To study the mechanisms of the market system and test the validity of the set theories, an economic experiment is applied, which in modern realities can be carried out not only on a limited scale. It provides information on the typical behavior of business agents in a control environment.
Founder of Experimental Economics
Vernon Smith, who was born in a family with socialist outlooks on life, found active use in economic experiments. Therefore, one should not be surprised that this person began his research as an adherent of the state and social system. In his understanding, such a structure was drawn in which competent people make decisions for other people.
The interest in economics came to the scientist after spiritual evolution, when he became a classical liberal. In 1952, he managed to get a master's degree, and after three years - to defend his doctoral dissertation. Prior to that, he was educated as an electrical engineer.
Founder's participation in the first scientific experiment
The not yet held Nobel laureate observed the first economic experiment under the guidance of his teacher. It was dedicated to the formation of a market equilibrium. Students were divided into sellers and buyers with budgetary constraints. For the first of them, an acceptable level of costs was established, and for the second, a monetary threshold.
As a result of the research, it turned out that during the bidding process, persons who, in theory, could not conduct a transaction, under experimental conditions, made it with some benefit. Other bidders in the opposite situation were sometimes succeeded in crowding out the market. And this was not some kind of accident, since similar effects happened quite often (with a probability of up to 25 percent).
It turned out that more factors than the theory had suggested could affect the general equilibrium. Even the right result can be reached in various ways. In the course of scientific experience, methodological and technical difficulties arose. However, this economic experiment already predetermined two separate directions in the future discipline.
Research Objective
To date, the role of the experiments has increased significantly, since not one serious discipline without them is simply unthinkable. Initially, research was carried out at the micro level, when small economic structures are taken as the basis. However, over time, the situation has changed.
A large number of experiments in economic science began to be carried out at the macro level. They have to be carried out under certain conditions, which cannot be completely leveled in the research process. Most often, scientific experiments in macroeconomics are field, not laboratory. Differences from the micro level are quite significant.
Despite various approaches, the main task of any research is to verify the practical application of certain programs and tasks that will avoid major mistakes and failures in economic activity. An economic experiment does not prove and does not refute theoretical research, but it makes it possible to establish the probability of the occurrence of a particular event.
The methodology of the experimental process
Controlled studies have common features. All of them are designed to simulate the ongoing dynamic processes. However, the system itself in this case is formed by the experimenter. People in it act as economic agents, which were recruited taking into account some criteria. In reality, participants perform many functions from which they cannot completely disengage. Therefore, the methods of economic experiment should be different.
The formation of a model is associated with the loss of some part of the data. This provides an opportunity to abstract from less significant elements. Attention in this case is concentrated on the basic components of the system and the interconnections. Two types of quantities can be introduced into the model:
- Exogenous. Introduced in finished form.
- Endogenous. Appear inside the model as a result of solving a specific problem.
Thus, it can be argued that the economic experiment is closely associated with the creation of models, which are a formalized description of the economic process, the structure of which is due to objective properties and subjective characteristics.
The main stages of
Modern experiments take place in several stages:
- A clear study of the system is carried out, the dynamics of which are supposed to be studied in order to correctly select the desired section of the theory, on the basis of which the specification of the model will be constructed.
- A simulation model for the studied system is being developed. It should include a large number of descriptions for the main objects, the conditions for the transition from one state to another.
- An experiment is being conducted with the decision maker. During the process, he is invited to consider a specific situation. Some decision must be made in it.
- The specification of the basic rules is determined, and the main parameters are evaluated. The developed principles are introduced directly into the model, after which it gains autonomy.
- An independent prototype is being tested, thanks to which it is possible to obtain a time frame for the behavior of the system under changing initial conditions. After that, static research methods are applied.
- A ready-made simulation model is used to increase the effectiveness of managing the system in question by predicting possible behavior over time.
The model takes into account various economic agents acquiring homogeneous products. The market in this case acts as the external environment of the presented product. Guided by the dynamics of price changes, consumers make a certain forecast.
Good examples of economic experiments
One illustrative example of the problem associated with the role of the experimenter is a study conducted by Western Electric. At that time, it was planned to establish on what factors labor productivity depends. More than ten experiments were conducted regarding free breakfasts, increasing the number of breaks and other concessions for workers.
The result impressed everyone. After the abolition of workers' benefits, labor productivity in the factory began to grow. The experimenters made a mistake that led to a distortion of the indicators. The observer has become an endogenous factor. Workers understood that the ongoing research was invaluable for the development of American society. It follows that the leader should be in the shade.
A large number of economic experiments conducted by Henry Ford. To increase the income of the enterprise, he suggested that workers receive a percentage of the total profit. As a result, their labor productivity increased significantly, since it was profitable for people to work effectively.
Coordination games
Experienced economists, when considering such games, think about whether it is possible, if necessary, to coordinate laboratory elements on one of the equilibria. If possible, are there general provisions that can help with a specific prediction. It turns out that under certain conditions the test people can coordinate the best equilibrium, even not so obvious.
The deductive factors of choice are those that allow you to make predictions based on the properties of the game. As for inductive principles, they make it possible to predict the result on characterization dynamics.
Market trading
The founder of experimental economics conducted a series of experiments to rally prices and volumes. He paid attention to theoretical equilibrium values directly in the market. The study examined the behavior of conditional sellers and buyers. The economist found that in some configurations of centralized trade, price indices have a common line with sales volumes.
In conclusion
Although an economic experiment does not prove any theoretical assumptions, it allows a qualitative assessment of a certain situation in the economic activity of a state or any other association. Much depends on the parameters taken into account during the research.