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Experimental economics vs. field economics
Uri Gneezy and John List write:
Recent discoveries in behavioral economics have led scholars to question the underpinnings of neoclassical economics. We use insights gained from one of the most influential lines of behavioral research -- gift exchange -- in an attempt to maximize worker effort in two quite distinct tasks: data entry for a university library and door-to-door fundraising for a research center. In support of the received literature, our field evidence suggests that worker effort in the first few hours on the job is considerably higher in the "gift" treatment than in the "non-gift treatment." After the initial few hours, however, no difference in outcomes is observed, and overall the gift treatment yielded inferior aggregate outcomes for the employer: with the same budget we would have logged more data for our library and raised more money for our research center by using the market-clearing wage rather than by trying to induce greater effort with a gift of higher wages.
In other words, people in the real world show behavior much like that of traditional economic agents. Here is the paper. Have I mentioned that John List is one of the most important young economists? He has jumped from a U. Wyoming Ph.d. to a U. Maryland job to the notoriously-stingy-to-tenure Department of Economics at the University of Chicago. If you want to see a tough skeptic about many commonly accepted research results, especially in the realm of economic experiments, read some of John's other papers. John is developing more finely grained methods of discovering when we should believe laboratory experiments. Are you surprised he puts greater trust in market data?
Posted by Tyler Cowen on March 9, 2006 at 08:01 AM in Economics | Permalink
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Tracked on Mar 9, 2006 11:31:11 AM
Comments
Since I have no reason to doubt you, I will agree that John List is one of the most important young economists. I will add, however, that he has to be among the most, if not the most unfortunately named young economists.
Posted by: Devin McCullen at Mar 9, 2006 9:00:15 AM
Didn't John List get hired first by Central Florida after graduating from Wyoming? His job at Maryland came after he started publishing a whole lot.
Posted by: Marc at Mar 9, 2006 9:15:04 AM
John List is one of those rare cases of someone who has moved up
from a fairly "low" initial set of positions by publishing a lot.
As one who is often on here beating the drum of behavioral econ
against more standard views, clearly the standard views are
correct a lot of the time. Vernon Smith, the father of experimental
econ (and a George Mason Nobelist whom Tyler got there), regularly
defends free markets and has done many experiments showing all kinds
of situations where they work fine, even in situations where many
garden variety economists think that they would not.
However, Vernon and John List are fully aware of situations where
the standard stories do not hold. Figuring out which is what and
where is when in all this is clearly one of the leading current
research agendas in economics.
Posted by: Barkley Rosser at Mar 9, 2006 10:01:22 AM
List's work is terrific, but this seems like a curious definition of "gift." Most of the intersting work on what's sometimes called the "gift economy" has to do with people's willingness to contribute work of real economic value without any financial compensation -- the open-source community and Wikipedia being well-known examples. A view of utility that assumes a desire for profit-maximization clearly cannot explain this kind of behavior. In List's experiment, by contrast, people have no pre-existing commitment to the task they're performing, and the "gift" is the gift of a higher, rather than market-clearing, wage. This seems to have more to do with ideas of "reserve wages" than with most of the work being done today on gift economies and gift exchange. What am I missing?
Posted by: William Goodwin at Mar 9, 2006 11:33:52 AM
"A view of utility that assumes a desire for profit-maximization clearly cannot explain this kind of behavior."
Why not? Profit != Money.
Posted by: Noah Yetter at Mar 9, 2006 1:54:55 PM
"This seems to have more to do with ideas of "reserve wages" than with most of the work being done today on gift economies and gift exchange. What am I missing?"
William, what you are missing is a paper by George Akerlof "Labor Contracts as Partial Gift Exchange" in the Quarterly Journal of Economics (Vol. 97, No. 4. (Nov., 1982), pp. 543-569.)
Reading that will make it a bit more clear what it is they are going against (the theory of partial gift exchange in labour contracts, namely)
Posted by: econgeek at Mar 9, 2006 2:49:36 PM
ECONGEEK, thanks for the info I was also at a loss concerning what was meant by a Gift in this case. I never thought of any bonus I was being paid as a gift, but then again, I never thought I was being paid enough in the first place, HA!
Posted by: Kyle N at Mar 9, 2006 7:11:12 PM
Here's the main problem I have with Experimental Economics: choics of subjects. Profs in my department are always advertising for people to join in an experiement to make a quick buck.
However, most of the people in their experiemnts are students of economics who think a certain way. So the samples aren't really representative of the population, who may optimize differently without such prior economic knowledge.
I can trust an experiment where the researcher took samples somewhat representative of the population in general, or at least one where the composition of the subsample is compared to known populations in order to spot any key drivers, like an undergrad degree in economics.
Posted by: Aaron at Mar 11, 2006 4:56:46 PM
Aaron,
This is an ongoing complaint by many. I would note that most experiments
are done on general undergrads, not econ majors. Indeed, studies have
shown that we have successfully brainwashed (or they have self selected)
those majors into being "more rational"/selfish than the average bloke.
There are many studies now that try to use non-students. Some of these
do show differences with students. Of course the most interesting are
studies that use people from different countries. The ones done on
the ultimatum game show big differences and have been highly cited.
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