Experiments in Economics.

• Author: Hoass, David J.

Experimental economics, a relatively new approach, helps economists evaluate the assumptions routinely used to make predictions about the ways markets operate and how individuals respond to financial incentives. By constructing and observing simple experimental situations under controlled conditions, economists can test and measure the impact that different institutional arrangements have on economic performance. Experimental economics has demonstrated that the study of simple structures opens up new ways to improve and refine economists' analyses and predictions.

Hey touts his book as the first textbook designed to provide an introduction to experimental economics, but it really isn't a textbook. It is actually a reference work which covers the research taking place in the field of experimental economics. The prerequisites needed to read this book are an understanding of economic theory, econometrics, and economic methodology. Experiments in Economics would be an appropriate text for the advanced undergraduate taking an elective course in experimental economics, the graduate student adding an experimental component to his or her thesis, or the general economist seeking to learn about the rapidly growing field of experimental economics [p. x]. This book will help fill the gap as the profession waits for the Handbook of Experimental Economics which is to be edited by John Kagel and Al Roth.

Hey is well qualified to write this text since he is co-director of the Centre for Experimental Economics at the University of York (EXEC). It is his intention to provide a practical guide to experimental economics that the reader can use to carry out his/her own experiments [p. 3]. It is also Hey's goal to enable economic experiments to conform to the methodology of experiments in other disciplines. This methodology allows the scientist to carefully test alternative theories, to control for extraneous factors and to isolate the key determinants of scientific process [p. 81].

For those just becoming acquainted with experimental economics, chapter 3 may be one of the most useful chapters in the text. This chapter concentrates on the practical details of conducting both computer based and non-computer based economic experiments. Hey argues that all experiments take on a common framework:

First, we decide what it is a theory of - usually it is a theory of how one or more economic agents choose the value or values of one or more economic variables in the...