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978-1-107-06027-2 — Experimental Economics
Nicolas Jacquemet , Olivier L'Haridon
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ExperimentalEconomics
MethodandApplications
Over the past two decades, experimental economics has moved from a fringe activity
to become a standard tool for empirical research. With experimental economics now
regarded as part of the basic tool-kit for applied economics, this book demonstrates
how controlled experiments can be useful in providing evidence relevant to economic
research.ProfessorsJacquemetandL’Haridontakethestandardmodelinappliedecono-
metrics as a basis for the methodology of controlled experiments. Methodological
discussionsareillustratedwithstandardexperimentalresults.Thisbookprovidesfuture
experimentalpractitionerswiththemeanstoconstructexperimentsthatfittheirresearch
question,andnewcomerswithanunderstandingofthestrengthsandweaknessesofcon-
trolledexperiments.Graduatestudentsandacademicresearchersworkinginthefieldof
experimentaleconomicswillbeabletolearnhowtoundertake,understandandcriticise
empiricalresearch basedon labexperiments, and refertospecific experiments, results
ordesignscompletedwithcasestudyapplications.
NicolasJacquemetisafullprofessoratUniversityParis-1PanthèonSorbonneandthe
Paris School of Economics. His research combines experimental methods and econo-
metricstostudydiscrimination,theeffectofpersonalitytraitsoneconomicbehaviour,
theroleofsocialpre-involvementinstrategicbehaviourandexperimentalgametheory.
His research has been published in Econometrica, Management Science, Games and
EconomicBehavior,JournalofEnvironmentalEconomicsandManagement,Journalof
HealthEconomicsandJournalofEconomicPsychology.
Olivier L’Haridon is a full professor at the University of Rennes 1. His research com-
bines experimental methods and decision theory, applied in the study of individual
decision-making as affected by uncertainty. His work has been published in Ameri-
can Economic Review, Management Science, Journal of Risk and Uncertainty, Theory
and Decision, Experimental Economics, Journal of Health Economics and Journal of
EconomicPsychology.
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Cambridge University Press
978-1-107-06027-2 — Experimental Economics
Nicolas Jacquemet , Olivier L'Haridon
Frontmatter
More Information
© in this web service Cambridge University Press www.cambridge.org
Cambridge University Press
978-1-107-06027-2 — Experimental Economics
Nicolas Jacquemet , Olivier L'Haridon
Frontmatter
More Information
Experimental Economics
Method and Applications
NICOLAS JACQUEMET
UniversityParis1Panthèon-SorbonneandParisSchoolofEconomics,France
OLIVIER L’HARIDON
UniversitédeRennesI,France
© in this web service Cambridge University Press www.cambridge.org
Cambridge University Press
978-1-107-06027-2 — Experimental Economics
Nicolas Jacquemet , Olivier L'Haridon
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Cambridge University Press
978-1-107-06027-2 — Experimental Economics
Nicolas Jacquemet , Olivier L'Haridon
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Contents
ListofFigures pageviii
ListofTables x
ListofIllustrations xii
ListofFocuses xiv
AbbreviationsandSymbols xvi
Preface xxi
PartI WhatIsIt?AnIntroductiontoExperimentalEconomics 1
1 TheEmergenceofExperimentsinEconomics 3
1.1 TheEndofaLong-StandingRegretfulImpossibility 4
1.2 WhySuchaChange:TwoEarlyExamples 6
1.3 TheResearchProgramme:ThreeExamples 12
1.4 ExperimentalEconomicsToday:WhatEveryNewcomerMustKnow 22
2 ALaboratoryExperiment:Overview 26
2.1 TheExperiment 27
2.2 TheExperimenter’sRole:TheGameunderStudy 34
2.3 ExperimentalSecond-PriceAuctionwithPrivateValues 38
2.4 CaseStudy:ExperimentallyDesignedDevicestoReduceHypothetical
Bias 41
PartII Why?TheNeedforExperimentsinEconomics 49
3 TheNeedforControlledExperimentsinEmpiricalEconomics 51
3.1 TheEconometricApproachtoDataAnalysis 52
3.2 EstimatingCausalEffectsofTreatments 59
3.3 IdentificationBasedonObservationalData 68
3.4 InferenceBasedonControlledExperiments 72
3.5 From the Laboratory to the Field: An Overview of Controlled
ExperimentsinEconomics 83
4 TheNeedforExperimentalMethodsinEconomicScience 88
4.1 WhatLaboratoryExperimentsAimFor 88
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Nicolas Jacquemet , Olivier L'Haridon
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vi Contents
4.2 Experiments,TheoryandReality:HowExperimentsAchieveTheir
Goals 90
4.3 CaseStudy.DeepeningUnderstandingthroughAdditionalControlsand
Measures:TheDictatorGame 95
4.4 HowExperimentsInteractwithTheory:TestingModels 103
4.5 HowExperimentsInteractwithReality:SearchingforFacts 110
PartIII How?LaboratoryExperimentsinPractice 117
5 DesigninganExperiment:Internal-ValidityIssues 119
5.1 WhatIsanExperiment?HowIsItLinkedtoInternalValidity? 119
5.2 TheIncentiveStructureofExperiments 132
5.3 ParametersandExperimentalTreatments 147
5.4 ThePerceivedExperiment 159
5.5 PerceivedOpponentsandLearning 166
5.6 CaseStudy:ElicitingBeliefs 170
6 ConductinganExperiment 191
6.1 ALong,LongTimeBeforehand:SettingUpanExperimentalLaboratory 191
6.2 TwoMonthsBefore:TheBasics 195
6.3 OneMonthBefore:TheFinalSettings 204
6.4 OneWeekBefore:AlmostThere 206
6.5 D-Day:Step-by-StepProceedings 207
6.6 CaseStudy:MeasuringPreferencesinChoiceoverTime 208
7 TheEconometricsofExperimentalData 229
7.1 ExperimentalData 230
7.2 EstimationandInference 243
7.3 TestingProcedures 256
7.4 CaseStudy:ElicitingPreferencesunderRisk 289
PartIV WhatFor?WhatLaboratoryExperimentsTellUs 321
8 TheExternalValidityofExperimentalResults 323
8.1 WhenandHowDoesExternalValidityMatter? 324
8.2 IsExternalValidityTestable? 336
8.3 TestingExternalValidity 339
8.4 CaseStudy:Replication:EnhancedCredibilityThankstoAccumulated
Evidence 352
9 MoreAccurateTheoryandBetterPublicPolicies:theContributionsof
ExperimentalEconomics 361
9.1 TestingTheory:DrawingGeneralLessonsfrom(Causal)Experimental
Evidence 362
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978-1-107-06027-2 — Experimental Economics
Nicolas Jacquemet , Olivier L'Haridon
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Contents vii
9.2 Casestudy:RationalBehaviour,IrrationalThinking:K-levelModels 369
9.3 Test-Bedding Public Policies in the Laboratory: The Example of
MatchingMarkets 380
9.4 WhisperingintheEarofPrinces:BehaviouralPublicPolicy 385
References 398
Index 431
IndexofAuthors 441
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978-1-107-06027-2 — Experimental Economics
Nicolas Jacquemet , Olivier L'Haridon
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Figures
1.1 Trendsinacademicpublishinginexperimentaleconomics page5
1.2 MarketequilibriumintheChamberlin(1948)experiment 7
1.3 ObservedbehaviourintheChamberlin(1948)experiment 8
1.4 PredictedandobservedbehaviourintheSmith(1962)replication 9
1.5 Tableofpayoffsinanon-cooperativegame 13
1.6 Empiricalbehaviourinprisoners’dilemmagames 15
1.7 Asimplefour-movessequentialgame 16
1.8 Asix-movescentipedegame 16
1.9 Payoffmatricesoftwozero-sumgames 18
1.10 Empiricalvaluefunctions 20
1.11 Theactualuseofinformation:informedplayers’behaviour 21
2.1 Consentform 28
2.2 Firstscreen:resalevalueinthefirstround 32
2.3 Secondscreen:bidinthefirstroundofplay 32
2.4 Thirdscreen:resultsofthefirstround 33
2.5 Thesixthroundoftheexperiment:screencaptures 34
3.1 Thechallengeofdataanalysis 54
3.2 Theeconometricapproachtodataanalysis 56
3.3 Incentiveeffectsoftournaments 81
3.4 Dispersionofeffortsintournaments 82
4.1 Meta-analysisresults:thedictatorgame 97
4.2 Theeffectofsocialdistanceondictators’decisions 98
4.3 Offersinthedictatorgamewithearnedmoney 100
