Economic Theory and Experimental Economics: Confronting Theory with Experimental Data and vice versa

ECS568 Economic Theory and Experimental Economics: Confronting Theory with Experimental Data and vice versa

Autumn 2020

  • Topics

    In combining theory and experiments, we should have two objectives in mind. The first objective is to confront the theory with some data to see whether the theory is at all consistent with the behavior exhibited in the laboratory. Clearly, there is much that can be learned about the theory from the data, quite apart from any notion of "testing" the theory. We hope to learn whether the theory is useful in interpreting the data, of course, but we also expect to find out what extensions of the theory are required to make it compatible with the data. The second objective is to confront the data with the theory. A theoretical framework is needed for two reasons. First, the data set generated by experiments can be extremely rich and the behavior predicted by the theory is sometimes complex and subtle. Any attempt to explain rich datasets in purely "behavioral" terms would require a large number ad hoc assumptions, which would render the "explanation" rather uninformative. The second reason is that, without a theoretical framework, it is impossible to draw general conclusions that go beyond the particular setting of the experiment.

    For example, the standard model of decisions under uncertainty is based on von Neumann and Morgenstern (1947) Expected Utility Theory (EUT), so it is natural that experimentalists should want to test the empirical validity of the Savage (1954) axioms on which EUT is based. Empirical violations of EUT provoke intriguing questions about the rationality of individual behavior and, at the same time, raise criticisms about the status of the Savage axioms as the touchstone of rationality. These criticisms have resulted in the development of various theoretical alternatives to EUT, and the investigation of these theories has led to new empirical regularities in the laboratory. Developing appropriate methods for appropriately confronting the theory of choice under risk with experimental evidence has implications in many areas of economic theory and policy. And the same is true for attitudes toward time, ambiguity and inequality, which are important inputs into any broader measure of social welfare and enter virtually every realm of individual decision-making.

  • Learning outcome

    Upon completion of the course, students will be able to:

    Knowledge

    • critically evaluate the experimental design in research papers
    • identify the frontier in experimental research

    Skills:

    • use lab experiments and theory to analyze economic problems
    • design informative lab experiments

    General competence:

    • better understand human behavior
    • discuss general theories of consistency in choices

  • Teaching

    Lectures and student presentations.

  • Recommended prerequisites

    Knowledge of behavioral and experimental economics at the master level.

  • Requirements for course approval

    None.

  • Assessment

    Approved individual term paper (approximately 15 pages), covering a topic related to the course, submitted by the end of November 2020. The term paper must be written in English.

  • Grading Scale

    Pass-Fail.

  • Literature

    The course will build on research papers in behavioral and experimental economics.

Overview

ECTS Credits
7.5
Teaching language
English.
Semester

Autumn. Cancelled Autumn 2020.

Course responsible

Course responsible: Professor Bertil Tungodden, Department of Economics

Lecturer: Benjamin N. Ward Professor of Economics Shachar Kariv, University of California, Berkley