Experimenters and Economists

Advocates for more behavioural approaches to understanding economics often use experiments. These typically show people acting in ways that violate the principles of traditional economics.

Explaining hostility to experiments Larry Samuelson says: “The assertion is made that poorly motivated undergraduates in the artificial and unfamiliar situations often found in experiments are not reliable indicators of how people actually behave when making important economic decisions,” (Samuelson, 1997, page 140). Thus those of a more traditional bent dismiss experiments as not being generalizable to the real world. The argument is that short run games don’t tell us much about long run behaviour. “As experience with a game is accumulated, a player’s behavior is likely to adapt… players begin to learn.” (Samuelson, 1997, page 91)

In the Ultimatum Game, player 1 makes an offer of a portion of a pot which can be accepted by player 2. If player 2 accepts this is great, if not everyone loses everything. In traditional economic theory player 2 will always accept any offer above zero so player 1 will offer the minimum possible. Of course, this isn’t what happens in experiments. “In the case of the Ultimatum Game, the relevant experiments have been replicated too often for doubts about the data to persist” (Samuelson, 1997, page 140). Many people simply don’t behave the way traditional economic theory suggests they should.

We should not simply assume that all experimental results generalize but to assume that well conducted experimental studies have nothing to tell us also seems hard to defend. I would like to see more work thinking about what behaviours found in experiments might persist in markets and which won’t. Samuelson’s math heavy evolutionary models thus give potential ways to unite experiments with traditional economic theory.

In Samuelson’s analysis I think it might be helpful to clarify the difference between the subjects learning to change their behaviour and market selection weeding out failing subjects. Despite this quibble I think his is an interesting approach to understanding what behaviours might persist in markets.

Read: Larry Samuelson (1997), Evolutionary Games and Equilibrium Selection, The MIT Press, Cambridge, MA.