The New Institutional Economics (NIE) occupies an important space in the rapidly expanding theory of organization. Traditional testing techniques have only been applied to less complex parts of the NIE. A rich body of evidence generated by the experiences of firms and other organizations lies fallow. The limited domain of traditional testing will persist because of the nature of the central concepts of the NIE, the difficulty posed for integrating transaction cost into an optimizing framework by self-reference, and the particularly (...) wicked manifestations of the Duhem-Quine problem. Experimental economics may add credibility to some components of the NIE but is unlikely to fill the current void. The catchy title, the telling anecdote, and the creative 'fact' have played a disproportionate role in determining the composition of the canonical literature in the NIE. Catalytic steps for developing professional norms governing the marshalling of data generated by different organizations and institutions are discussed in the concluding section. (shrink)

This paper examines the experiment in macroeconometrics, the different forms it has taken and the rules that have been proposed for its proper conduct. Here an ?experiment? means putting a question to a model and getting an answer. Different types of experiment are distinguished and the justification that can be provided for a particular choice of experiment is discussed. Three types of macroeconometric modelling are considered: the Cowles (system of equations) approach, the vector autoregressive model approach and the computational experiment. (...) JEL Classifications: B41, C5, E37. (shrink)

This paper argues that Isaac Levi's account of preference reversals is only a limited success. Levi succeeds in showing that an agent acting in accord with his theory may exhibit reversals. Nevertheless, the specific account that Levi presents in order to accommodate the behavior of experimental subjects appears to be disconfirmed by available evidence.

Gul and Pesendorfer (2008) argue that neuroeconomics is evidentially and explanatorily irrelevant to economics, because neuroeconomics and economics ask different questions and utilize different abstractions. They suggest neuroeconomics is only relevant as a source of inspiration for economists. The present paper accepts their basic premise and asks whether the fact that neuroeconomics and economics ask different questions implies that neuroeconomics is irrelevant. The paper argues that Gul and Pesendorfer overlook some important respects in which neuroeconomics is relevant for economics. First, (...) neuroeconomics can improve singular explanations in economics. Second, and more importantly, it improves our understanding of economic phenomena. And finally, it helps us assess the plausibility of our conjectures concerning economic phenomena. It may be true that neuroeconomics will not revolutionize economics (at least in the short run), but it is more than a source of inspiration. (shrink)

It is sometimes argued that experimental economists do not have to worry about external validity so long as the design sticks closely to a theoretical model. This position mistakes the model for the theory. As a result, applied economics designs often study phenomena distinct from their stated objects of inquiry. Because the implemented models are abstract, they may provide improbable analogues to their stated subject matter. This problem is exacerbated by the relational character of the social world, which also sets (...) epistemic limits for the social science laboratory more generally. (shrink)

A neglected critique of social science laboratories alleges that they implement phenomena different to those supposedly under investigation. The critique purports to be conceptual and so invulnerable to a technical solution. I argue that it undermines some economics designs seeking to implement features of real societies, and counsels more modesty in experimental write?ups. It also constitutes a plausible argument that laboratory economics experiments are necessarily less demonstrative than natural scientific ones. More radical sceptical conclusions are unwarranted.

Previous literature has demonstrated the important role that trust plays in developing and maintaining well-functioning societies. However, if we are to learn how to increase levels of trust in society, we must first understand why people choose to trust others. One potential answer to this is that people view trust as normative: there is a social norm for trusting that imposes punishment for noncompliance. To test this, we report data from a survey with salient rewards to elicit people’s attitudes regarding (...) the punishment of distrusting behavior in a trust game. Our results show that people do not behave as though trust is a norm. Our participants expected that most people would not punish untrusting investors, regardless of whether the potential trustee was a stranger or a friend. In contrast, our participants behaved as though being trustworthy is a norm. Most participants believed that most people would punish someone who failed to reciprocate a stranger’s or a friend’s trust. We conclude that, while we were able to reproduce previous results establishing that there is a norm of reciprocity, we found no evidence for a corresponding norm of trust, even among friends. (shrink)

