The Problem with (Some) Experimental Economics
By David Henderson
On Facebook today, a friend posed the following question that he had heard in a sermon:
Would you rather have $100K for your own use OR $1M to be given away (anonymously to a good cause with whom you have no direct connection)?
Some people chose the second choice. I needed to know more. So I said:
Not enough information. Do I get to choose the cause and the particular organization?
He answered that I do. But because time passed between each question and answer, I had another thought:
My honest answer is that even though I’m wealthy, I’ve still got to think about it. A big part of the issue: how effective will this $1 million be.
He didn’t answer that. Then I went to do an errand and came back with another thought: where does the $1 million come from? So I wrote:
Another question whose answer I need to know before choosing: who’s giving the $1 million. What would he/she/they do with $900K if I take $100K
He didn’t answer this one either.
The whole thing got me thinking about an objection that I’ve had to some experimental economics, similar to one that Steve Landsburg expressed in 2002. Steve pointed out that in the particular experiments he was discussing, the experimenters learned that none of the “subjects” seemed to care about the people donating the money. (Steve assumed, probably correctly in some cases, that taxpayers were paying.) But after I thought about it a bit, I did care. And I didn’t care just about taxpayers; I cared about the donor and about what the donor would have used money for.
That got me thinking about the issue more generally. Notice that I had time to ask questions. My impression about most experimental economics is that the subjects don’t get to ask questions. Also, I had time to think about things. My thinking above happened over a period of about 3 hours. My impression is that most experimental economics subjects get very little time to think and don’t get to consult with other people about their choices. Yet in most real decisions we get time to think and to talk to others. Richard McKenzie made that point in this Econlib article. I think that’s a big part of what he discusses in his book, Predictably Rational.