16 - Experimental Economics (Reply to R. Heiner)

Summary

More than in any particular method of inquiry, I think the hallmark of science is to be found in a constructively skeptical attitude toward knowledge. The more fundamental are the concepts and assumptions of a science, the easier it is to take them for granted and to abandon this skepticism. In this spirit, Ronald Heiner (1985) is correct in emphasizing that the “knowledge” obtained from the study of the performance of experimental markets is only as secure as the classical preference model used to induce prespecified value structures on the agents in such markets. If the purpose of an experiment is to test a theory (for example, supply and demand), and the theory is not “falsified” by the test, this in no way supports any premise of the theory which was also a premise of the experimental design. When we falsify a theory, the implication is that one or more of its assumptions about the behavior of economic agents (maximization of expected utility, commonly shared (homogeneous) expectations, risk aversion, zero subjective costs of transacting, etc.) is in question, and the immediate task is to modify the suspected behavioral assumptions of the original theory. Other assumptions—such as that agents have well-defined preferences, or know the probability distribution from which other agent values were drawn—are not brought into question by the experiment because the experimental design reproduced (or should have) the environment posited by the theory being tested.