Experimental economics

Question 1

What is a key advantage of lab experiments?

Answer 1

A key advantage of lab experiments is that the experimenter can carefully control for all the relevant factors.

Question 2

What can an experimenter control about subjects that’s difficult by other methods?

Answer 2

During a lab experiment, an experimenter can control the available information, choice sets and all possible payoffs of subjects, which would be extremely difficult to do using other methods.

Question 3

What can experiments be designed to match?

Answer 3

Experiments can be carefully designed in order to match the assumptions of the theory of the experimenter.

Question 4

What can experiments control for?

Answer 4

Experiments can also control for outside factors in order to provide a clear reading of the results.

Question 5

What is internal validity?

Answer 5

Internal validity is defined as the ability to make clear conclusions from the results, including establishing and spotting causation

Question 6

What is external validity and its link to lab experiment disadvantages?

Answer 6

External validity is the ability of the results and conclusions of experiments to hold up against real world factors outside the lab.

Question 7

What are some specific problems that may occur in lab experiments?

Answer 7

• The situations are often abstract and simplified
• The subjects are often students
• There are often low incentives to behave optimally.

Question 8

Due to problems with lab experiments, what are two alternative types?

Answer 8

• Field experiments

- Natural experiments

Question 9

What are natural experiments?

Answer 9

A natural experiment is when controlled test conditions occur naturally, and allow a researcher to test a hypothesis, such as and exogenous event or a change of policy

Question 10

What are field experiments?

Answer 10

Field experiments are when researchers design experiments to allow subjects to undertake tasks within the test in their natural real-world environment.

Question 11

What are the real world results of ultimatum games?

Answer 11

In real-world applications of the ultimatum game, subjects reject offers of 20% of less about half the time, and the median m offer is 40-50%.

Question 12

What are three explanations for the real-world results?

Answer 12

• Poor experimental design
• Subject risk aversion or fear of rejection may explain high offers
• The results are actually genuine, and it is the theory that is flawed.

Question 13

Why can fairness explain some of the results?

Answer 13

Fairness explains some of the results by default as risk aversion cannot fully explain the results.

Question 14

What are three criticisms of experimental design?

Answer 14

• Subjects have no time to learn from experience like they would in a real life situation
• Subjects didn’t have sufficient incentives to play the predicted strategies.
• The subjects themselves weren’t anonymous to each other so this dynamic situation must be considered.

Question 15

What kind of understanding can give further clues to the importance of fairness?

Answer 15

An understanding of how results vary by gender, race, culture and other characteristics may allow us to understand how fairness may be important.