economics economics

Topics: Experiment, Empiricism, Economics Pages: 6 (1975 words) Published: October 29, 2013
By: Ravisha Sodha


Field experiments occupy an important middle ground between laboratory experiments and naturally occurring field data. The underlying idea behind most field experiments is to make use of randomization in an environment that captures important characteristics of the real world. Distinct from traditional empirical economics, field experiments provide an advantage by permitting the researcher to create exogenous variation in the variables of interest, allowing us to establish causality rather than mere correlation. In relation to a laboratory experiment, a field experiment potentially gives up some of the control that a laboratory experimenter may have over her environment in exchange for increased realism1 Field experiments can be a useful tool for each of these purposes. For example, Anderson and Simester (2003)2 collect facts useful for constructing a theory about consumer reactions to nine-dollar endings on prices. They explore the effects of different price endings by conducting a natural field experiment with a retail catalogue merchant. Randomly selected customers receive one of three catalogue versions that show different prices for the same product. Systematically changing a product’s price varies the presence or absence of a nine-dollar price ending. For example, a cotton dress may be offered to all consumers, but at prices of 34, 39, and 44 dollars, respectively, in each catalogue version. They find a positive effect of a nine-dollar price on quantity demanded, large enough that a price of 39 dollars actually produced higher quantities than a price of 34 dollars. Their results reject the theory that consumers turn a price of 34 dollars into 30 dollars by either truncation or rounding. This finding provides empirical evidence on an interesting topic and demonstrates the need for a better theory of how consumers process price endings. Another example, Karlan and List (2007) is an example of a natural field experiment designed to measure key parameters of a theory. In their study, they explore the effects of ‘price’ changes on charitable giving by soliciting contributions from more than 50,000 supporters of a liberal organization. They randomize subjects into several different groups to explore whether solicitees respond to upfront monies used as matching funds. They find that simply announcing that a match is available considerably increases the revenue per solicitation – by 19 percent. In addition, the match offer significantly increases the probability that an individual donates – by 22 percent. Yet, while the match treatments relative to a control group increase the probability of donating, larger match ratios –3:1 dollars (that is, 3 dollars match for every 1 dollar donated) and 2:1 dollar – relative to smaller match ratios (1:1 dollar) have no additional impact.3 NEED AND TYPES OF FIELD EXPERIMENTS:

Within economics, much experimental research has taken the form of laboratory experiments in which student volunteers gather in a research lab to make decisions. Work using laboratory experiments has offered a variety of insights. For example, Smith’s research illustrated the robustness of market mechanisms in reaching an equilibrium price, showed the effect of institutions on allocations, and explored the formation and dissolution of asset bubbles in markets, among other lessons. However, results in laboratory economics are inevitably subject to questions over the extent to which they generalize to non-laboratory settings. One concern is that such experiments are often done with college students as subjects. Thus field experiments play a very important role here because of the mere fact that they do not involve students or a sample but participants drawn from the market of interest, i.e., the market where the experiment has to be conducted. Of course, a plausible concern about laboratory experiments in economics, whether the participants are...
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