ECO 3610

Experimental Economics
UG Economics
Spring 2024

Instructor: Prof. Swagata Bhattacharjee. email: [email protected].

Time and Location: Wed-Friday 3 pm
Textbook:

1. Handbook of Experimental Economics by Kagel and Roth (editors). Princeton University Press. ISBN
069104290-X.

2. Market, Games and Strategic Behavior by Charles Holt.

3. Experimental Methods by Friedman and Sunder.
4. Software to be used: zTree. Ref: Fischbacher U. (1999). Zurich toolbox for readymade economic
experiments, experimenter’s manual. Working Paper No. 21. Institute for Empirical Research in
Economics, University of Zürich.
The textbooks are not required but highly recommended for providing background for several
sections of the course. However, the course will mostly involve reading papers, to be uploaded on LMS/
moodle.

Overview:
Experimental methods have been widely adopted by economists to develop new insights, it is the fastest
growing research methodology in economics. This course will be an introduction to experimental economics,
its methods, and some of the major subject areas that have been addressed by laboratory experiments.
Substantive areas of application in the course will include market equilibrium, individual decision-making,
risk and uncertainty, strategic interactions, learning in games, public good provision, and labor market
relationships. Additional topics will include …eld experiments in development economics.
Student Learning Outcomes
By the completion of the course the students should be able to do the following:

1. Understand and explain the principles behind experimental economics.

2. Recognize an original economic question and design a suitable experiment to address the question.
3. Conduct laboratory experiments using the software zTree.
4. Analyze experimental data to obtain results.
5. Evaluate a literature critically and determine what important elements may be missing that could lead
to future research.

Mode of Teaching:

We will conduct the classes using the Flipped Classroom technique:

– Every week, the readings for the next week will be posted by Friday. This will include the papers,
text chapters, lecture slides along with video, as needed.
– At the very beginning of the semester, you will form groups of 5.
– During the class time, I will have short meetings with each group, where we will go over the
readings, have short class works to evaluate your understandings, and have discussions about the
design.
– For home works and referee reports you are welcome to discuss with your group members, but in
most cases individual reports are to be submitted. Note that discussions are not same as
plagiarism.
 – In this class, we take a strong stand against plagiarism. Any form of cheating will ensue a
warning in the …rst instance and a direct F grade if repeated.

Grading:
There are three major components to determine the grade.

Final Project: Experimental Design worth 40% of your grade

This will involve multiple stages, each graded separately, and will run through the semester.

– First Proposal:
The class will form groups of 5 or less. By Feb 20, each group will submit a one-page write up
specifying a question they’d like to address using laboratory experimental methods (details later).
– Proposal presentation:
On Feb 20, each group will have 10 minutes to present this idea. This …rst draft and presentation
are worth 10% of your grade. You are encouraged to set up a meeting with me and/or the TA in
order to …x your ideas.
– Related Literature:
Due on March 26. The literature review should clearly place the chosen question in the existing
body of literature, in the process summarizing the key …ndings of the existing literature and
stating how the current question complements it. Literature review is worth 5% of the grade.
– Final Draft: worth 25% of your grade
The papers turned in should be the equivalent of full papers, just missing results sections. This
means you will need an introduction in which you state the question you wish to address and
motivate why it is worth examining. You need to provide a review of the relevant literature
noting what aspects of the question have and have not been previously addressed. You should
present your experimental design as well as a set of hypotheses about potential results from the
experiment along with support for those hypotheses. The support could involve constructing a
model of the theoretical situation and solving it or it could involve borrowing the theory from
another paper and showing how your design proposes to test it. The …nal draft should also contain
the zTree program that can run this experiment.
The …rst draft will be due on April 23, (with or without the zTree Programming), so that
you will have enough time to address the feedback in your …nal version of the draft.
On the last day of the reading week preceeding the …nal exam, the …nal draft is due.

