Experimental economics is a technique that applies experimental methods in economics. In this way, it seeks to propose new theories or contrast existing ones.
In other words, experimental economics consists of conducting laboratory experiments. This, with the aim of supporting or questioning economic theories.
This branch of economics is distinguished by not being based solely on the observation of the object of study (people's decisions), but by carrying out tests with them in controlled environments.
Characteristics of the experimental economy
Among the most important characteristics of experimental economics we can mention:
- Its main representative is Vernon Smith, who won the 2002 Nobel Prize. This, by developing a methodology that allows researchers to analyze the effects of an economic policy before implementing it. Thus, the idea is that governments can make better decisions.
- It represents a break with respect to the conception that only basic sciences such as biology or physics can apply the experimental method.
- It is a branch of the economy that has developed mainly in the last two decades.
- For the economist Ken Binmore, experiments applied to economics must follow certain criteria. These are, for example, that the decision problem is simple, that the respondent has a reasonable time to give an answer, among others.
Advantages of experimental economics
Among the advantages of experimental economics, the following stand out:
- It allows to empirically contrast if economic theories are fulfilled in reality.
- It is a method that gives the opportunity to analyze more closely the decisions of individuals.
- It allows to reproduce the assumptions and the operation of the economic models. Thus, it can be used, for example, to estimate the consumer demand function.
- The person or entity conducting the experiment can design a test that answers your specific questions. Based on this, you will define the test parameters. These are, for example, the options from which the respondent will have to choose, the environment where the decision will be made, the response time, among others.
- It allows a preliminary analysis of the effects of a public policy, for example, within a community. Thus, if the results are good, the measure can be extended to the entire country.
Disadvantages of experimental economics
However, experimental economics also has some disadvantages such as the following:
- The participants of the experiment can have a biased behavior, looking for a positive evaluation, and moving away from what would be a real situation. That is, the respondent may be making a decision just to appear smart or kind to the person conducting the survey, for example (This could be solved by ensuring the anonymity of the people consulted).
- Individuals change their behavior according to the context.Thus, it is difficult to replicate reality in an experiment because a decision may vary, for example, depending on the place where the purchase is made. In some stores, the consumer may be willing to pay more because they trust the quality of the products.
- The pollster can be constrained by his own biases, even unconsciously. In that case, you will interpret the results of the study based on preconceptions.
- As a social science, economics studies human behavior and this can be unpredictable in certain situations.
Experimental economics could be applied in public policy, as we mentioned earlier. For example, if a government wants to approve a new subsidy for public schools to improve their quality of education. Then, a pilot project is implemented in a specific location.
Subsequently, based on the results of the experiment, the authorities decide whether the program should be extended to the entire country. This would occur, for example, if the vast majority of study centers that access the subsidy manage to improve the performance of their students.Planned economy
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