Economics as Experimental Science

Prof. Jean Paul Rabanal (jp.rabanal at colby dot edu)

Description In this class you will learn the methodology and the advantage of using experimental methods in economics. We will overview the main findings obtained regarding markets, human social behavior and rationality. The ultimate goal of this class is that you propose and analyze an economic experiment.

Please visit the syllabus for further details on grading, office hours and what I expect in this class for Colby students.

Below, the materials that we are going to work throughout the semester.

Materials, announcements and assignments

Week 14: Forecasting games. Test your app.

Week 13: Principal-Agent. Experimental design. 

  • Tuesday: Discussion of Principal-Agent models and experimental design
  • Wednesday: I should receive your final experimental design.
  • Thursday: we test the interface in the lab, and overview of basic tools to run experiments on campus.

Week 12: Thanksgiving break

Week 11: Charity giving, and lab work

  • We work on the experimental design of your experiment.

Week 10: Experiments and public policy 

  • In class activity: present and discuss the design of one experiment ( Also, discuss the results of their studies.
    • You must also refer to the papers they are citing to explain in detail the way their run their field experiments.
    • Tue: Watch the first two videos  Tyler: discusses the first video, Garret the second.
    • Th: Watch the last video. James discusses the third one.

Week 9: Gender and literature review

  • Lecture Notes (Tue)
  • The literature review is due on Thursday.

Week 8: Overview of game theory

  • In-class activities: Read the first 15 pages.
    • Explain the differences between the game theory predictions against how people play in the lab.

Material before the exam

Week 1: Markets

  • Notebook
  • In-class activities: Instructions (Oral Double Auction).
    • Use data from the in-class double oral auction, to answer the following:
      1. Graph the supply curve, given the list of unit costs on the spreadsheet
      2. Graph the final demand curve, given the unit values on the spreadsheet
      3. Use the supply and demand graphs to make numerical predictions of price and quantity (assume that markets clear at single price)
      4. Using your previous answers, what is the predicted consumer surplus and the predicted producer surplus?
  • Next class discussion
    1. Now, assume that buyers decide to bid 80% of their true value, while sellers decide to ask 20% above of their true cost, what’s the predicted market price and quantity in equilibrium? What’s the overall profit in this market?

    2. Compare your solutions with the exercise before. Is it rational to bid/ask different that your true value for the individual and social (i.e. aggregate) point of view?
    3. Read Chapter 1 and 2 of Friedman and Sunder (1994) and listen the following podcast.
      • What’s the advantage of using laboratory experiments?
      • Can you define the experiment described in the audio (see the formal design in pp. 17)  as a typical economic experiment? Explain.


Week 2: Other regarding preferences

  • Notes
  • In-class activities:
    • Read Chapter 1 of Norms in the Wild: How to Diagnose, Measure, and Change Social Norms, Bicchieri, 2017. [pdf available at the library]
      1. Discuss the motives of splitting the pie in the Ultimatum Game (played in the lab)
      2. How important are the beliefs of others (or second order beliefs) in her definition of social norms?
      3. What’s the advantage of experiments according to the author?

Week 3: Social preferences (cont’d) and cooperation

  • Overview of market institutions: Read the Appendix A for instructions
  • Read  Bartling et al. and answer the following questions:
    1. What is the main research question?
    2. What are the hypotheses?
    3. Do you think that the choice of market institution is not that important in their design?
    4. What are their main results? Which variables are key to illustrate their results or answer their research questions?

Week 4: Reciprocity, and discussion of research project

  • Bring your proposal draft to discuss it.
  • Read Buchanan and Houser (2017) and answer the following questions
    1. What is the main research question?
    2. What are the hypotheses?
    3. Explain the experimental design with your own words
    4. Do you think that recessions are well captured in their design?
    5. What’s the role of loss aversion? How do you define loss aversion?
    6. What are the main results? Which variables are key to illustrate their results and answer their research questions?

Week 5: Risk attitudes and games

Week 6: Exam week

Week 7: Extended Fall break

  • We do not meet during this week.