economics economics
FIELD EXPERIMENTS IN ECONOMICS
By: Ravisha Sodha
INTRODUCTION:
Field experiments occupy an important middle ground between laboratory experiments and naturally occurring field data. The underlying idea behind most field experiments is to make use of randomization in an environment that captures important characteristics of the real world. Distinct from traditional empirical economics, field experiments provide an advantage by permitting the researcher to create exogenous variation in the variables of interest, allowing us to establish causality rather than mere correlation. In relation to a laboratory experiment, a field experiment potentially gives up some of the control that a laboratory experimenter may have over her environment in exchange for increased realism1
Field experiments can be a useful tool for each of these purposes. For example, Anderson and Simester (2003)2 collect facts useful for constructing a theory about consumer reactions to nine-dollar endings on prices. They explore the effects of different price endings by conducting a natural field experiment with a retail catalogue merchant. Randomly selected customers receive one of three catalogue versions that show different prices for the same product. Systematically changing a product’s price varies the presence or absence of a nine-dollar price ending. For example, a cotton dress may be offered to all consumers, but at prices of 34, 39, and 44 dollars, respectively, in each catalogue version. They find a positive effect of a nine-dollar price on quantity demanded, large enough that a price of 39 dollars actually produced higher quantities than a price of 34 dollars. Their results reject the theory that consumers turn a price of 34 dollars into 30 dollars by either truncation or rounding. This finding provides empirical evidence on an interesting topic and demonstrates the need for a better theory of how consumers process price endings.
Another example, Karlan and List (2007) is an example
By: Ravisha Sodha
INTRODUCTION:
Field experiments occupy an important middle ground between laboratory experiments and naturally occurring field data. The underlying idea behind most field experiments is to make use of randomization in an environment that captures important characteristics of the real world. Distinct from traditional empirical economics, field experiments provide an advantage by permitting the researcher to create exogenous variation in the variables of interest, allowing us to establish causality rather than mere correlation. In relation to a laboratory experiment, a field experiment potentially gives up some of the control that a laboratory experimenter may have over her environment in exchange for increased realism1
Field experiments can be a useful tool for each of these purposes. For example, Anderson and Simester (2003)2 collect facts useful for constructing a theory about consumer reactions to nine-dollar endings on prices. They explore the effects of different price endings by conducting a natural field experiment with a retail catalogue merchant. Randomly selected customers receive one of three catalogue versions that show different prices for the same product. Systematically changing a product’s price varies the presence or absence of a nine-dollar price ending. For example, a cotton dress may be offered to all consumers, but at prices of 34, 39, and 44 dollars, respectively, in each catalogue version. They find a positive effect of a nine-dollar price on quantity demanded, large enough that a price of 39 dollars actually produced higher quantities than a price of 34 dollars. Their results reject the theory that consumers turn a price of 34 dollars into 30 dollars by either truncation or rounding. This finding provides empirical evidence on an interesting topic and demonstrates the need for a better theory of how consumers process price endings.
Another example, Karlan and List (2007) is an example