Conclusion to Experimental Economics

Home | Introduction | Vernon Smith | Ernst Fehr | 15 Country Survey | Other Important Surveys | Conclusion | Works Cited

Experiments are a very important part to economics. Although game theory provides a good start because it predicts what could happen, it is the experimental part that determines if a theory actually works in the real world. It is the observational part of it all. Because of testing theories, economists have learned many things in the field.

Vernon Smith’s work tends to reinforce the more traditional analysis of the market process. Markets are viewed in a way that similar to that of Jenkin’s diagram. There is a major emphasis on mutually beneficial effects of exchange. In market competition, there tend to be large number agents and if they can be reduced, there is no power on one side. It is then that the exchanges between two people can be explained by perfect negotiating. The exchanges are not endogenous or constitutive to the exchange process but given exogenously. In contrast, Ernst Fehr tends to emphasize the behavioral aspects of the market. People have a sense of fairness which causes reciprocity in either a positive or a negative sense. He goes through many games such as the ultimatum game and points out how fairness and reciprocity play an important factor in the game.

The 15 Country Survey goes along with Fehr’s work. All the economists involved with the study had a problem with the assumption that most people are self-interested. They believed that, along with Fehr, that fairness and reciprocity were important. They also wanted to test if environments, age, sex, wealth, etc had an effect on their responses in the ultimatum game. The societies they studied ranged from a nomadiac society to one that based itself off of trading and a small market. Researchers concluded that the reason for this is that the behaviors in the situations cue emotional responses which induce the behaviors documented. For example, when facing a low offer in the ultimatum game, people from advanced societies might experience an emotional impulse to hurt the proposer for being unfair. Similarly, those in the underdeveloped societies might reject an offer deemed too much because of the anxiety of not being able to reciprocate the gift.

Other studies are also very important to this field. They show how the results of certain games are different in other environments with different institutions. It is important to have a wide knowledge of the numerous games so an experimenter can have a informed conclusion.