On the occasion of the 10èmes journées d'économie expérimentale, Dijon, 15--16 May 2008, I propose to convey a panel on the methodology of experimental economics vis-à-vis the social embedding of economic behaviour.
Studies in behavioural economics aim at providing a more realistic, empirically grounded, understanding of economic agents. Achieving this would finally make it possible to understand how - as Karl Polanyi noted long ago - economic behaviour is embedded in the social context, and the consequences thereof.Yet, experimental economics is used for theorising regarding the actual cognitive processes and preferences of the agents on the basis of the behaviour of subjects in experimental settings, complying with the experimenters' instructions. Bringing subjects into the lab is often interpreted as a means of abstracting from the complexity of the social context. Is this really the case? And what does this imply for the significance of experimental results?
This panel of the "Journées d'éco-expé" will question the explanatory power of experimental economics for understanding the behaviour of economic agents as situated social agents.
For example, economic anthropologists have studied how socialisation and enculturation influence economic behaviour, taking issue with the neoclassical economic view of decision making. And they have advanced several arguments in favour of alternative ways of understanding the decision making process.
Psychological theories of ecological rationality and situated cognition suggest additional reasons for questioning the applicability of the results of experimental economics.
Herbert Simon and Gerd Gigerenzer have insisted that human rationality is ecological: it is better understood as a match between cognitive processes and the environment in which they occur. Yet, experimental methods put subjects into new, artificial, environments. How can we understand the ecological rationality underlying agents' decisions when the subjects are taken out of their usual environment? With economic cognition knowledge of the social context should be highly relevant for understanding its ecological rationality.
Jean Lave has shown that people were solving problems when shopping, that they were unable to solve in other environments, as inside the classroom. What does the behaviour of subjects in the new environment designed by the experimenter, deprived of their usual cognitive tools, reveal about the cognitive basis of their behaviour in their usual environment and the ecological rationality of their decisions?
In the face of the problems experimental results raise for the classical picture of homo oeconomicus two explanatory strategies are possible. The first consists in changing the utility functions and adding constraints in the calculation of maxima. The second consists in taking the results as further data about actual mental processes: do subjects calculate costs and benefits, or do they apply some heuristics? The problem is that the data from experimental economics underdetermine these theoretical choices.
How can we integrate results from experimental oeconomics with data from other social sciences (history, sociology, social anthropology)? Can we develop economic theories compatibile with, or informed by, their theories based on fieldwork? There is already a body of field studies on decision making that have been gathered by economic anthropologists, but these data remain poorly integrated in the discipline of economics. The project of this panel is to think about the implications that sociology, social anthropology and economic history have for experimental economics, and vice versa.
Programme:
I use an experiment on peer effects in learning processes to show how experiments provide suitable information on the social determinants of behaviour. More specifically experiments can identify social effects where other quantitative methods fail. My result is that experiments as a methodological tool can deal, to a certain extent, with the social embedding of economic behaviour and cognition.
Education is a good example how experiments can identify social determinants of behaviour. Workplaces are another examples. It is a long-standing hypothesis that the performance of a student depends on the behaviour and characteristics of his fellow students. The existence and properties of these peer effects influence the welfare implications of educational policies. However, the identification of peer effects in field data is very difficult. Econometricians invest great effort to identify quasi-experimental evidence on peer effects from administrative or survey data. The ideal data set would observe the same individual at the same time in the same environment but with a different peer. Such a data set is not available. Hence, researchers actually face a trade-off between internal and external validity. Either they take non-experimental data from surveys or administrations and turn them into quasi-experimental evidence as far as possible. Almost all contributions in the literature have followed this part. Or they generate data in a real experiment with key characteristics of a real world learning process.
Experiments can provide complementary results to the econometric approach. The experiment circumvents four problems which typically restrict the analysis of peer effects with field data:
The results confirm the benefits from cooperation in a learning context. In particular, prospective cooperation has a motivational effect. The additional "instructional" benefit from actual cooperation is not significant across all specifications. Furthermore, the benefit from cooperation is independent of the characteristics of the partner.
Keywords: Learning - Peer Effects - Experiment - Economics of Education
Neoclassical economic theory is considered as a powerful and relevant tool for counter-terrorism public policies (Enders & Sandler, 1993). Indeed this theory offers a framework for the comprehension and the analysis of terrorist behaviors. Terrorists are considered as rational human beings who would try through their opportunities to maximize their utility under a resource constraint. Furthermore they are endowed strategic skills that give them a global view of their environment. According to economic theory, terrorists manage and coordinate their actions to realize their objectives. Rational choice theory and game theory introduce mathematical applications of economic theory to this type of behaviors.
