Economics in the Laboratory

doi:10.1017/CBO9780511819025.023

18 - Economics in the Laboratory

Published online by Cambridge University Press: 05 June 2012

Daniel M. Hausman

Vernon Smith

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Daniel M. Hausman: Affiliation:
University of Wisconsin, Madison

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Summary

Vernon Smith (1927–) received his Ph.D. in economics at Harvard. Although his more than two hundred books and articles address issues in many areas of economics, he is best known for his work on experimental economics, for which he received the Nobel Prize in 2002. After many years at the University of Arizona, Smith is now a professor of economics at George Mason University.

Why do economists conduct experiments? To answer that question, it is first necessary briefly to specify the ingredients of an experiment. Every laboratory experiment is defined by an environment, specifying the initial endowments, preferences and costs that motivate exchange. This environment is controlled using monetary rewards to induce the desired specific value/cost configuration (Smith, 1991, 6). An experiment also uses an institution defining the language (messages) of market communication (bids, offers, acceptances), the rules that govern the exchange of information, and the rules under which messages become binding contracts. This institution is defined by the experimental instructions which describe the messages and procedures of the market, which are most often computer controlled. Finally, there is the observed behavior of the participants in the experiments as a function of the environment and institution that constitute the controlled variables.

Using this framework of environment, institution, and behavior, I can think of at least seven prominent reasons in the literature as to why economists conduct experiments. Undoubtedly, there are more (Davis and Holt, 1992, Chapter 1 and passim).

Type: Chapter
Information: The Philosophy of Economics
An Anthology
, pp. 334 - 355

DOI: https://doi.org/10.1017/CBO9780511819025.023 [Opens in a new window]

Publisher: Cambridge University Press

Print publication year: 2007

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