Referee Reports: worth 10% of your grade

Every other week each student will have to submit a short referee report of one of the readings covered
that week. This will be a maximum one-page long summary of that reading, concisely highlighting
how that reading …ts into the class and extends our understanding of the …eld and evaluating the paper
critically. Each week’s reading will be announced and lecture videos posted beforehand.

Problem Sets: worth 10% of your grade

Paper Presentation: worth 20% of your grade
Each group will choose a paper from the starred papers in the list (or any other published article that
they found interesting, after getting it approved by me) and make a short 30 minute presentation of it.

Class Participation: worth 20% of your grade

We will use a mix of relative and absolute grading on a curve. The tentative details are:

2
Percentile in Class Grade
Top 10% A
Top 10 20% A
Top 20 30% B+
Top 30 50% B
Top 50 55% B
Top 55 60% C+
Top 60 70% C; C
Below 40 D
Below 30 F

3
 Detailed Course Outline

The papers and chapters to read are given below. The tentative dates of each topic are also given. Some
of the classes will be devoted to lab sessions and one class will have the groups proposing their ideas for the
experiment design. The shorthands for the texts are as follows:
Friedman and Sunder=FS
Kagel and Roth=KR
Holt=H

1. Introduction to Experimental Economics

(a) FS Ch 1
(b) KR Ch 1
(c) Samuelson, Larry, 2005 “Economic Theory and Experimental Economics,” Journal of Economic
Literature, 43: 65-107.
(d) Smith, Vernon, 1982. “Microeconomic Systems as an Experimental Science”, American Economic
Review, vol. 72. no. 5, pp. 923-955.
(e) Smith, Vernon, 2002. “Method in Experiment: Rhetoric and Reality,” Experimental Economics,
5: 91-110.
(f) Falk, A. and Heckman, J.J., 2009. Lab experiments are a major source of knowledge in the social
sciences. science, 326(5952), pp.535-538.**
(g) De Quidt, J., Haushofer, J. and Roth, C., 2018. Measuring and bounding experimenter demand.
American Economic Review, 108(11), pp.3266-3302.**

2. Game Theory Experiments

(a) H Ch 9-12
(b) O’Neill, B, 1987. “Nonmetric Test of the Minimax Theory of Two-Person Zerosum Games,”
Proceedings of the Nat. Acad. Of Sci, 84, 2106-2109.
(c) Ochs, J., 1995. "Simple Games with Unique Mixed Strategy Equilibrium: An Experimental
Study," Games and Economic Behavior, 10, 202-217.
(d) Stahl, and Wilson, 1995. "On Players Models of Other Players: Theory and Experimental Evi-
dence," Games and Economic Behavior, 10, 218-254.
(e) McKelvey R. and T. Palfrey, 1992. "An Experimental Study of the Centipede Game," Economet-
rica, 60, 803-836. **

3. Auction Experiments

(a) KR Ch 7
(b) Klemperer, Paul, 1999, “Auction Theory: A Guide To the Literature,” Journal of Economic
Surveys, Vol. 13 No. 3, pp. 227-285.
(c) Cox, James C., Bruce Roberson and Vernon L Smith, 1982 “Theory and Behavior of Single Object
Auctions,” Research in Experimental Economics, Volume 2, pages 1-43.
(d) Kagel, J. H. and D. Levin. 1986. “The Winner’s Curse and Public Information in Common Value
Auctions,” American Economic Review, 76:894-920. **
(e) Kagel, J.H. and Levin, D., 2009. Implementing e¢ cient multi-object auction institutions: An
experimental study of the performance of boundedly rational agents. Games and Economic Be-
havior, 66(1), pp.221-237.
(f) Güth, W., Ivanova-Stenzel, R. and Wolfstetter, E., 2005. Bidding behavior in asymmetric auc-
tions: An experimental study. European Economic Review, 49(7), pp.1891-1913. **
(g) Esponda, Ignacio and Emanuel Vespa, 2014 “Hypothetical Thinking and Information Extractions
in the Laboratory,” 6(4): 180-202.

