Developments in Major Fields of Economics
Edited by Gilbert Faccarello and Heinz D. Kurz
Experimental economics is based on applying laboratory methods to economics. Experimental economists consider the experimental method applicable to the economy and innovative because it allows a level of realism that has been impossible for economic analysis. Experimental economics is not only a methodological change, as it also challenges some assumptions commonly accepted by traditional economic theory, in particular, the concepts of full rationality and perfect information. As a result, since the 1950s experimental economics plays a relevant role in the debate on the nature and validity of these assumptions. Experimental economics started to be developed in the late 1940s and early 1950s (Davis and Holt 1993), and it grew in the subsequent decades and in particular in the 1960s (Roth 1995), up to the 1980s, when economic experiments were very popular. Von Neumann and Morgenstern’s work (1944) is considered the milestone for the emergence of experimental economics: their expected utility and game theory required a formalization of assumptions and implications of rational choice and so made possible their experimental verification. Although the role of von Neumann and Morgenstern’s work has been important for experimentation on decisions (both individual and strategic), it has had less of an impact on market experiments. Two different contributions are often cited as precursors of experimentation in economics: Thurstone (1931) for experiments on choices and Chamberlin (1948) for experiments on markets.
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