Behavioural W1 Flashcards
How is behavioural economics different to standard economics
Standard economics uses a model of a rational decision maker, but behavioural economics deviates from it in terms of preferences, beliefs and decision making. It attempts to understanding how people really behave in economically relevant circumstances.
Are behavioural and experimental economics the same
Behavioural integrates insights from psychology and neuroscience to understand how individuals make decisions. Experimental economics is a methodological approach that uses controlled experiments to test economic theories and hypotheses. Can identify causal effects of experimental treatments on behaviour. Can have lab, online and field experiments.
What does ‘control’ mean in an experimental setting? Why do we need it
In an experimental setting, control is required for internal validity so that we can establish a cause-and-effect relationship between variables. It allows us to be sure that the independent variable is the only thing that affects the dependent variable. Control is achieved by keeping all other variables constant except the independent variable – this eliminates confounding effects where a third variable affects the dependent variable.
What is self-selection
Self-selection means participants have signed up for an experiment and are assigned to a control and treatment group.
How do we tackle self-selection issues in experiment
To mitigate self-selection issues, researchers can use random assignment. Instead of allowing individuals to choose whether they receive the treatment, random assignment involves randomly placing participants into either the treatment or control group. This ensures that both groups are comparable from the start, reducing the risk of confounding variables and improving the internal validity of the experiment.
Explain what the four types of experiments are, and give an example of each where it is clear
how it differs from the other types
- Conventional lab experiment - standard subject pool (students)
- Artifactual field experiment - non-standard subject pool (general population)
- Framed field experiment - same as artifactual field experiment but with field context in the commodity, task, or information set participants can use
- Natural field experiment - same as framed but subjects naturally take part in the experiment, without knowing they are in an experiment
What is the difference between within- and a between-subjects design in an experiment
Between - participants take part in only one cell of the design.
Within - participants take part in more than one cell of the design
Pros and cons of within-subject design
Pros:
1. A difference between treatment and control must be driven by the treatment, not by individual
differences.
2. Allows you to compare behaviour between rounds to observe learning.
3. Cheaper!
Cons:
1. Anchoring effects - answer depends on last one.
2. Learning effects - learn about preferences by doing similar tasks.
3. Experimenter demand effects - if participants can guess experimenter’s intentions.
In an experiment, why would you keep participants in the same group vs. rematch them
Same group - good for learning about group dynamics over time.
Rematch them - Good for removing strategic concerns like reputation building and reciprocity.
What are the pros and cons of using incentives (vs. having a hypothetical design) in an experiment
Pros:
1. Increased participation.
2. Enhanced motivation.
3. Increased representativeness.
Cons:
1. Cost.
2. Potential bias.
3. Inflation of results.
What is the “house money effect” and why is it important in experimental economics
People become more inclined to make risky decisions with “house” money rather than their own. It is considered unethical in experiments to force participants to gamble their own money.
Explain the Becker-DeGroot-Marschak (BDM) procedure using an example? What is it used for
An example of the BDM procedure being used is the sale of the teddy bear in the experiment. To determine the true willingness to pay, the participant has to pick the number they are willing to pay. Then, the experimenter will randomly pick a value from 0 to significantly higher than the item’s estimated value. By using this method, the participant will have to pick their genuine willingness to pay as there could be a chance that they miss out on the teddy bear at a price point that they would have had positive utility from the item.
It is used to find the true willingness to pay and the true willingness to ask. As participants tend to overstate their willingness to ask and understate their willingness to pay, the procedure nullifies that.
What is the criticism about using WEIRD samples
WEIRD samples include individuals from western, educated, from industrialised, rich and democratic countries. They can be seen as a ‘bias and unusual slice of humanity’ (Henrich et al. 2010) and are therefore not representative of the global population.
Explain internal and external validity
Internal validity - it’s about whether the study accurately demonstrates a cause-and-effect relationship between variables within its controlled environment.
External validity - the extent to which the results of a study can be generalised to other populations, settings, or conditions beyond the specific circumstances of the study.
What are the downsides of using deception in your experimental lab?
The downside of deception is that some researchers believe it causes participants to act differently, such as becoming more suspicious and altering future behaviour. Finally, participants lose trust in the experiment, which can cause unrealistic outcomes.