However the application of economic theory to terrorism has not convinced the community of researchers. Incapable of predicting terrorist acts, economic theory has been challenged by a large literature that is often opposed to an homo oeconomicus behavior of terrorists. Since specialists have not been able to agree on a common definition of "terrorism", why would they acknowledge that kind of terrorist behavior model? This chaos inside the scientific community illustrates the character multiform but also complex of terrorism. Its classification as a "political label" (Crenshaw, 1995) explains in part the confusion that is predominant around this notion. Here subjective points of view that are best illustrated by the formula "terrorists of some are freedom fighters of others", overcome objective ones and impede the analysis of terrorism as a phenomenon.
But there is a fundamental need to understand terrorist behaviors to protect persons and goods. Thereby it is necessary to lead an interdisciplinary research that will take into account remarks and hypothesis of researchers from various fields. Psychological and sociological approaches appear particularly interesting to enrich the simple economic vision. Indeed theses approaches allow us to open the black box of terrorist behaviors. In the same perspective we observe the recent developments of new methodological tools that can improve our knowledge of behaviors. For example, experimental economy is a recent tool that uses psychological experimentations. Through an experiment of a simplified economic situation in laboratory, experimental economy allows to test individual and collective behaviors. Agents interact in the framework of a game that has been designed by the experimenter (Denant-Boèmont, 2003). In the same perspective of simulation, Agent Based Model also constitutes a recent tool in the comprehension of complex phenomena. These computed model allows to explore some behaviors by simulating actions and choices of autonomous agents. These simulations have been already tried in the framework of terrorism (Epstein, 2002 ; Smith, 2002 ; Raczynski, 2004).
My goal being the construction of a relevant model of terrorist behaviors, it is particularly interesting for me to look at these different methods of analysis. But in doing so, I need to question their relevance to the particular case of terrorism. Terrorism if complex and multiform is also secrete and political. Thus I wonder myself : which places can take economic theory, agent based model and experimental economy in the framework of terrorist behaviors study ? Are these methods complementary? Are they applicable to terrorism? I will try through this communication to give some elements to answer these questions.
Key - words : Terrorist Behaviors - Economic Theory - Rationality- Terrorism - Game Theory
Viewed from the standpoint of social anthropology, one of the most crucial tests of the evolutionary theory of cooperation is its ability to predict patterns of cooperation between kin. This is because the notion, embodied in Hamilton's famous equation - that kinship altruism is predictable from a combination of costs (to the giver) and benefits (to the receiver) weighted by the degree of genetic closeness - appears to conflict with some central and well-established social anthropological findings. These include the facts that kinship reckoning in many human societies is not directly based on genetic (or rather genealogical) closeness as understood in western cultures, and that ritual and pragmatic procedures to modify kinship affiliations during a person's lifetime are also widespread.
This difference in perspective has been one of the barriers to fruitful interaction between evolutionary theorists (including evolutionary anthropologists) on the one hand, and social anthropologists (and many other social scientists) on the other. Recently these barriers have shown some signs of becoming less rigid, and a number of social anthropologists have begun to use experimental games to investigate principles of cooperation in the communities which they study, combing these with insights from more conventional ethnography. However, experimental games are not well adapted to investigate cooperation between kin, because the principle of anonymity - which is built in to the methodology (at least in its current versions) - makes it impossible to investigate what happens when the players are aware of the relationship between them. It would be possible to ask the players to imagine that they were in certain kinship relationships, but a more obviously convincing approach would be to investigate the real-life patterns of cooperation between individuals and their known kin.
In the KASS project - financed by the EU's Sixth Framework research programme, and coordinated by the Max Planck Institute for Social Anthropology - we have developed a method of doing this. The method is centred on a computerised questionnaire. which guides interviewer and informant to provide a systematic account of the informant's genealogical and affinal ties, and then to record both practical cooperation and social and ritual interactions between the informant and the members of this network of known kin as well as with certain other close cooperators. This systematic data collection is combined with free-format ethnographic fieldwork. In this paper I will present some of the findings relating to cooperation between kin and non-kin in the European societies covered by KASS. I will conclude by considering how the method might be extended to provide comparable data for non-European societies.
The proposed paper synthesises our experience with different economic field experiment from four countries and action research undertaken additionally in two of the countries. The experiments discussed in this paper were carried out in rural communities of Namibia, South Africa, Cambodia and Vietnam. The action research was undertaken in rural communities of the Asian countries.
