Economic Analysis of Data from Laboratory Experiments: Endogeniety, Attrition, Subject Heterogeniety, and Interdependencies

Ohio State University Research Foundation -Do Not Use, Columbus OH

Investigators

Abstract

This proposal addresses a number of issues involved in the statistical analysis of data from laboratory experiments in economics. Experimental work in economics is of growing importance to the field, but the statistical analysis of data from these experiments is still relatively primitive compared to the opportunities available and the research issues posed. The purpose of our investigations is both methodological and substantive: Methodological in the sense of demonstrating applications of modern statistical (econometric) techniques to data analysis issues of central concern to experimenters, and refining applications of these techniques to the special questions (and opportunities) that laboratory experimental data pose. Substantive in that a number of the particular issues addressed have been of concern in the literature, so that the new experiments proposed here, and the corresponding data analysis, should provide new insights into the issues at hand. Work is proposed on a number of issues. (1) In common value (or mineral rights) auction experiments there is a significant self-selection effect as bidders who fall prey to the winner's curse lose money, often go bankrupt, and end the experiment with very little money. As a consequence they tend to self-select out of returning for subsequent experimental sessions which can lead to important biases in the conclusions reached regarding the behavior of more experienced bidders. The plan is to both measure the bias and to explore different ways of dealing with it, both statistically and in terms of experimental design. (2) One common method in economic experiments is to provide repeated trials with payoffs within a given experimental session to provide subjects with experience with the economic contingencies involved. This leads to subjects accumulating earnings from the experiment over time whose effect is typically ignored, or when studied fails to account for the endogeneity of changes in these earnings. This in turn can lead to important biases in the analysis of auction outcomes. We plan to determine why agents are subject to such effects when economic theory suggests that they will not be, and to extend the experimental methodology developed to study the impact of earnings on cash balance effects in mineral rights auction experiments. (3) Economists have long suspected that performance in economic experiments reflects, at least in part, the experiences of subjects outside the lab as well as their demographic characteristics. We will study this systematically by collecting relevant demographic and experiential data on subjects borrowing methods developed in the statistical analysis of field data. (4) In many economic experiments there are potential interdependencies between individual subject observations associated with repeated observations of a group of subjects within a given experimental session. We plan to explore this issue in a number of different settings and to devise ways for dealing with it. (5) Often when statistically evaluating behavior in economic experiments investigators assume that all, or most, response coefficients are constant across subjects. This is likely to be incorrect in a number of cases. We plan to study ways of accounting for this response heterogeneity across individuals in such cases.