4.4 Donationsfromdictatorswhoearnedtheirposition 101
4.5 Generousdecisionsbydictatorsaretakenslowly 103
4.6 Cooperationinrepeatedgameswithdifferentterminationrules 108
4.7 Reciprocityinthefield 114
5.1 EmpiricalfreeridinginVCMgames 129
5.2 Atypicaldisplayforanexperimentalquadraticscoringrule 176
5.3 Atypicaldisplayforelicitingmatchingprobabilities 183
6.1 Typicalimplementationofanexperimentallab 192
6.2 Anexperimentallab:whatitlookslike 194
6.3 Abasicexperimentalalgorithmbasedonthedictatorgame 198
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Nicolas Jacquemet , Olivier L'Haridon
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ListofFigures ix
6.4 Atypicalexperimentalsession 206
6.5 Anexampleofatimetrade-offcurve 228
7.1 Visualrepresentationsofdata 234
7.2 Boxplotsfordifferentdistributions 235
7.3 Normalprobabilityplots 236
7.4 Ascatterplot 237
7.5 Anscombe’squartet 239
7.6 Transformationfunctionsandnormality 243
7.7 Anillustrationofthecentrallimittheorem 246
7.8 Confidenceintervalsonsamplesfromapopulationwithparameterθ 249
7.9 Criticalvaluesforcommondistributions:normal,tandχ2 250
7.10 Criticalvaluesandrejectionregions 259
7.11 Hypothesistesting 260
7.12 Powerunderdifferentalternativehypotheses 262
7.13 ThebracketingprocedureusedinL’HaridonandVieider(2015) 296
7.14 TheBinswanger(1980)methodinCarpenterandCadernas(2013) 298
7.15 Trade-offsequencesandelicitedutilityunderriskanduncertainty 307
8.1 Theidentificationofheterogeneoustreatmenteffects 332
8.2 Manyveryheterogeneoustreatmenteffects 333
8.3 Socialpreferenceswhenthemonetarystakesare(very)high 343
8.4 Other-regardingbehaviourinnon-WEIRDpopulations 349
9.1 ThechosennumbersintheNagel(1995)guessinggames 371
9.2 Thedistributionofbehaviourovertimeintheguessinggame 373
9.3 EarlymatchesintheKagelandRoth(2000)experiment 384
9.4 MatchesbyproductivitytypeintheKagelandRoth(2000)experiment 384
9.5 401(k)participationbytenureinCompanyAinChoietal.(2004) 390
9.6 Individualwelfareoptimaandconsistentarbitrariness 394
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978-1-107-06027-2 — Experimental Economics
Nicolas Jacquemet , Olivier L'Haridon
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Tables
1.1 ThechoicesequenceoftheAllaisparadox page10
1.2 Observedcontinuationdecisionsincentipedegames 17
1.3 Theoreticalpredictionsinthenon-revealingandfullyrevealinggames 19
2.1 Empiricalrevelationpropertiesofasecond-priceauction 39
3.1 Individuals,treatmentsandobservations 63
4.1 Giftexchangeinthefield:donationpatterns 114
5.1 Voluntarycontributionswithoutaltruism 132
5.2 Smith(1982)precepts:threeincentive-compatibilitycriteria 133
5.3 Outcome-basedsocialpreferencesintheprisoners’dilemmagame 144
5.4 Multipletreatmentvariables:a2×2factorialdesign 158
5.5 Aquadraticscoringrule 175
5.6 Examplesofbinaryscoringrules 176
5.7 Theconstant-sumgameinNyarkoandSchotter(2002) 188
6.1 ExampleofbinarychoicesusedbyTanakaetal.(2010) 209
6.2 ThepricelistinCollerandWilliams(1999) 216
6.3 ThetreatmentsinCollerandWilliams 217
6.4 Fourprocedurestoelicitindifferenceinchoiceovertime 218
6.5 Theconvextime-budgetmethod 224
6.6 Thechoicelistinthedirect-methodelicitation 226
7.1 Anexampleofexperimentaldatabasedonsecond-priceauctions 230
7.2 Descriptivestatistics 238
7.3 CorrelationmeasuresandtheAnscombequartet 240
7.4 Truedata-generatingprocessanddecisions 258
7.5 Frequentlyusedstatisticaltests 266
7.6 TheANOVAdecomposition 280
7.7 A2×2tableforindependentsamples 285
7.8 A2×2tableforpairedsamples 289
7.9 Elicitationmethods 291
7.10 Anexampleofthebisectionprocedure 295
7.11 ThebracketingprocedureinTverskyandKahneman(1992) 295
7.12 ThepayoffsandriskclassificationinBinswanger(1980) 297
7.13 ThepayoffsandriskclassificationinEckelandGrossman(2008) 297
7.14 Thetenpairedlottery-choicedecisionsinHoltandLaury(2002) 299
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