Experimental Economics

Techniques of experimental economics allow the scrutiny of decisions already made or which might be made by individuals in various particular environments.

The game as an experiment: analysis in a controlled environment

A laboratory economics experiment takes the form of a game in which the participants make decisions, interact and receive information. The rules of the game are designed to reproduce a situation of economic interest: for example, an employment relationship, a market, or a procedure for the awarding of public service contracts. The rules are known to all the players and each player is remunerated for her participation in the experiment according to the decisions made: in a market experiment, a participant acting as a vendor will reap more money when his selling price is high, but only on condition that he finds a buyer prepared to purchase the good at that price.

What results?

The experimental economics approach enables observation of the behaviour and effective results of individuals’ interactions in an environment in which the analyst has control over all its dimensions. This total control of the environment guarantees that the observed changes in behaviour between different environments constitute a causal effect and not a simple correlation. It is thus a powerful empirical analysis tool for situations in which observation is problematic, for example, where the behaviour of interest is not observed (in illegal activities or in the workplace) or simply because certain environments whose effects ought to be observed have not yet been put into practice. The main limitation of this analysis method is the difficulty in generalising the results obtained in the laboratory to the whole population.

Researchers at IPP conduct experimental economic studies in the LEEP laboratories.