University of Pennsylvania, USA, el322{at}nyu.edu ' + u + '@' + d + ' '//--> One of the most consistent findings in experimental studies of social dilemmas is the positive influence of face-to-face communication on cooperation. The face-to-face `communication effect' has been recently explained in terms of a `focus theory of norms': successful communication focuses agents on pro-social norms, and induces preferences and expectations conducive to cooperation. 1 Many of the studies that point to a communication effect, however, do not (...) further explore whether and to what extent the communication medium affects cooperative behavior. In this article, we ask if pro-social behavior can emerge and survive in computer-mediated environments. We show that, like face-to-face communication, computer-mediated communication also positively affects cooperation in social dilemmas, but cooperation is more difficult to establish and maintain. We argue that the discrepancy between the computer-mediated and the face-to-face communication effects is a consequence of the distinct capabilities of different media to focus agents on pro-social norms and to allow them to develop mutual expectations about future behavior. Key Words: social dilemmas • laboratory experiments • communication • social norms • cooperation • computer-mediated communication. (shrink)

Where should experimental economics go next? This paper uses the literature on inequity aversion as a case study in suggesting that we could profit from tightening up our act.

Our paper “Experimental Economics: Where Next?” contains a case study of Ernst Fehr and Klaus Schmidt’s work in which it is shown that the claims they make for the theory of inequity aversion are not supported by their data. The current issue of JEBO contains two replies, one from Fehr and Schmidt1 themselves, and the other from Catherine Eckel and Herb Gintis. Neither reply challenges any claims we make about matters of fact in our critique of Fehr and Schmidt on (...) inequity aversion, although it is clear that if they could have refuted any single factual sentence then they would have done so. Both replies therefore implicitly concede that the facts quoted in our case study are correct. All the other issues raised in the two replies are just so much dust kicked up to distract attention from the only question that matters: Is it scientific to proceed like Fehr and Schmidt or is it not? Fehr and Schmidt say yes. So do Eckel and Gintis. The implications are quite far-reaching for those like us who think it is obvious that the answer is no. What other claims asserted by the school of Gintis et al can we trust? (shrink)

The contest between rational and behavioral finance is poorly understood as a contest over 'testability' and 'predictive success.' In fact, neither rational nor behavioral finance offer much in the way of testable predictions of improving precision. Researchers in the rational paradigm seem to have abandoned testability and prediction in favor of a scheme of ex post 'rationalizations' of observed price behavior. These rationalizations, however, have an unemphasized relevance for behavioral finance. While behavioral finance advocates may justly criticize rationalizations as unlikely (...) to lead to a science of financial economics with improving predictive power, rational finance's explanatory power plays a key role supporting the limits of arbitrage arguments that make behavioral finance possible. (shrink)

Focusing on the work of Friedrich von Hayek and Vernon Smith, we discuss some conceptual links between Austrian economics and recent work in behavioral game theory and experimental economics. After a brief survey of the main methodological aspects of Austrian and experimental economics, we suggest that common views on subjectivism, individualism, and the role of qualitative explanations and predictions in social science may favour a fruitful interaction between these two research programs.

This paper distinguishes the base domain of an economic theory (in which predictions are relatively unambiguous) from, respectively, the domains of intended application and of legitimate testing; it argues that the domain of legitimate testing is not generally restricted to that of intended application; and discusses the obligations on researchers imposed by a position that presumes experimental environments in the base domain of a theory to provide legitimate test, unless there is compelling reason to expect behaviour in the domain of (...) intended application to conform more closely to the theory. Experimental tests of choice theory are discussed as an example. (shrink)

Is there more to ?good science? than explaining novel facts? Social interaction within scientific communities plays a pivotal role in defining acceptable research practices. This article explores the connection between research outcomes and the socio-cultural environment they are constructed in by developing an agent-based computational model of scientific communities. Agent-to-agent interaction is added to a system of knowledge production inspired by the work of Lakatos (1969, 1970) on scientific research programs as an important factor guiding the actions of (...) researchers. Simulation results show that early in scientific inquiry, when there are new phenomena to explain, the research community is fragmented and scientists prefer to rely on their own talents (innovation) in conducting research. Over time, consensus emerges in the form of a dominate research program which utilizes a mixture of past and concurrent approaches (adaptation). This result illustrates Kuhn's (1970) notion of the rise and fall of scientific paradigms. (shrink)

