Week 5

  1. Key terms:

  • Experiment: A controlled study to test hypotheses about economic behavior.

  • Trial: A single play or decision in an experiment.

  • Period/Round: A set of related trials, often repeated.

  • Session: The full run of an experiment with a group of subjects.

  • Block/Treatment: Different experimental conditions tested.

  • Experimental design: The overall structure and procedures of the experiment.

  • Environment: The economic context and parameters being studied.

  • Institution: The rules and mechanisms governing interactions.

  • Behavior: The observed choices and actions of subjects.

  1. Important considerations:

  • Motivation: Ensuring subjects are properly incentivized.

  • Unbiasedness: Avoiding influencing subject behavior.

  • Calibration: Aligning payoffs to induce desired incentives.

  • Design Parallelism: Making the lab environment analogous to the real world.

  • Subjects: Recruiting appropriate participants.

  • Instructions: Clearly explaining procedures to subjects.

  • Laboratory Facilities: Having proper equipment and setup.

  1. Induced-Value Theory: The idea that proper monetary incentives can induce specific preferences in subjects for the purpose of the experiment.

  2. Money as Reward Medium: Using real monetary payoffs helps ensure subjects are properly motivated and behave as they would in real economic situations.

  3. Auction: A market mechanism where items are sold to the highest bidder.

  4. Types of auctions:

  • English (ascending bid)

  • Dutch (descending bid)

  • First-price sealed bid

  • Second-price sealed bid (Vickrey)

  1. Private value auctions: Where each bidder knows their own valuation but not others'.

  2. Common value auctions: Where the item has the same value to all bidders, but that value is uncertain.

  3. Sealed bid auctions: Where all bids are submitted simultaneously.

  4. Open auctions: Where bids are made sequentially and publicly.

  5. Choice experiments: Subjects choose between alternatives with different attributes.

  6. Attributes and levels: The characteristics of alternatives that are varied systematically.

  7. Designing a choice experiment survey:

  • Identify attributes and levels

  • Create choice sets using experimental design

  • Develop survey instrument and instructions

  • Pilot test and refine

  • Implement full survey

  • Analyze results using discrete choice models