocker, T. D., & Shogren, J. F. (2003). Rationality spillovers. Journal of Environmental Economics and Management.

Cherry, T. L., & Shogren, J. F. (2007). Rationality crossovers. Journal of Economic Psychology.

Parkhurst, G. M., & Shogren, J. F. (2005). Does complexity reduce coordination?. Applied Economics Letters.

 


Books

 

 

xperimental Methods: A Primer for Economists

Friedman & Sunder (1994) Experimental Methods - A Primer for Economists. CUP

 

To date, the most self-contained presentation of the methodology of laboratory experiments in economics.


 

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Guala (2005) The Methodology of Experimental Economics. CUP.

 

A practioner-oriented presentation of the philosophical challenges and debates about the use of experiments in economics.

 


 

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Plott & Smith (2008). Handbook of Experimental Economics Results. Elsevier.

 

A very detailed survey of experimental results – chapters are short and much specialized.


 

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Kagel & Roth (1995). Handbook of Experimental Economics. PUP, 1995.

 

In a sense, the opposite of the other handbook: a few (long) self-contained chapters on the most influential topics.

 


 

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Camerer (2003). Behavioral Game Theory: Experiments in Strategic

Interaction. PUP.

 

The first, and successful, attempt to systematically re-read game theory based on the lessons from the laboratory.

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Fontaine & Leonard (2005). The Experiment in the History of Economics. Routledge.

 

A fascinating history of the rise and progress of the use of laboratory experiments in economics.

 

 

 

 


Online ressources

 

·      Experimental measures of personality and preference parameters (maintained by the CRED, Columbia U).

·      Experimental economics laboratories (maintained by the LAMETA, Montpellier U).  

 


Topical surveys

 

    Auctions                         Lusk & Shogren, (2007). Experimental Auctions: Methods and Applications in Economic and Marketing Research Cambridge University Press.

Kagel (1995). Auctions: A Survey of Experimental Research, in Kagel, J. and Roth, A. (ed.) Handbook of Experimental Economics, Princeton University Press, pp 501-585.

Kagel, J. H., & Levin, D. (2008). Auctions: A survey of experimental research, 1995-2010. Handbook of experimental economics (vol. 2)

Prospect theory            Barberis (2013). Thirty Years of Prospect Theory in Economics: A Review and Assessment, JEP.

Incentives                       Gneezy, Meier,  & Rey-Biel  (2011). When and Why Incentives (Don't) Work to Modify Behavior. JEP.

Kamenica (2012). Behavioral Economics and Psychology of Incentives. Annual Review of Economics.

Experimental IO           Armstrong & Huck (2010). Behavioral economics as applied to firms : A primer. Competition Policy International.

 


Credits

 

This teaching material owes a lot to inputs from, and comments and discussions with, Roberto Galbiati, Jérôme Hergueux, Olivier L’Haridon, Karine Van Der Straeten, Stéphane Robin, Jason F. Shogren.