Summary
Summary Experimental Economics (FEM11089)
- Course
- Institution
Summary/notes of the lecture video slides, considers all the course material for the exam.
[Show more]
Seller
Follow
veras1
Reviews received
Content preview
Summary Experimental EconomicsLecture 1: Causal Inference
Experiment
- Scientific procedure
- Controlled data generating process
o Control = the power to keep all factors that influence behavior constant, except the
factor of interest.
o Data generating process = experimental economists create their own data.
Causal inference
- Confounding effects bias results, additional effects never do before and after
calculations always T vs. C
- Selection bias exam will be on this for sure
o Randomization
o Extra reading on topic: Angrist & Pischke (2009) Mostly Harmless Econometrics CH2
- Classic pitfalls
o Do before & after calculations
o Compare between subjects treated and subjects not treated not comparable
because of confounding effects & selection effects
o Example Apple users have more sex than Android users wrong causal relation
- Counterfactual
o Construct from naturally occurring data
Diff-in-Diff
Propensity score matching
o Construct by creating data
Lab experiments
Counterfactual from naturally occurring data
- From data construct T and C groups
- Three conditions:
o T and C group must be the same in absence of the treatment, on average
o T and C group should react to treatment in the same way
o T and C group cannot be exposed in isolation to a third factor no counterfactuals
in your data
- Diff-in-Diff
o Subtract t+1 from t from C
o Subtract t+1 from t from T
o Subtract C from T no confounds, no
selection bias
o Major assumption:
Parallel trends assumption =
observed and unobserved
characteristics remain constant
over time
o Used when selection bias is likely
, o Popular tool to analyse natural experiments when an exogenous shock occurs
E.g. lockdown
- Propensity score matching (PSM)
o Match a treated subject to an ‘identical’ untreated subject
o Major assumption: unobserved characteristics are equal for treated and untreated
match
o When to use?
No baseline period available
When subjects are not randomly put into treatments, selection bias issue
o Ideally match identical in all reports, however: the more dimensions the harder
Curse of dimensionality
Rosenbaum & Rubin (1983) overcome this curse:
Estimate the probability that a subject is treated
I.e. Probit estimator
Match subjects based on this estimate
Counterfactual from creating data experiments
- Construct own T and C
- Same three conditions must hold
- Two major problems with natural data are solved by creating data:
o Confounding effects: a properly designed experiment has none
o Selection effects: randomization
- Selection bias
o Example of grading your health in EMC vs. city centre higher grades in centre
hospitals make you ill wrong
o If subjects choose themselves to undergo treatment, there will be selection bias
o
, o
- Randomization takes out selection bias effect
Conclusion
- Experiments are perfect for causal inference because:
o Counterfactual can be observed
o No confounds
o Through randomization no selection bias
- Setting up a proper experiment is not always easy
Lecture 2: Economic Experiments
Recap
- Causal effect & selection bias
- Experiments isolate the causal effect, allow us to observe the counterfactual and if we don’t
have confounding factors then we observe the causal effect
Microeconomic systems
- Experiments are like microeconomic systems
- Two elements play a key role:
o Environment (physical things)
o Institution (rules of the game)
- Environment
o Consists of:
N economic agents
K+1 commodities (incl. resources) 0, 1, …, K the +1 = money
Characteristics of each agent i:
Utility function ui
Technology (knowledge) endowment Ti
Commodity endowment vector wi what we give them, physical
e = (ui, Ti, wi) summary
i
o Microeconomic environment: e = (e1, …, eN)
o Initial set of conditions that cannot be changed by the agents
- Institution
o Language: M = (M1, …, MN) consisting of
Messages: m = (m1, …, mN) that agents send
E.g. bids, offers, acceptance
o Allocation rules: H = (h1(m), …, hN(m)) benefit
, The rule hi(m) states the final commodity allocation to each i as a function of
the messages sent by all agents
o Cost imputation rules: C = (c1(m), …, cN(m)) cost
The rule ci(m) states the payment to be made by each agent as a function of
the messages sent by all agents
o Adjustment process rules: G = (g1 (t0, t, T), …, gN (t0, t, T))
Starting rule: gi (t0, ., .)
Transition rule: gi (., t, .)
Stopping rule: gi (., ., T)
- Example: auction market
o N agents buyers and sellers
o Commodities products offered by sellers
o Characteristics
Buyers u = utility minus price
Sellers u = price minus costs
o Commodity endowment vector w cash & goods
o Messages bids & offers
o Allocation rules highest bidder gets good
o Cost computation rule buyer pays price to seller
o Adjustment rule (timing of the game)
Price cannot be smaller than 0 (t0)
New bid > old bid (t)
If no bid follows the previous bid the market ends (T)
- Microeconomic systems
o ‘property rights’ in communication and exchange are given by:
Ii = (Mi, hi(m), ci(m), gi (t0, t, T))
o Microeconomic institution is the collection of property rights:
I = (I1, …, IN)
o Microeconomic system is the microeconomic environment together with the
microeconomic institution
S = (e, I)
- Lab vs. real world
o Observable in real world
Agents
Physical commodities and resources
Endowments (physical commodities & resources)
Language and property rights
Outcomes
o Observable in lab
Utility function
Technological endowments
Agent message behavior (private and unrecorded in real world)
Sufficient conditions for a microeconomic experiment
- Experiment gives control, but also gives insight in preferences
- Example: wine buying for cost price or 100 euro
o Buy me a bottle of wine, I will pay you back
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller veras1. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $5.90. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
54879 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now