Economic experiments: what are they? With the exception of using human subjects, economic experiments are identical to those carried out in physics, chemistry, and other natural sciences. In the experiment, participants are asked to play a game where they have to make certain financial decisions. Games are played in a lab that is specifically designed for that purpose, usually using paper or a computer. The game lasts anywhere from 30 to 1.5 hours. Games are usually played for money or prizes in order to encourage players to take charge and solve problems on their own, just like they would in real life.
For what reason is experimental economics relevant? Through the use of experimental economics, one can determine the potential effects of a specific event by observing how agents behave in a given economic scenario. We can keep an eye on how markets respond to modifications in the game's rules and make the necessary deductions. As a result, the solutions provided by experimental economics are valuable from both a scientific and practical standpoint. They can be helpful in a variety of fields, including trade, environmental management, politics, and finance. Any theory that is put to the test in real life is good!
The concept of conducting economics experiments was initially proposed by whom? Irving Fisher, who estimated individual indifference curves and even built experimental setups to identify equilibrium consumer prices, appears to have conducted the first experiments testing the predictions of economic theories as early as 1892. Thurston (1931) carries out additional research in which he examines the degree to which indifference curves accurately represent an individual's choice, thereby conducting an empirical test of that theory.
In 1948, Edward Chamberlin attempted to mimic the natural market in a lab setting. His attempt failed, but his pupil Vernon Smith (Nobel Prize 2002) succeeded in 1962 by employing the double auction method in his research and starting the first experiments on market structures.
In 1949, one of the first unofficial experiments testing the new theory of risk behavior (von Neumann-Morgenstern) was carried out by Maurice Allais (Nobel Prize 1989). Individual decision making experiments were made possible by the development of these studies in the works of psychologists Mosteller, Edwards, Lewis, Tversky, and Kahneman (Nobel Prize 2002).
