Experimental Economics Is Experiment on Economics!

experemetecoWhen I am generally asked the question – “What the modern economy should look like?” I am quick to prompt that “It should be nothing like traditional but experimental.” It has been long time since Traditional Economics (TE) has been giving its way to Experimental Economics (EE).  EE has been gaining popularity due to its broader coverage of topics such as Markets, Evolutionary game theory, Decision making, Bargaining, Auctions, and Coordination. Additionally, it adheres to Social Preferences, Learning, and Field Experiments – which are more psychological factor of human being – that discerns it from TE.

As I have noted the focus behind EE comparing to TE is distinctive. EE approaches to economic aspects from social point of view, alias TE monetary. Thus, while suppresing/motivating certain economic activities traditionalists tap down monetary values, while experimentalist social values of it, saying “LET’S SEE IT FROM BEHAVIORAL POINT OF VIEW” 

In support of my arguments I would like to relay some of my deliberations:

  1. Year 2010 – US state municipality considered the issue of blood donation. Traditionalists said — “Should you want to increase blood donation among the population, simply increase monetary benefits of it (amount money provided per gram of blood), and watch how people stand in row to donate blood!!!”

Experimentalists took another approach adhering to social and psychological values conveying the idea of blood donation. They campaigned that blood is irreproducible element, and thus it is in constant demand for accident victims, hemophiliacs, surgeries, infants and patients battling cancer. They also underlined that every day more than 800 women die giving a child birth and the loss of blood is the major issue that accounts for 34% for African, 31% for Asian and 28% for Caribbean women deaths. Thus, by donating blood, which is eight to 10 minute harmless procedure, we are saving the lives!!!

The result – EEs campaign blood donator clearly overcame in numbers TEs several folds!

  1. Another issue was raised several years ago in Israel, when some kindergarteners criticized parents for taking away their children late from children garden. Traditionalists proposed to fine late-comer-parents. And as the matter of fact, they did so! Contrary to the expectations – both TE and EE – number of late-comer-parents increased, exactly after imposing the fine! Why? Later on, the research revealed, as long as parents paid fine for being late, they felt that “It was OK to come late!” after all they are paying for it!

Again, experimentalist took another approach revealing parents how their children may be hurt when their parents are late, and how much they mentally suffer to see when his/her friend’s parents come in time to take away.

Yes, that is a true story! That is why I always say taxing/feeing/fining everything is not a reasonable solution.  Here is the sage for government officials!

  1. Finally, to test the strength of my theories I came up to my friend, who is a police officer and regulates traffic/street here in Tashkent. I asked him – “How often do the drivers break the rules?” He said – “One or two times every hour generally.”  Then, I asked his idea “What if he would stand in explicit place to control the traffic and demonstrates his presence to drivers (instead of hiding in treacherous lots preying for a rule-breaker, such as behind the trees, in front of a parked car or within people in the stations and so on)?”

After several insistences (and a bit of money) I managed to convey him to stand in the middle of street junction without doing anything. “Just stand for three hours – that’s it! Demonstrate your presence, and let the drivers see that you are there! (No need for whistle blowing or difficult hand maneuvers or regulating traffic). ”

Again, my theory of EE did not let me down.  Three hours passed and not a single rule-breaker! By doing so I just wanted to check my theory “that people believe in what they see more, than written rules, regulations or high fees,” and conducting things in transparent way increases the efficiency.

Here is the meal for the brain – respected police officers!

In conclusion, I wanted to relay the idea that economic scope is not subject to fees, fines as well as taxes, and that XXI century economics has to be practiced in greater senses – without fear of experimenting!

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