Final Exam - Experimental Economics

Agent-based modeling / A computational method that simulates the actions and interactions of individual "agents" (such as people, firms, or organizations) to study how their behavior creates larger system-level outcomes.

Altruism / People value improving the well-being of others.

Anticipatory avoidance / When individuals change their behavior to avoid a future negative outcome they expect may happen (for example, avoiding medical testing because they fear bad news, or avoiding a task because they expect failure).

Aspiration learning / A decision-making process where individuals adjust their choices based on whether past outcomes meet their aspiration level. If outcomes fall below expectations, they may change strategies; if outcomes meet expectations, they may stick with current behavior.

Between-subject design / Each person experiences one treatment; compare across randomized groups. Cleaner identification, avoids carryover and demand effects, but lower statistical power.

Bounded rationality / The idea that people make decisions with limited information, time, and cognitive ability, so they often settle for "good enough" choices rather than perfectly optimal ones.

Causal inference / The process of determining whether one variable directly causes changes in another variable, rather than simply being correlated with it. Often done through experiments or statistical methods.

Challenge gift / A donation offered to a fundraising campaign on the condition that others also contribute (e.g., "A donor will give $10,000 if the organization raises another $10,000").

Competitive equilibrium / A market outcome where supply equals demand and prices adjust so that buyers and sellers maximize their objectives with no excess surplus or shortage.

Computational experiment / A simulation-based experiment where researchers use computer models to test how systems or agents behave under different assumptions or scenarios.

Confound / A factor that interferes with an experiment, making it unclear what actually caused the observed result.

Control condition / In an experiment, the baseline group that does not receive the treatment being tested, used for comparison.

Crowding out / When one type of economic activity reduces another. Common examples: government spending reducing private investment, or external incentives reducing intrinsic motivation.

Day-of-week effects / Patterns where behavior or outcomes systematically vary depending on the day of the week (e.g., stock returns, consumer purchases, or charitable donations differing on weekends vs. weekdays).

Deferred acceptance / A matching algorithm in which participants rank preferences and tentative matches are made until a stable final match is reached.

Design parallelism / In experimental design, creating multiple treatments that differ in only one key factor so researchers can isolate the effect of that specific variable while keeping the overall structure comparable.

External validity / How well the results of an experiment generalize beyond the experiment itself.

Field experiment / An experiment conducted in a real-world setting rather than a lab, where participants often do not know they are part of a study, allowing researchers to observe natural behavior.

Free-rider problem / When individuals benefit from a public good or shared resource without contributing to its cost, relying on others to pay or participate.

Homegrown preferences / Preferences that participants bring with them into an experiment from real life (e.g., personal values, habits, biases), rather than preferences created by the experiment itself.

Hot state / cold state / A concept describing how people make different decisions depending on their emotional state. A hot state involves strong emotions, stress, or impulses; a cold state involves calm, rational thinking.

Identification / The ability to isolate and measure a true causal relationship between variables.

Image motivation / When people act in ways that improve how others perceive them (example: donating publicly to appear generous).

Impure altruism / Giving or helping behavior motivated partly by concern for others and partly by personal benefits such as feeling good ("warm glow").

Independent variable / The variable that researchers manipulate or change in an experiment to test its effect on another variable.

Induced value / In experimental economics, researchers assign participants specific values or incentives to create controlled preferences within the experiment.

Internal validity / How confident we are that the treatment caused the observed effect.

Intrinsic motivation / Doing an activity because it is personally rewarding or enjoyable, rather than because of external rewards or pressures.

Learning effects / Changes in participants' behavior over time as they gain experience or become more familiar with a task or experiment.

Level-k reasoning / A model of strategic thinking where people make decisions based on assumptions about how many "steps ahead" others are thinking. Level-0 acts simply, level-1 responds to level-0, and so on.

Matching gift / A donation where one donor agrees to match contributions made by others, often dollar-for-dollar.

Matching market / A market where participants are matched with one another based on preferences rather than prices, such as students to schools or doctors to hospitals.

Mechanism / The rules or process that determine outcomes in a system, market, or experiment (such as an auction format or matching algorithm).

