Objectives

The course introduces experimental methods and some of the major research areas that have been studied with the help of laboratory and field experiments. Economic experiments tackle real-world economic problems in a laboratory or field settings, allowing testing the validity of economic theories, the rationality of decision-making, and new market mechanisms. Experiments are the main empirical tool for behavioral economics. Unlike the course of behavioral economics, which is mostly based on theories, this course will cover mostly empirical evidence, while theories will be used to motivate the experimental design or explain the empirical results.

Experimental methods allow to establish a causal relation between environment or conditions and the economic outcomes. For instance: Which is a better way to pay workers in the sales department of the firm selling insurances: fixed salary, percent of sales, or the combination of two? Experiment can give clear answer to this question, if designed properly. In this respect, experimental economics methodology has broad applicability outside of academic research. The key decision-makers, both in business and policy, ideally would rely on the evidence of the causal connection of the action/reform to the desired outcome.

Governments, firms, and non-profit organizations regularly use experimental designs to evaluate the success of specific programs, to test the efficiency of policy interventions, or to gain knowledge about drivers of the behavior of employees, clients, and citizens. Lately, several governments and large companies have set up own groups devoted to behavioral and experimental research (e.g. Behavioural Insights Team in the UK). Of course, experimental methods are also an integral part of academic research. They are employed in basic research on individuals’ behavior, but also more and more in applied research, e.g., on how to tackle climate change or which mechanisms to use to allocate students to schools.

Although it is straightforward to understand how experiments can establish causal links, in practice experimental design is a challenging task. This course provides an overview of experimental methods and main experimental findings in a variety of business and economics topics. Course will have minimum methodological theory, but rather case-by-case learning approach through the variety of experimental designs. Students are introduced to experimental methodology through lectures, critical reading, presenting related research papers and eventually designing and (optionally) implementing their own economic experiment. Two lectures will be devoted to practical work, helping students develop an idea and basic design for an experimental project.

The main goal of the course is to introduce experimental methods, as well as the main results of experimental research of past two decades.

Contents

The course is divided into three parts and will be taught by Rustamdjan Hakimov (RH) and Renke Schmacker (RS).

During the first two weeks (24.09.21 & 01.10.21), RH will cover the main features of experimental methods and a variety of individual decision-making experiments. The students will be familiarized with how the experiments are conducted and designed, which concerns the experimenter typically faces. Individual decision-making experiments cover experimental research concerning risk preferences, belief updating, and decision heuristics. During these classes, students are expected to attend the lectures and actively participate in the discussions.

In the second part, which will last for ten weeks, RH and RS will present the variety of topics of experimental research in the first 90-120 minutes of the lectures, while the rest will be reserved for students’ presentations of pre-selected papers on the respective topic and the discussion of the papers. The list of papers with the dates of presentations will be available in the first lecture. The topics will include:

1. Reference dependence and endowment effects (RH, 08.10.21)
2. Gender differences, discrimination and sorting on labor markets (RH, 15.10.21)
3. Moral decision making, unethical and lying behavior (RH, 22.10.21)
4. Other regarding preferences and image concerns (RS, 29.10.21)
5. Coordination and norms: Applications to environmental topics (RS, 05.11.21)
6. Market design experiments (RH, 12.11.21)
7. Guidance regarding own projects (RH/RS, 19.11.21)
8. Bounded rationality and limited attention (RS, 26.11.21)
9. Self-control, paternalism and nudging (RS, 03.12.21)
10. Behavioral finance and motivated beliefs (RS, 10.12.21)

In the last two weeks of the course (17.12.21 & 24.12.21), students will present a research project that they develop over the course of the semester. Given that the last lecture is scheduled for Christmas Eve, all presentations will occur on zoom, and the schedule will be determined during the course.

References

There is no single textbook that we are going to rely on. Rather, we will use selected chapters from different textbooks as well as relevant research articles. We will discuss several articles in depth, and we expect students to carefully read these articles in advance and to prepare for the sessions. All material will be made available on the course website.

The following books might can help get an overview of experimental methods:

• Bardsley, N., Cubitt, R., Loomes, G., Moffatt, P., Starmer, C., & Sugden, R. (2010). Experimental Economics: Rethinking the Rules. Princeton University Press.

• Kagel, J. H. & Roth, A. E. (2017). The Handbook of Experimental Economics. Princeton University Press.

Pre-requisites

Prior knowledge of game theory, basic statistics, and econometrics. Most importantly, however, students should simply be interested in experimental research.

Evaluation

First attempt

Exam:

Without exam (cf. terms)  

Evaluation:

There is no written exam for this course. The final grade is composed of three parts:

• Presentation of an experimental research article (30% of the final grade): During the course of the semester students have to choose an experimental research article and present the experiment and its results in class. Students will be provided with a list of papers that they can choose from at the beginning of the semester.
• Presentation of own experimental research project (20% of the final grade): Students have to develop a proposal for an experimental research project during the course of the semester. In the last two weeks of the semester, students will present their project in front of the class in order to get feedback.
• Written report on experimental research project (50% of the final grade): In addition to the presentation, students have to hand in a written report on the research project by mid-January. Research projects can be done in pairs.

Retake

Exam:

Without exam (cf. terms)  

Evaluation:

If a retake is necessary, students have to rewrite the report on the research project.