Experimental economics

Experimental economics uses controlled experiments to study how people make economic decisions and how markets and other institutions work.

Incentive compatibility: A mechanism is incentive-compatible when participants benefit from reporting their private information truthfully. Experiments vary incentives to test whether participants reveal information or act strategically.
Edward Chamberlin: An American economist whose classroom experiments examined whether competitive markets reach equilibrium prices. His 1948 experiments brought controlled market trading into economic research.
Randomized controlled trial: An experiment that randomly assigns units to treatment and control groups to estimate causal effects. Its assignment logic underlies many controlled tests of economic interventions.
Mechanism design: The study of designing rules and institutions to achieve desired outcomes when participants have private information or conflicting interests. Experiments compare how alternative rules perform with real decision-makers.
Observational study: A study that analyzes naturally occurring data without assigning participants to treatments. Unlike controlled experiments, it cannot directly assign the economic conditions being compared.
Random assignment: A procedure that assigns participants to conditions by chance, helping balance preexisting differences between groups. Random assignment helps isolate the causal effect of an experimental treatment.
Vernon Smith: An American economist who developed experimental methods for studying markets and institutions. Smith refined market experiments and established their role in economics.
Causal inference: The process of estimating whether a cause produces an effect using data and explicit assumptions. Experimental economics uses controlled variation to strengthen causal conclusions.
Auction theory: The economic analysis of bidding rules, bidder strategies, and auction outcomes. Laboratory auctions test theoretical predictions before rules are used in practice.
Natural experiment: An observational study that uses an external event or rule change as a source of treatment-like variation. It studies real-world variation without the researcher's direct assignment of treatments.

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