Leave Room to Take Notes

Topics:

• Crashers (30 max in class; you must show up for the first 3 lectures to have any chance to enroll in the class)
• LEAVE ROOM TO TAKE NOTES
• History of experimental economics (~60-70 years old; most published articles in last 20 years)
• Introduction to experimental economics

1. What is experimental economics? (Any economic situation you are analyzing in which you have some or all of the control of the situation; EXCEPTION: Natural experiments; a policymaker has control)
2. What can an experiment be? (On a computer, pencil-and-paper, in a discussion session, on children or adults, in a dorm, at a car dealership, etc….)
3. Who can conduct an economics experiment? (Almost anybody)
4. Incentives to perform (Differentiates economics experiments from psychology and other experiments)

• Why do we need experimental economics (When are people really selfish and rational?)
• Issues (What type of experiment to design, subjects that do what the experimenter wants, pay enough or don’t pay anything at all)
• Important concepts (Nash equilibrium, game theory, thinking like an economist, what rational behavioris)
• How do we choose what type of experiment to use and how do we design it? How realistic should the design be? (To be answered in the next week; short answer: Design an experiment to answer the question you are asking; we cannot perfectly replicate either theory or an economic setting)
• Throughout the quarter, think about what the most important issues are in for any potential economics experiment
• Important: NEVER DECEIVE SUBJECTS unless you are a professional researcher with human subjects board approval
• If there are any topics you would like addressed at the end of the quarter, please let me know

Wikipedia definition: Experimental economics is the application of experimental methods to study economic questions

Topics:

• Payoff matrices: How to interpret them with examples
• Nash equilibrium (NE): (Main idea) Exactly one person deviating from a NE strategy would result in the same payout or lower payout for that person
• Mixed-strategyNE: Involves making decision with probabilities instead with certainty (more on this later in the quarter)
• How to find NE (you can double check when done):

1. Pretend you are one of the players
2. Assume that your “opponent” picks a particular action
3. Determine your best strategy (strategies), given your opponent’s action (Underline any best choice in the payoff matrix)
4. Repeat Steps 2 & 3 for any other opponent strategies
5. Repeat Steps 1 through 4 for the other player
6. Any entry with all numbers underlined is NE

• Decision trees in a sequential game: Show examples; backward induction to find NE