Experimental Economics

The observation of naturally occuring events does not allow a careful isolation of the relevant factors that affect those events, nor to measure precisely their relative importance. Furthermore, some situations are hardly observable, either because they correspond to very rare events in space and time, or because they require a particular combination of factors. Finally, some economic situations cannot be observed without the practical implementation of some policy instrument. Experimental tools have been developed by economists, in order to overcome some of the difficulties of observing naturally occurring events.In a typical experiment, an artificial environment is created, reflecting either the conditions described by economic theory or some hypothetical situation. Therefore economic experiments can be designed to address three types of issues:

  • theory testing, by providing relevant data,
  • decision aid, by evaluating the impact of various instruments (e.g. a public policy or a firm strategy), without exposing the individuals or groups concerned by those instruments to the potential costs or risks of a real in-situ implementation,

  • provide new insights and knowledge about situations for which theory is lacking or incomplete.

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