According to John Searle's theory of human ontology, intentional mental states such as beliefs and wants rely on non-intentional, Background, dispositions to produce rational behaviour. The distinction between intentional and non-intentional states is used as the basis on which to understand the various conceptions of human agency to be found in behavioural finance. The agent of behavioural finance is characterized in terms of three sets of psychological traits: prospect theory, heuristics and mental accounting. These are examined from a Searlean perspective (...) and shown to rely on the interplay between various reflected upon and non-reflected upon elements, in keeping with the Searlean human ontology previously considered. A number of implications are drawn from these findings. (shrink)

In two experiments, we demonstrate that intentional action intuitions vary as a function of whether one brings about or observes an event. In experiment 1a (N?=?38), participants were less likely to judge that they intended (M?=?2.53, 7 point scale) or intentionally (M?=?2.67) brought about a harmful event compared to intention (M?=?4.16) and intentionality (M?=?4.11) judgments made about somebody else. Experiments 1b and 1c confirmed and extended this pattern of actor-observer differences. Experiment 2 suggested that these actor-observer differences are not likely (...) to occur when participants are asked to ?imagine? being an actor. We argue that these results challenge the substantial philosophical and empirical reliance on hypothetical thought examples about intentional action. Our data offer new and necessary methodological avenues for understanding folk intentional action intuitions. (shrink)

Moral judgments often affect scientific judgments in real-world contexts, but Knobe's examples in the target article do not capture this phenomenon.

A framing effect occurs when an agent's choices are not invariant under changes in the way a decision problem is presented, e.g. changes in the way options are described (violation of description invariance) or preferences are elicited (violation of procedure invariance). Here we identify those rationality violations that underlie framing effects. We attribute to the agent a sequential decision process in which a “target” proposition and several “background” propositions are considered. We suggest that the agent exhibits a framing effect if (...) and only if two conditions are met. First, different presentations of the decision problem lead the agent to consider the propositions in a different order (the empirical condition). Second, different such “decision paths” lead to different decisions on the target proposition (the logical condition). The second condition holds when the agent's initial dispositions on the propositions are “implicitly inconsistent,” which may be caused by violations of “deductive closure.” Our account is consistent with some observations made by psychologists and provides a unified framework for explaining violations of description and procedure invariance. Footnotes1 We are grateful to Luc Bovens, Robin Cubitt and three anonymous reviewers for Economics and Philosophy for very helpful comments and suggestions. (shrink)

This is a slightly longer version of an entry prepared for the 2nd edition of The New Palgrave Dictionary of Economics, edited by Steven Durlauf and Lawrence Blume (Palgrave-Macmillan, forthcoming). Since the New Palgrave does not include acknowledgments, I should use this chance to thank Roger Backhouse, Philippe Fontaine, Daniel Kahneman, Kyu Sang Lee, Ivan Moscati, and Vernon Smith for their help and suggestions in preparing this paper.

Controversies in economics often fizzle out unresolved. One reason is that, despite their professed empiricism, economists find it hard to agree on the interpretation of the relevant empirical evidence. In this paper I will present an example of a controversial issue first raised and then solved by recourse to laboratory experimentation. A major theme of this paper, then, concerns the methodological advantages of controlled experiments. The second theme is the nature of experimental artefacts and of the methods devised to detect (...) them. Recent studies of experimental science have stressed that experimenters are often merely concerned about determining whether a certain phenomeonon exists or not, or whether, when, and where it can be produced, without necessarily engaging in proving or disproving any theoretical explanation of the phenomenon itself. In this paper I shall be concerned mainly with such a case, and focus on the example of preference reversals, a phenomenon whose existence was until quite recently denied by the majority of economists. Their favourite strategy consisted in trying to explain the phenomenon away as an artefact of the experimental techniques used to observe it. By controlled experimentation, as we shall see, such an interpretation has been discredited, and now preference reversals are generally accepted as real. The problem of distinguishing an artefact from a real phenomenon is related to methodological issues traditionally discussed by philosophers of science, such as the theory-ladenness of observation and Duhem's problem. Part of this paper is devoted to clarifying these two philosophical problems, and to arguing that only the latter is relevant to the case in hand. The solutions to Duhem's problem devised by economic experimentalists will be presented and discussed. I shall show that they belong in two broad categories: independent tests of new predictions derived from the competing hypotheses at stake, and ‘no-miracle arguments’ from different experimental techniques delivering converging results despite their being theoretically independent. (shrink)