Framed field experiments were designed to clarifying prerequisites that enable individuals to successfully manage communally owned or communally managed natural resources. For that purpose the context of the resource system needs to be adequately framed in the experiment to simulate a real world situation. Similarly, action research aims at observing the collective effort of an externally initiated community-based project. While context is provided by the natural environment and the group of participants, action research is uncontrolled as it has a nature dynamic, adapting to real-life situations and involves the local people in a process of continuous change. By discussing the main results from the studies, the paper tries to answer both methodological questions of doing experimental and action research as well as the question of external validity that should be dealt with once policy implications is to be drawn from the two research approaches. Field experiments use replication and a more or less controlled environment to enhance the external validity obtained through theoretical research and laboratory experiments. Although, action research not a natural experiment we argue, that action research (or long term anthropological studies) is the logical companion of field experiments to further guarantee and test external validity in a certain field context.
The proposed paper critically reflects on the strength and weaknesses of the two approaches when applied isolated or combined, highlighting the question of external validity and discusses some methodological implications for the design of a research study using both framed field experiments and action research.
Keywords: Field experiments; Action research; External validity; collective action; natural resource management.
Ecological rationality has been defined by Gerd Gigerenzer et al. (1999) as the property of a heuristic: "A heuristic is ecologically rational to the degree that it is adapted to the structure of an environment." This definition was recently adopted by the father of experimental economics, Vernon Smith (2008). Although these two thinkers share a concept of ecological rationality, the research programs directed by them diverge in their focus. Smith is concerned with "adaptations that occur within institutions, markets, management, social and other associations governed by informal or formal rule systems," whereas Gigerenzer describes his goal as developing testable models of fast and frugal heuristics. In studying institutions, the unit is a group. Fast and frugal heuristics, on the other hand, are primarily rules of thumb used by individuals as strategies in response to problematic situations. The connection between these two traditions is what I aim to work out.
I have previously used Jean Lave's study of choice in the market place (Mousavi and Garrison, 2003) to advocate the relevance of John Dewey's theory of inquiry to economic decision making. Here, I will use an analogous pragmatic view to bridge individual and collective levels of choice procedures in terms of ecological rationality. The main question I explore here is, "Can an original theory of behavior be deducted from mere observation?" The short answer is "No!" I take this as the first methodological agreement between the traditions established by Gigerenzer and Smith and extend it to an elaborative discussion toward finding the requirements of a behavioral theory, paying specific attention to the role of experimental findings. In doing so, I (1) argue that such a theory is conceivable, (2) examine the necessity of the constructivist view of economics rationality and its compatibility with such behavioral theory, and (3) outline some components of a plausible behavioral theory. My arguments are informed by interviews that I have conducted with both Gigerenzer and Smith.
References:
Gigerenzer, Gerd; Todd, Peter, and the ABC Research Group (1999). Simple Heuristics that Make Us Smart. Oxford University Press.
Mousavi, Shabnam; Garrison, Jim (2003). "Toward a Transactional Theory of Decision Making: Creative Rationality as Functional Coordination in Context," Journal of Economic Methodology 2003, 10(2), 131-156.
Smith, Vernon (2008). Rationality in Economics: Constructivist and Ecological Forms. Cambridge University Press, NY, USA.
Keywords: ecological rationality; experimental economics; fast and frugal heuristics; rules of thumb; institutions.
Ancient Greeks or Egyptians did not know statistics. As Kahnemann and Tversky first pointed out, still at the end of the 20th cent. there were no people able to prefigure events in terms of statistic previsions. So, in order to calculate risks and benefits, probably there have not been any mental physiological changes during the last 6,000 years, at least. Analogy can be fully reaffirmed as a well-founded research tool.
Egypt inhabitants had to hold up their land economy in spite of frequent climatic unexpected events, such as the Nile flood could be. However, Ancient Egypt land economy was particularly steady. How did they chose their strategies? What kind of idea of risky or riskless did they build up, expecially when Greek people came to govern the land, and slowly they all got mixed into a multicultural society?
Some ancient economic behaviours of both lawmakers and tax evaders have been interpreted as 'irrational'. At the end of the last century, the 'bounded rationality' became the mainstream theory used by scholars to explain phenomena such as too strict fiscal measures or large scale purchases when prices were on the rise. However, using Prospect Theory and, generally, a cognitive approach, I try to offer a new key to understand the reasons of many of these fiscal/economic actions and reactions, and to answer to the questions above.