Minimal group paradigm / A social psychology framework showing that people can show favoritism toward their own group even when group assignments are arbitrary.

Nash equilibrium / A situation in game theory where no player can improve their outcome by changing their strategy alone, assuming other players keep their strategies unchanged.

Order effects / When the sequence in which conditions or stimuli are presented changes the measured response.

Pay-all / A payment method providing stronger incentives but with wealth effects across rounds.

Pay-one / A payment method that limits hedging but assumes expected utility reasoning.

Piece-rate compensation / A payment structure where individuals are paid based on how much they individually produce or complete.

Public goods / Goods that are non-rival (one person's use doesn't reduce others' ability to use them) and non-excludable (people can't easily be prevented from using them), such as national defense or clean air.

Psychological ownership / The feeling that something is "mine" even without legal ownership, which can influence behavior, attachment, and decision-making.

Random assignment / A method that balances observed characteristics and unobservables in expectation across treatment and control groups.

Real-effort task / An experimental task that requires participants to perform actual work or exert genuine effort (such as solving puzzles or data entry) rather than making purely hypothetical choices.

Reciprocity / Responding to another person's actions with similar behavior—rewarding kindness with kindness (positive reciprocity) or responding to harm with punishment (negative reciprocity).

Reinforcement learning / A learning process where individuals or agents adjust behavior based on past rewards and punishments, repeating actions that led to good outcomes and avoiding actions that led to bad outcomes.

Selection bias / When who ends up in the treated group differs systematically from those in the control group.

Agent-Based Models / Computational Simulations / They show how large economic patterns (like prices, markets, or inequality) can emerge from many small individual actions and interactions.

Bilateral Bargaining with a Shrinking Pie / Two parties negotiate over how to divide a benefit, but the total size of that benefit decreases over time, creating pressure to reach agreement quickly.

Dictator Game / An experiment studying generosity vs. self-interest in which the recipient is powerless. Giving can only be explained by social preferences, norms, image, and guilt.

Double-Sided Oral / Double Auction Market / A laboratory market designed to test price discovery, where buyers and sellers openly call out bids and asks.

Field Experiments / Studies where researchers test behavior or policies in real-world settings rather than a lab.

Gift-Exchange Game / An experiment where one person (the "employer") offers a wage or reward, and the other (the "worker") chooses how hard to work in return.

Keynesian Beauty Contest / 2/3 Guessing Game / A game where people try to guess a number (usually 0–100), and the winner is the person whose guess is closest to two-thirds of the average of all guesses.

Matching Markets / Markets where people or things are paired together based on preferences on both sides, rather than just price.

Minimal Group Paradigm / A social science experiment where people are randomly split into groups based on trivial or meaningless criteria to study in-group favoritism.

Niederle-Vesterlund Competition Paradigm / An experiment that studies how willing people are to enter competitive situations instead of non-competitive ones, even when their performance is similar.

Piece-Rate vs. Tournament Environments / In piece-rate environments, people are paid based on individual output. In tournament environments, people are paid based on performance relative to others (e.g., only the top performer gets a bonus).

Prisoner's Dilemma / A game where two parties choose an option that is individually rational but leads to a worse collective outcome than if they had cooperated.

Real-Effort Tasks / Experimental tasks where participants perform simple but actual work-like activities (such as solving puzzles, counting, or sorting items) to earn money or rewards.

Residency Matching / A system used to pair medical school graduates with hospital residency programs based on the preferences of both students and hospitals.

Stated-Effort Tasks / Experimental tasks where participants report or claim how much effort they put in, rather than researchers directly observing or measuring the effort.

Strategy Method / An experimental technique where participants state what they would do in every possible situation before knowing which situation will actually occur.

Trust Game / An experiment studying reciprocity and beliefs about trustworthiness (and strategic response).

Ultimatum Game / An experiment where strategic incentives matter (fear of rejection). Giving can be explained by social preferences and/or fear of rejection.

Voluntary Contribution Mechanism (VCM) / An experiment where individuals choose how much of their own resources to contribute to a shared public good.

Volunteer's Dilemma / A situation where multiple individuals must decide whether to volunteer to provide a public good that benefits everyone, or to free-ride on others.