Course Notes - ECO331

ECO331 Behavioural Economics Lecture Notes

Lecture 2: Experiment Design

Econ vs Psych experiments:
-No deception
-Incentivized choices

Purposes of experiments:
Theory  Experiments  Theory
*Testing theory for robustness

Internal Validity:
-Extent to which differences are due to hypothesized mechanism
-Question of sufficient controls
-Must assess plausibility of alternative explanations

External Validity:
-To what extent do experiment results translate into the world
-Extrapolating experiments results

Types of Experiments:

1) Pure Laboratory Experiment
Subjects: Frequently students
Economic Environment: Artificially induced
Physical Environment: Artificial (laboratory) – subjects are aware of experiment

1) Pure Field Experiment
Subjects: Population of interest
Economic Environment: Naturally occurring environment
Physical Environment: Naturally occurring environment - subjects are unaware of experiment

Induced Value Theory:
-How do we induce preferences in the laboratory
-Proper use of a reward medium allows experimenter to induce prespecified characteristics in sub jects
3 Conditions:
-Monotonicity: prefer more reward medium to less
-Salience: reward depends on subject actions
-Dominance: change in subject utility comes “predominantly” from the reward medium

Identification:

Within-subject Design:
-Each subject does all treatments
Worry: Order effects; learning increased salience of inter-treatment differences; easier identification of experimenter demand
Mitigation: Randomly assigned sequences

Between Subject Design:
-Each subject receives one treatment
-Compare treatment groups
-Hope that unobservables independent of treatment assignment

Experimenter-Demand Effects:

1)Hawthorne Effect:
Being Observed Changes in Behavior Not a problem if constant across treatments

2) Intertreatment Differences: Make differences salient
Treatment A: Learn Avg $ given by other givers
Treatment B: