Applied Economics & Statistics B: Topic 3 - Experimental Economics

Question 1

Describe experimental economics

Answer 1

Recreate situations and test theories on:
– Describe the rational decision-making of different
individuals.
– Predict individuals’ behaviour in the real world.
– It is a complement to traditional applied economics.
– It is interdisciplinary.
– It (would like to) relaxes the strict assumptions of
traditional economics

Question 2

Elaborate on where data for empirical work can be drawn from

Answer 2

– Experimental data – deliberately created for
scientific or other purposes under controlled
conditions;
– Observational data – product of ongoing
uncontrolled processes

Question 3

Elaborate on types of experiments in economics

Answer 3

• Natural experiments: using data from events
  that take place naturally. For example, wars.
• Lab experiments: experimental economics sets
  up a dedicated lab experiment.
  – Laboratory data: gathered in an artificial, lab
  environment designed for scientific or other
  purposes
• Field experiments
  – Problem: we cannot assume ceteris paribus.
  Might not be able to infer the causal
  relationships between variables.
  – Development economists have used field
  experiments to measure the effectiveness of
  poverty and health programs in developing
  countries.
  – Applied in many fields, e.g., public
  economics, labor economics, etc