Kurs "Experimental and Behavioral Economics"

Prof. Dr. Armin Falk

Kursnummer: T009 (4 Punkte)

Zielpublikum: Hauptstudium und Graduiertenprogramm

Course Description:
The Nobel Prizes for Dan Kahneman and Vernon Smith have underlined the increasing importance of both experimental and behavioral economics. Experimental economics is a tool to collect data in a highly controlled environment. Experiments have been performed in many economic fields like industrial economics, choice theory, contract theory or labor economics. Behavioral economics is a new field in economics and basically means the incorporation of psychological motives (like fairness, loss aversion or bounded rationality) into the body of economics. Showing the relevance of psychological motives typically relies on tight control. It is therefore no surprise that the development of behavioral economics relies crucially on experimental data.

This course offers an introduction to these two novel and exciting fields. In the first part of the lecture we discuss experimental methods. In the second part we talk about several economic areas where experiments have been performed, e.g. market experiments, bargaining experiments, public goods experiments and labor experiments. We also discuss the relevance of fairness motives for labor relations, the modeling of fairness and the experimental testing of different fairness theories. It is the aim of the course to make students familiar with important experimental work and to give practical advice how to perform an experiment. For this reason students are expected to design and run experiments with their classmates.

A detailed course outline will be given in the first lecture.

• Davis, Douglas and Holt, Charles, Experimental Economics. Princeton Univ. Press 1993.
• Kagel, John H. and Roth, Alvin E., The Handbook of Experimental Economics. Princeton Univ. Press 1995.
• Daniel Friedman, Shyam Sunder, Experimental Methods, Cambridge University Press 1994.

Program

1. Introduction: Methods, Objectives, Advantages and Limitations of Experimental Economics
   
   Slides:
   falk_outline.pdf
   falk_l1_methods.pdf
   
   Literature:
• Davis, Douglas and Holt, Charles (1993); Experimental Economics, Princeton University Press, Princeton, New Jersey: Chapter 1.
• Falk, A. and Fehr, E. (2003); "Why labor market experiments?", Labour Economics 10, 399-406 (http://www.iew.unizh.ch/home/falk/whylabourmEx.pdf).
• Friedman, Daniel and Sunder, Shyam, Experimental Methods, Cambridge University Press 1994, Chapters 1 and 2.
• Roth, Alvin E. (1988); "Laboratory Experimentation in Economics: A Methodological Overview", Economic Journal, Vol. 98, 974-1031.
• Smith, Vernon L. (1989); "Theory, Experiment and Economics", Journal of Economic Perspectives, Vol. 3, No. 1, 151-169.
• Smith, Vernon L. (1994); "Economics in the Laboratory", Journal of Economic Perspectives, Vol. 8, No. 1, 113-131.
• Smith, Vernon L. (1976); "Experimental Economics: Induced Value Theory", American Economic Review, Vol. 66, 274-279.


2. Market experiments
   
   Slides: falk_l2_markets.pdf
   
   Literature:
   • *Davis, Douglas and Holt, Charles (1993); Experimental Economics, Princeton University Press, Princeton, New Jersey: Chapter 3 (Double Auction Markets) and Chapter 4 (Posted Offer Markets).
   • Smith, Vernon L. and Williams, Arlington W. (1990); “The Boundaries of Competitive Price Theory: Convergence Expectations and Transaction Costs”, in: L. Green and J. H. Kagel (eds.), Advances in Behavioral Economics, Vol. 2, Ablex Publishing Corporation, Norwood, New Jersey.
   • Kirchsteiger, G.; Niederle, M.; Potters,J.: „Public versus private exchanges“, Working paper 2001, (http://greywww.kub.nl:2080/greyfiles/center/2001/101.html).
     
     
3. Bargaining experiments
   
   Slides: falk_l3_bargaining.pdf
   
   Literature:
   • *Kagel, John H. and Roth, Alvin E. (1995); “Handbook of Experimental Economics”, Princeton University Press, Princeton, New Jersey: Chapter 4 (Bargaining Experiments).
   • Binmore, Shaked and Sutton, "Testing Non-Cooperative Bargaining Theory: A Preliminary Study." AER, 1985, 1178-80.
   • Camerer, Colin and Richard Thaler, "Anomalies: Ultimatums, Dictators and Manners." Journal of Economic Perspectives, 9, 1995, 209-219.
   • Cameron, Lisa (1999); “Raising the Stakes in the Ultimatum Game: Experimental Evidence from Indonesia”, Economic Inquiry, Vol. 37, No. 1, 47-59.
   • Forsythe, Robert, J. Horowitz, N.E. Savin and Martin Sefton, "Fairness in Simple Bargaining Experiments." Games and Economic Behavior, 1994, 6, 347-69.
   • Güth, W., Schmittberger, R. and Schwarze, B. (1982); “An Experimental Analysis of Ultimatium Bargaining”, Journal of Economic Behavior and Organization 3, 367-88.
   • Ochs, Jack and Alvin E. Roth, "An Experimental Study of Sequential Bargaining." AER, 1989, 355-84.
   • Roth, Alvin E., Vesna Prasnikar, Masahiro Okuno-Fujiwara, and Smuel Zamir, "Bargaining and Market Behavior in Jerusalem, Ljubljana, Pittsburgh, and Tokyo: An Experimental Study." AER, 81, 1991, 1068-95.
   • Slonim, Robert, Alvin E. Roth, 1998. “Learning in High Stakes Ultimatum Games: An Experiment in the Slovak Republic”, Econometrica, Vol. 66 (3) pp. 569-596.
     
