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Economic experiments involve real people who make serious choices. Through their efforts, participants stand to make substantial amounts of money. Experimental economists adhere to the following methodological guidelines:
· Invite participants to play economic games voluntarily.
· Guarantee show-up fee.
· Incentivize participants with real monetary payoffs.
· Do not use deception.
· Decisions are anonymous.
Experimental Economics has developed into one of the most productive and empirically relevant research fields in Economics since the mid-1990s. Experimental methods can be applied to analyze and validate theories in all fields of economics and beyond. The experimental method also lends itself to interdisciplinary work between economics and, among others, political scientists, psychologists, sociologists, biologists and mathematicians. When the Swedish Nobel Committee awarded the 2002 Nobel Memorial Prize in Economic Sciences to Vernon Smith, an economist at George Mason University, it simply affirmed what economists have long known: that experimental economics has arrived as a respected and powerful discipline within economics. The committee noted that the award was based on Smith’s “having established laboratory experiments as a tool in empirical economic analysis, especially in the study of alternative market mechanisms.
How to play? Students can participate using their own mobile device or laptop in class. We also have a behavioral economics laboratory to conduct experiments and pay subjects real money ($5 - $50 per hour).
What games? Economists collect decisions made by human beings in order to understand how and why markets and other exchange systems function as they do; how people cooperate, trust, lie, or punish; how institutions and the law establish and evolve. The experimental sessions conducted to collect decision data for research and education purposes are usually referred as games. Formally, economic games use cash to motivate subjects, in order to mimic real-world incentives. In the classroom, instructors can engage students with games by providing small incentives like mugs, chocolates and extra credits.
Why games? Learning is often passive in economics, with a vast difference between abstract theoretical models and the busy nature of everyday economic activity. I (and many other experimental economists) incorporate games into the curriculum. Doing so not only raises students' interest, but also helps to illustrate abstract (but powerful) concepts and principles.
Experimental economists bring notebooks or chocolates to “sell”, in order to construct a downward sloping demand curve. My favorite is to ask students to participate in both Chamberlin and double auction markets, which allows them to experience the magic of the invisible hand and compare institutions. Furthermore, conducting public goods game motivates the discussion of property rights and the role of government. Prisoner dilemma game explains why collusion is easy to establish but hard to maintain. Stag-hunt game teaches the students the tradeoff between high payoff and low risk.
Experimental economics was initially used by Nobel Prize laureate Vernon Smith for educational purposes. I believe that games of social science should see expanded use in the classroom. They help to focus students attention, motivate independent thinking, provide extra rewards for learning, and also build connections between students and instructors. These games increase the confidence of both students and their instructors in what is being taught and learned.
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