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BA EXPERIMENTAL ECONOMICS

Alexia Gaudeul
Georg-August-Universität
Göttingen
Summer 2016

EXPERIMENTAL ECONOMICS
A new old field in economics
 Early economists were happy to take account of
irrational behaviour among economic agents, and to test
their theories experimentally or on the field.
 Daniel Bernoulli and his resolution of the St Petersburg Paradox (risk
aversion)
 Adam Smith: “The theory of mental sentiments”, emphasizing sympathy for
others, vs. “The wealth of nations”, emphasizing self-interest.
 John Maynard Keynes and the “Animal Spirits” (confidence, expectations)

EXPERIMENTAL ECONOMICS
 This early openness was supplanted by neo-classical
economics.
 All behaviour must be maximizing some utility / profit
 People have rational preferences
 Equilibria takes account of all relevant information
 Little testing, mainly theory.

EXPERIMENTAL ECONOMICS
Resurgence in interest in the behavioural and
experimental approach
Integrating insights from psychology, neuroscience,
decision theory.
Limits in the ability of economic agent to process
information  Heuristics and biases that result.
Test with data from laboratory and field experiments.

EXPERIMENTAL ECONOMICS

TYPICAL EXPERIMENT IN ECONOMICS
• Incentivized
• Simplified (represent an
• Controlled (change one economic situation, not
reproduce
it)
thing at a time from a
baseline)
• Detailed instructions to
subjects
(avoid
• Most are computerized
and use student subjects misunderstandings)
• No deception

BA SEMINAR ON EXPERIMENTAL ECONOMICS
Seminar based on one book

“Markets, games and behaviour” by Charles A. Holt.
Holt is one of the foremost behavioural economists.
What does the book do?
 One of the very few rare resource for teaching experimental
economics to Bachelor students.
 Language is not complicated.
 Explanations are in depth.
 Data is stylized and simplified.
 Does not require much prior knowledge.

GOAL OF THE SEMINAR
Read together a number of selected chapters in Holt.
 One student or more per chapter (15 chapters total)
 Present and summarize one question or one article covered
in the chapter.
 E.g. in chapter 6 on Monopoly and Cournot markets could focus on:
 Differences between findings in Cournot and Bertrand markets
 Emergence of tacit collusion in Cournot markets
 Are theoretical Cournot predictions verified in experimental markets? Why or
why not?

CHOICE OF TOPIC
 Read the introduction paragraph for each chapter
 Choose a chapter that raises your interest
 Read that chapter
 Select a sentence or idea that you want to
investigate further
 Or select a reference mentioned in the chapter
and read that reference (article mainly)

CHAPTERS
1.
2.
3.

4.

How do people react to risk: 5.
Risk and decision making
(Chapter 4)
Can people play at
random? Randomized
6.
strategies (Chapter 5)
Monopoly and Cournot
7.
markets (Chapter 6)
Collusion and price
8.
competition (Chapter 9)

Market failures due to
unraveling: Lemons and
matching markets (Chapter
10)
Asset markets and price
bubbles (Chapter 11)
Ultimatum Bargaining
(Chapter 12)
Trust, Reciprocity and
Principal-Agent Games
(Chapter 13)

CHAPTERS
9.

Voluntary Contributions to 13.
Public Goods (Chapter 14)
10. Private Value Auctions
(Chapter 19)
14.
11. Common Value Auctions and
the Winner's Curse (Chapter
21)
15.
12. Probability Matching and
Belief Learning (Chapter
27)

Decision under Risk and
Lottery Choice Anomalies
(Chapter 28)
Do people learn and do
they follow Bayes’ Rule
(Chapter 30)
Can markets predict the
future? Prediction markets
(Chapter 34)

PRESENTATION
1/3 of the grade
20 mn presentation + 10 mn questions and discussion
What is the economic issue, how is it modelled?
 How are experiment in this field run?
 What are the findings from experiments?
 How do those findings compare with theory? With
reality? With other related experiments?

ESSAY (15 PAGES)
2/3 of the grade
The essay puts the presentation in writing
 Go over the same themes as the presentation, but:
 more detailed,
 well referenced,
 full sentences and
 clear explanations

“Whatever is well conceived is clearly said, and the words to say it flow with
ease.” (Boileau, 1674)

ESSAY (15 PAGES)
 Prove good understanding of the theory that was
tested,
 of the reasons for running the experiment,
 of how it was run,
 of what were its findings, and
 why they matter.

DATES
 21.04.2016: Limit date for final registration for the
seminar (FlexNow)
 Send me an ordered list of your chapter preferences before
21.04.2016.
 First come, first served!

 13.05.2016 to 27.05.2016: 2 hours per week of
presentations
 20.06.2016: Submit essays.