Behavioural Experiments in the Lab and in the Field

4.8 of The Economy 1.0 & The Economy #3

How have economists learned about people’s preferences?

Survey questions: Determine political preferences, brand loyalty, degree of trust, religious orientation… broad

Statistical studies of economic behaviour: How one buys goods when relative prices change, to see preferences for the goods in question. One such strategy is to reverse-engineer what the preferences must have been, seen by purchases. Called revealed preferences.

Why can surveys not be the most reliable?

-Asking if you like bread will lead to an honest answer

-Asking how altruistic are you is not going to lead to an honest answer.

How can experiments be made as realistic as possible yet still be controlled?

Decisions = consequences: How much money is earned, which can be as high as a month’s income

Instructions, incentives and rules = common to all subjects and common treatment. So any comparison between two groups means the only difference is the treatment itself.

Experiments = replicated: Can be implemented with other participants

Experiments try to control other possible explanations: Ceteris Paribus is kept in play, else it may affect the behaviour and thus mess up the experiment

What occurred when a fine was implemented in day-care centres for being late, and what does it say about incentives?

-When the fine was introduced, as the graph shows, the amount of late pickups doubled.

-Before the fine, parents came on time because it was the right moral thing to do. They cared for the staff in the day-care, didn’t want to annoy the staff, etc…

-The fine changed the situation then, to one of shopping. Lateness had a price, and thus could be purchased.

Why can this showcase incentives crowd out social preferences?

-Crowd out, here, concerns with the visible negative effect when economic incentives displace people’s ethical or other motivations. Thus, it impedes social preferences

-When a market incentive was placed on lateness, a new frame was made for the decision, placing self-interest, not concern for others, as acceptable.

-Even when the fine was removed, the habits barely changed