In a subject presumably dominated by theories, assumptions, and models, experiments can seem like something difficult if not impossible to achieve. This is what I had thought until a few months ago. My university has a department that holds regular experimental studies and one day I decided to take part in an experiment that involved playing a game of negotiation with a random partner to receive a monetary reward. After the end of the experiment, I looked back on my behavior and was fascinated, I could actually realise the economic principles I had studied, and even their contradictions had something interesting to offer.
Here are some popular economic experiments and some insights they offered:
The Beauty Premium
Researchers sent out identical resumes for various jobs, with one crucial difference: the applicant's photo. Some resumes featured conventionally attractive individuals, while others showcased folks with average looks. The results? Resumes with attractive faces landed significantly more interviews and job offers, suggesting a potential "beauty premium" at play. But wait- here is where one of the biggest questions in econometrics comes in. Just because we observed this in one experiment does not mean that beauty is the factor causing more job offers- essentially its correlation, not causation. The "Beauty Premium" experiment raises important questions about unconscious bias and implicit stereotypes. Are we, consciously or not, favoring attractive applicants simply because we perceive them as more competent or trustworthy?
The Double Auction
Buyers and sellers face each other, both eager to get the best deal. Buyers shout out their highest price for a good, while sellers declare the lowest price they're willing to accept. It's a constant back-and-forth, a dance of supply and demand. Every bid is displayed for everyone to see, creating a transparent marketplace. Buyers can see what others are willing to pay, and sellers can adjust their prices accordingly. The price keeps fluctuating until it reaches a sweet spot - the equilibrium where buyers and sellers are equally happy. Insights from this experiment can help design better markets. They also tell us how auctions work so well sometimes!
The Marshmallow experiment
A testament to the power of delayed gratification, this experiment involved 4-5-year-old kids, an experimenter would keep a marshmallow in front of them and tell them that once they left if the child didn’t eat the marshmallow they would be rewarded with a second one. It's a powerful tool for understanding self-control, a crucial skill for success in life. Studies have shown that children who waited longer for their marshmallows tended to score higher on SATs, have better emotional regulation, and even achieve more in their careers. The marshmallow test is a reminder that resisting temptation and planning for the future are important skills, no matter your age. Whether it's sticking to a New Year's resolution or saving up for a big purchase, the lessons learned from these tiny marshmallows can make a big difference in your life.
Experiments in economics remain an ever-growing field. There are many more experiments you can find related to most economic concepts. Here are some extra sources if you are interested in learning more about these experiments: