Tuesday, September 14, 2010

The problem with experimental economics: people are weird

Experimental economics is the up and coming new field, with plenty of interesting research going on. But many people criticize it because the experiments, while controlled, do not reflect real world situations. The stakes in the experiments are too small, the participants are not representative, the experiments not relevant. Add to these criticisms a new one.

Joseph Henrich, Steve Heine and Ara Norenzayan claim this literature, and others, concentrates on Western, Educated, Industrialized, Rich and Democratic (WEIRD) societies. And these societies, with 12% of the world population, are not representative of the rest of the world, in fact they are downright ... weird. To make their point, Henrich, Heine and Norenzayan look, among others, at the ultimatum game in all sorts of societies. This is a standard game that is in particular used to measure altruism ans spite: a prize is to be shared, one player proposes a split, and the other can reject the proposal, leading to both getting nothing. In "weird" societies, the standard result is a 48-50% for the second player, who accepts. Offer below 30% are typically rejected. Subgame perfection, however, would suggest that any amount above zero should be accepted, and the smallest possible is to be accepted.

What about in other societies, the "non-weird" ones? Small scale societies, where people are used to live face-to-face, make low offers and accept them. Worse, it appears that offers that are particularly high are rejected, something that also applies to European societies. Quite consistently, and the authors provide other examples, American experimental subjects end up at an extreme of outcome distributions

Does this mean that the US undergraduate, on whom the vast majority of experiments are performed, is misleading us thoroughly? Not necessarily, after all he may help us understand the homo economicus americanus, but even there one can have doubts. But we may need to rethink seriously how economic theory applies to other societies, at least for some research questions. Experimental economics has still a lot of work on its plate.


Anonymous said...

"Experimental economics has still a lot of work on its plate."

Absolutely - but notice something. At least with experimental economics you can actually disprove somebody's hypothesis! And if you think that US undergraduates are not representative that hypothesis can also be tested by doing experiments in other places.

When, if ever, was the last time an economic hypothesis got disproved by econometrics methods? Non experimental economics just goes in circles forever.

AlabamaFor You said...

Well, if experimental economics as performed today applies only to WEIRD economies, at least we are learning something about these economies. And the fact that other societies seem to be behaving differently make it all the more exciting!

AlabamaFor You said...

I forgot to mention: read this paper. Even if you are not into experimental economics or economic theory, it is a fantastic read.

Anonymous said...

This is also a criticism that applies to almost all empirical work, not only experimental.
People in Companies and whole economies are "WEIRD".

Anuja said...

Interesting view point. Some research work, it makes one wonder if the skewness of material is common in other forms of anthropological research as well, like Sociology, Musical studies, studies on political involvement, plenty more. Bulk of the sampling and structure is culture specific, and very difficult to be "established" as a theory, unless repeated in other parts of the world..