| Abstract: |
What is the best compensation package to offer employees? How should choice
among investments in pension plans be structured? Should a government use
auctions to sell natural resources? Is it possible to design a market to
reduce non-point source pollution in Quebec’s watersheds? What holds people
back from trying technologies that are completely new to them?
<br>
Over
the last two decades a revolution has occurred in the advancement of our
ability to answer questions such as these. This revolution is called
experimental economics. Experimental economics is the use of a controlled
laboratory environment to understand decisions people make. In an economics
experiment, people make decisions in a laboratory. They are paid according to
the outcome of their decisions, and their decisions are analyzed to determine
the effect of an institutional or environmental change that is being
tested.<br>
Through the analysis of behaviour in controlled economics
experiments, much has been learned about behaviour when outcomes are
uncertain: for example, new notions about preferences toward risk and
consumption over time have been developed. Much has also been learned about
how people behave in strategic environments: for example, bidding behaviour in
auctions is better understood, and the strategies people use as they learn how
to trust each other have been observed.
<br>
The purpose of this report is
to describe the methodology of experimental economics and to detail its major
uses. We will focus on the ability to measure behaviours in a wide variety of
situations important to organizations. We will show, with examples from our
own work, how feedback between the laboratory and the field can result in new
understanding of decisions in an effort to affect the cycle of poverty in a
developing country in fundamentally new ways. <P>
What is the best
compensation package to offer employees? How should choice among investments
in pension plans be structured? Should a government use auctions to sell
natural resources? Is it possible to design a market to reduce non-point
source pollution in Quebec’s watersheds? What holds people back from trying
technologies that are completely new to them?
<br>
Over the last two
decades a revolution has occurred in the advancement of our ability to answer
questions such as these. This revolution is called experimental economics.
Experimental economics is the use of a controlled laboratory environment to
understand decisions people make. In an economics experiment, people make
decisions in a laboratory. They are paid according to the outcome of their
decisions, and their decisions are analyzed to determine the effect of an
institutional or environmental change that is being tested.<br>
Through the
analysis of behaviour in controlled economics experiments, much has been
learned about behaviour when outcomes are uncertain: for example, new notions
about preferences toward risk and consumption over time have been developed.
Much has also been learned about how people behave in strategic environments:
for example, bidding behaviour in auctions is better understood, and the
strategies people use as they learn how to trust each other have been
observed.
<br>
The purpose of this report is to describe the methodology of
experimental economics and to detail its major uses. We will focus on the
ability to measure behaviours in a wide variety of situations important to
organizations. We will show, with examples from our own work, how feedback
between the laboratory and the field can result in new understanding of
decisions in an effort to affect the cycle of poverty in a developing country
in fundamentally new ways. |