Experimental and behavioural economics
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30 Terms
Manipulating conditions to test cause-and-effect relationships.
Using lab experiments to test how different market systems work in practice.
Combining psychology with economics to understand decision-making.
The validity of results outside the laboratory setting in which they were obtained.
The validity of the design of the experiment itself.
The ability to replicate experimental results in different situations
A study design that randomly assigns participants into an experimental group or a control group.
Quick mental rules that simplify complex decisions.
Predictable errors from overusing mental shortcuts that don't match reality.
People weigh losses more heavily than equal gains - risk assessment isn't symmetric.
System 1: Fast choices based on heuristics
System 2: Slow choices based on rationality
Subtle design that guides behavior predictably while keeping all options open and easy to avoid.
People judge probability by how much A resembles B, rather than using statistical reasoning.
1. Insensitivity to prior probability outcomes (ignoring base rates).
2. Insensitivity to sample size.
3. Misconceptions about chance (gambler's fallacy).
4. Ignoring predictability when making forecasts.
5. Overconfidence from good pattern matches.
6. Not understanding regression to the mean
People judge frequency or probability by how easily examples come to mind.
1. Overestimating memorable events.
2. Misjudging frequency based on ease of recall.
3. Overestimating what's easy to imagine.
4. Seeing false correlations between strongly associated ideas
People start from an initial value (anchor) and don't adjust enough from it.
1. Staying too close to the starting point (insufficient adjustment).
2. Overestimating probability of multiple things all happening (conjunction).
3. Underestimating probability of at least one thing happening (disjunction).
4. Setting confidence intervals too narrow
Risk assessment (probabilities) are not symmetric. People violate axioms of expected utility.
Study behavior without intervention
Rational choice was the standard despite limitations → Kahneman & Tversky's prospect theory made psychology acceptable in economics → This opened the door for broader psychological insights in the field.
1.Dual-system thinking (fast/heuristic vs slow/rational).
2.Prospect theory (asymmetric risk assessment).
3.Framing effects and choice architecture.
4. Recognition of systematic biases.
5. Understanding predictable deviations from rational decision-making
Many experimental results cannot be reproduced, questioning the validity of findings.
The random assignment ensures treatment and control groups are comparable, isolating the effect of the intervention.
From focusing on nation-scale problems with no clear answers to smaller problems with definitive answers
Impact of large-scale, government-led unconditional cash transfer program on violent conflict events in Niger.
1. Lack of informed consent
2. Unequal treatment creating harm
3. "Bad money" rumors and social division
4. Extractive research
4. Indefinite participation
5. Interventions that harm
7. Limited scope
8. Poor generalizability
9. Implementation failures
10. Research saturation
11. Data manipulation
12. Colonial dynamics
13. Weak government exploitation
14. Participants as guinea pigs
Economic experiments isolate causal effects - something hard to do without controlled conditions.