Relevance of Laboratory Experiments to Testing Resource Allocation Theory

Abstract

Publisher Summary Microeconomics, including the study of individual choice and of group choice in market and nonmarket processes, has generally been considered a field science as distinct from an experimental science. Hence, microeconomics has sometimes been classified as nonexperimental and closer methodologically to meteorology and astronomy than to physics and experimental psychology. However, the question of using experimental or nonexperimental techniques is largely a matter of cost and generally, the cost of conducting the most ambitious and informative experiments in astronomy, meteorology, and economics varies from prohibitive down to considerable. The cost of experimenting with different solar system planetary arrangements, different atmospheric conditions, and different national unemployment rates, each under suitable controls, must be regarded as prohibitive. This chapter presents a foundation for the study of resource allocation mechanisms entirely in terms of propositions that are testable, and tested, by means of controlled laboratory experiments. It discusses two sets of experiments designed to test hypotheses about the dynamic adjustment behavior of oral double auction markets.