Analytical philosophy has been challenged by experimental approaches that make use of, among other things, cognitive science methods. In this paper we illustrate the benefits of merging philosophy with neuroscience, using an example of research in the foundations of social science. We argue that designing novel experiments to answer specific philosophical questions has several advantages compared to relying passively on neuroscientists' data. In this particular case, the data redirect attention towards topics ? such as inductive reasoning ? that are relatively (...) overlooked by mainstream social neuroscience. (shrink)

Two articles contributing to the experimental research about incomplete contracts are analyzed in this paper. Especially interesting is their use of the terms ?firms? and ?workers?, although the experiments were performed on students only given information that they were participating in general market experiments. A framework based on Mäki (2004) is used both to emphasize what we aim to explain, and by which we explain. Also the concepts of internal and external validity are important. By showing that the articles refer (...) to an external validity which they are not capable of achieving at this moment, their use of ?firms? and ?workers? is found to be questionable. But the two articles are still good examples of experimental research about incomplete contracts. (shrink)

We critically review the methodological practices of two research programs which are jointly called ?neuroeconomics?. We defend the first of these, termed ?neurocellular economics? (NE) by Ross (2008), from an attack on its relevance by Gul and Pesendorfer (2008) (GP). This attack arbitrarily singles out some but not all processing variables as unimportant to economics, is insensitive to the realities of empirical theory testing, and ignores the central importance to economics of ?ecological rationality? (Smith 2007). GP ironically share this (...) last attitude with advocates of ?behavioral economics in the scanner? (BES), the other, and better known, branch of neuroeconomics. We consider grounds for skepticism about the accomplishments of this research program to date, based on its methodological individualism, its ad hoc econometrics, its tolerance for invalid reverse inference, and its inattention to the difficulties involved in extracting temporally lagged data if people's anticipation of reward causes pre-emptive blood flow. (shrink)

This paper considers whether game theory can be tested, what difficulties experimenters face in testing it, and what can be learned from attempts to test it. I emphasize that tests of game theory rely on fallible assumptions concerning particular features of the strategic situation and of the players. These do not render game theory untestable in principle, but they create serious problems. In coping with these problems, experimenters may use game theory to learn what games experimental subjects are playing.

Many of the arguments for neuroeconomics rely on mistaken assumptions about criteria of explanatory relevance across disciplinary boundaries and fail to distinguish between evidential and explanatory relevance. Building on recent philosophical work on mechanistic research programmes and the contrastive counterfactual theory of explanation, we argue that explaining an explanatory presupposition or providing a lower-level explanation does not necessarily constitute explanatory improvement. Neuroscientific findings have explanatory relevance only when they inform a causal and explanatory account of the psychology of human decision-making.

The growing acceptance and success of experimental economics has increased the interest of researchers in tackling philosophical and methodological challenges to which their work increasingly gives rise. I sketch some general issues that call for the combined expertise of experimental economists and philosophers of science, of experiment, and of inductive‐statistical inference and modeling. †To contact the author, please write to: 235 Major Williams, Virginia Tech, Blacksburg, VA 24061‐0126; e‐mail: mayod@vt.edu.

This article explores some issues having to do with the use of experimental results from one‐shot games to reach conclusions about the existence of social preferences that are taken to figure in the explanation of cooperation in repeated interactions in real life. †To contact the author, please write to: Division of Humanities and Social Sciences, California Institute of Technology, Pasadena, CA 91125; e‐mail: jfw@hss.caltech.edu.