     
4. How to do experiments
   
   Slides: falk_l4_experiments.pdf
   
   
5. Public goods experiments, social interaction and punishment
   
   Slides: falk_l5_publicgoods.pdf
   
   Literature:
   
   • Kagel, John H. and Roth, Alvin E. (1995); "Handbook of Experimental Economics", Princeton University Press, Princeton, New Jersey: Chapter 2 (Public Goods: A Survey of Experimental Research).
   • Andreoni, James (1988); "Why Free Ride?: Strategies and Learning in Public Goods Experiments", Journal of Public Economics, 37, 1988, 291-304
   • Falk, A. and Fischbacher, U. (2002); "Crime in the Lab - Detecting Social Interaction", European Economic Review 46, 859-869.
   • A. Falk, U. Fischbacher and S. Gächter (2003); “Living in two Neighborhoods - Social Interactions in the Lab”, IEW Working paper http://www.iew.unizh.ch/home/falk/SocialInteraction.pdf
   • Falk, A. and Ichino, A. (2003): "Clean evidence on peer effects", IZA DP 732.
   • *Fehr, Ernst and Gächter, Simon (2000); "Cooperation and Punishment in Public Goods Experiments", American Economic Review 90(4), September 2000, 980-994.
   • *Fischbacher, Urs, Simon Gächter and Ernst Fehr (2001); "Are People Conditionally Cooperative? Evidence from a Public Goods Experiment", Economics Letters 71 (2001) 397-404.
   • Gächter, Simon and Fehr, Ernst (1997); "Social Norms as a Social Exchange", Swiss Journal of Economics and Statistics, Vol. 133, No. 2, 275-292.
   • Isaac, R. M., J. Walker and S. Thomas (1984): "Divergent evidence on free riding: An experimental examination of possible explanations", Public Choice 43(1): 113-149.
   • Isaac, R. Mark, James M. Walker, and Arlington W. Williams; "Group Size and the Voluntary Provision of Public Goods: Experimental Evidence Utilizing Very Large Groups", Journal of Public Economics, 54, May 1994, 1-36.
   • Keser, Claudia (1996); "Voluntary Contributions to a Public Good when Partial Contribution is a Dominant Strategy", Economics Letters 50, 359-366.
   • Keser, C. and Van Winden, F. (2000): "Conditional Cooperation and Voluntary Contributions to Public Goods", Scandinavian Journal of Economics 102, 23-39.
   • Palfrey, T. and Prisbrey, J. (1997); "Anomalous behavior in public goods experiments: How much and why?", American Economic Review 87, 829-846.
     
     

6. Fairness: Evidence, theories and evaluation
   
   Slides: falk_l6_fairness.pdf
   
   a) Theories
   

• Bolton, Gary and Axel Ockenfels (1999); “A Theory of Equity, Reciprocity, and Competition”, American Economic Review 100, 166-193.
• Dufwenberg, Martin and Georg Kirchsteiger (1998); “A Theory of Sequential Reciprocity”, Discussion Paper, CentER, Tilburg University.
• Charness, Gary, and Rabin, Matthew (2002); “Understanding Social Preferences with Simple Tests”, The Quarterly Journal of Economics 117 (3), 817 - 869
• *Falk, Armin and Urs Fischbacher (1999); “A Theory of Reciprocity”, Working paper No. 6, Institute for Empirical Research in Economics, University of Zürich
• *Fehr, Ernst and Klaus Schmidt (1999); „A Theory of Fairness, Competition and Cooperation“, Quarterly Journal of Economics, Vol. 114, No. 3, 817-868.
• Levine, David (1998); “Modeling Altruism and Spitefulness in Experiments” Review of Economic Dynamics, Vol. 1, No. 4, 593-622.


b) Evaluation of Fairness Theories


• Engelmann, Dirk and Martin Strobel (2000); “An Experimental Comparison of the Fairness Models by Bolton and Ockenfels and By Fehr and Schmidt”, Mimeo, Humboldt Universität zu Berlin.
• *Falk, Armin, Fehr, Ernst, and Fischbacher, Urs, 2000a. “Informal Sanctions”, Institute for Empirical Research in Economics, University of Zurich, Working Paper No. 59.
• Falk, Armin, Fehr, Ernst, and Fischbacher, Urs, 2000b. “Testing Theories of Fairness - Intentions Matter”, Institute for Empirical Research in Economics, University of Zurich, Working Paper No. 63.
• *Falk, Armin, Fehr, Ernst, and Fischbacher, Urs (2003); “On the Nature of Fair Behavior”, Economic Inquiry 41(1) (2003), 20-26.