4
4. Individual Decision Making Experiments

(a) KR Ch 8 Part III

(b) H Ch 4, 5 **
(c) Berg, Daley, Dickhaut, and O’Brien. “Controlling Preferences for Lotteries on Units of Experi-
mental Exchange,” Q.J.E., May 1986, 281-306.
(d) Fehr, E. and Schmidt, K. 1999. “A Theory of Fairness, Competition and Cooperation,”Quarterly
Journal of Economics 114: 817-68. **
(e) Cox, James C and Klarita Sadiraj and Vjollca Sadiraj, 2008. “Implications of Trust, Fear and
Reciprocity for Modeling Economic Behavior.” Experimental Economics 11:1-24. **
(f) Andersen, Ste¤en, Glenn Harrison, Morten Lau and Elisabet Rutstrom 2006 “Elicitation using
Multiple Price List Formats, “Experimental Economics Vol 9 No. 4 pp 383-405.
(g) Andreoni, James and Charles Sprenger. 2012 “Estimating Time Preferences from Convex Bud-
gets,” American Economic Review, Vol 102, Number 7. Pp. 3333-3356.
(h) Dohmen, Thomas, Armin Falk, David Hu¤man and Uwe Sunde 2010 “Are Risk Aversion and
Impatience Related to Cognitive Ability?” American Economic Review Vol 100 pp. 1238-1260.
**

5. Market Experiments

(a) KR Ch 5
(b) H Ch 13-17
(c) Smith, V., 1982. “Markets as Economizers of Information: Experimental Examination of the
Hayek Hypothesis,” Econ. Inquiry, 165-179.
(d) Plott, C., 1986. “Laboratory Experiments in Economics: The Implications of Posted-Price Insti-
tutions,” Science, 237, 732-8.
(e) Gode, D., and S. Sundar, 1993. “Allocative E¢ ciency of Markets with Zero-Intelligence Traders:
Market as a Partial Substitute for Individual Rationality,” J. of Political Economics, 101, 1993,
119-137. **
(f) Cox, J.C. and Isaac, R.M., 1987. “Mechanisms for incentive regulation: theory and experiment,”
The RAND Journal of Economics, pp.348-359.
(g) Durham, Y., 2000. “An experimental examination of double marginalization and vertical rela-
tionships,” Journal of Economic Behavior & Organization, 42(2), pp.207-229. along with H Ch
14 **

6. External Validity: Field Experiments vs Lab Experiments

(a) Levitt, Steven and John A List 2007 “What do laboratory experiments Measuring Social Prefer-
ences Tell Us About the Real World,” Journal of Economic Perspectives, Vol 21, Number 2 pp
153-174
(b) Camerer, Colin. 2011 “The Promise and Success of Lab-Field Generalizibility in Experimental
Economics: A Critical Reply to Levitt and List.” Forthcoming in “Methods of Modern Exper-
imental Economics”, edited by Guillaume Frechette and Andrew Schotter, Oxford University
Press
(c) Guest Lecture

7. Behavioral Experiments

(a) KR Ch 8 Part II **
(b) Fehr, E. and Schmidt, K.M., 1999. A theory of fairness, competition, and cooperation. The
quarterly journal of economics, 114(3), pp.817-868.

5
(c) Fehr, E. and Schmidt, K.M., 2001. Theories of fairness and reciprocity-evidence and economic
applications. Available at SSRN 264344.**
(d) Chen, Yan and Xin Li, 2009, “Group Identity and Social Preference,”American Economic Review,
99:1, 431-457. **
(e) Charness, G., Rigotti, L. and Rustichini, A., 2007. Individual behavior and group membership.
American Economic Review, 97(4), pp.1340-1352.**
(f) Camerer, C.F. and Fehr, E., 2006. When does" economic man" dominate social behavior?. science,
311(5757), pp.47-52.