Experimental Economics

Experimental economics refers to the method of controlled experimentation applied to the investigation of economic phenomena. It is used to investigate (1) individual decision making, (2) the coordination of economic actors via market mechanisms, and (3) cooperation of economic agents in nonmarket environments. Experiments have helped in the study of consumption phenomena by shedding light on consumer preference structure, for instance, regarding time preferences, endowment effects, and contributions to public goods.

For long, it was accepted that economists cannot test their theories in laboratories. This has changed with contributions in game and decision theory that brought their hypotheses into the laboratory for testing. The first contribution in experimental economics was made by Edward Chamberlin in 1948. In 2002, Vernon Smith received the Nobel Prize “for having ...