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Course Description

Experimental Economics

Daniel Houser

George Mason University, USA

This course introduces students to experimental economics, with a particular focus on the way experimental economics has contributed to cognitive science. A robust model of individual decision making is developed. This model is used to motivate experimental investigations of cooperation and trust, the way cooperation and trust vary between individuals and the impact this can have on cooperative outcomes in groups. These findings are used to motivate experimental research on sanctions and their efficacy in enforcing cooperative outcomes. Within this context students are introduced to brain imaging studies of trust and cooperation, which provides initial exposure to research in neuroeconomics.

Lecture 1. Individual Decision Making

Required readings:

Camerer, C. (1995). “Individual Decision Making,” in Kagel, J. and Roth, A. (eds.), Handbook of Experimental Economics. Princeton University Press.

Optional readings:

Smith,V. (1994). “Economics in the Laboratory “Journal of Economic Perspectives, Vol. 8, No. 1, 113-131

Lecture 2. Individual Differences

Required readings:

Kurzban, R. and Houser , D. (2005) “Experiments investigating cooperative types in humans: A complement to evolutionary theory and simulations.” Proceedings of the National Academy of Sciences of the United States of America.

Optional readings:

Houser, D., Keane, M. and McCabe, K. (2004). “Behavior in a dynamic decision problem: An analysis of experimental evidence using a Bayesian type classification algorithm,” Econometrica, 72(3), 781-822.

Houser, D., and Kurzban, R. (2002). “Revisiting Kindness and Confusion in Public Goods Experiments,” American Economic Review, 92(4), 1062-69.

McCabe, K., Houser, D., Ryan, L., Smith V. and Trouard, T. (2001). “A functional imaging study of cooperation in two-person reciprocal exchange.” Proceedings of the National Academy of Sciences of the United States of America, 11832-11835.

Lecture 3. Trust and Markets

Required readings:

‘Economic Man’ in Cross-cultural Perspective: Behavioral Experiments in 15 Small-scale Societies, by J. Henrich, R. Boyd, S. Bowles, C. Camerer, E. Fehr, H. Gintis, R. McElreath, M. Alvard, A. Barr, J. Ensminger, N. Smith Henrich, K. Hill, F. Gil-White, M. Gurven, F. Marlowe, J. Q. Patton and D. Tracer. (Unpublished manuscript.)

Optional readings:

Hoffman, E. McCabe, K. and Smith, V. (1998). Behavioral Foundations of Reciprocity: Experimental Economics and Evolutionary Psychology. Economic Inquiry, 36, 335-352.

Trust: The Social Virtues and the Creation of Prosperity, by F. Fukuyama, 1996, Free Press (especially Part I.)

Hoffman, E., McCabe, K., Shachat, K., and Smith, V. (1994). PRequired readingss, Property Rights, and Anonymity in Bargaining Games. Games and Economic Behavior, 7, 346-380.

Lecture 4. Sanctions and Avoiding Market Failure

Required readings:

Houser, D., Xiao, E., McCabe, K., Smith, V. (2005) “Sanctions, Intentions and Cooperation,” (Unpublished manuscript, George Mason University)

Optional readings:

Fehr, E. and Rochenbach, B. (2003) “Detrimental Effects of Sanctions on Human Altruism,” Nature, March 13, 137-140.

Gneezy, U. and Rustichini, A. (2000). “A Fine is a Price.” Journal of Legal Studies, 1-18.

Fehr, E. and Gachter, S. (2000). “Cooperation and Punishment in Public Goods Experiments.” American Economic Review, 90(4), 980-995.

Lecture 5. Neuroeconomics

Required readings:

Xiao, E. and Houser, D. “Emotion expression in human punishment behavior.” Proceedings of the National Academy of Sciences of the United States of America.

Optional readings:

Houser, D., Bechara, A., Keane, M., McCabe, K., and Smith, V. “Identifying individual differences: An algorithm with application to Phineas Gage.” Forthcoming in Games and Economic Behavior, special issue on Neuroeconomics.

Kurzban, R. and Houser , D. (2005) “Experiments investigating cooperative types in humans: A complement to evolutionary theory and simulations.” Proceedings of the National Academy of Sciences of the United States of America.

McCabe, K., Houser, D., Ryan, L., Smith V. and Trouard, T. (2001). “A functional imaging study of cooperation in two-person reciprocal exchange.” Proceedings of the National Academy of Sciences of the United States of America, 11832-11835.

Small Group Sessions

Small groups meetings will be used to provide an extended discussion of the topics covered in the larger group meetings.

Assignments

Students wishing to receive credit for this course must (i) verify their attendance by providing a one paragraph summary of the main points from each lecture; and (ii) produce a five page proposal for original experimental research on cooperation. This proposal should (a) indicate the specific research question and hypotheses and motivate the question’s importance; (b) fully describe an experiment that will address the research question and indicate clearly how the hypotheses are tested; (c) speculate on the results of the research: precisely what will have been learned.

Daniel Houser

Daniel Houser earned his B.A. in Mathematics at the University of Wisconsin at Madison, and his Ph.D. in Economics at the University of Minnesota in 1998. He was a member of the economics faculty at the University of Arizona, and since 2002 has been Associate Professor of Economics at George Mason University. In addition to the economics department, Professor Houser holds faculty affiliations in the Interdisciplinary Center for Economic Science, the Center for Study of Public Choice, the Center for Study of Law and Neuroeconomics, and the School of Computational Science. He has published widely in leading science journals, and is associate editor of the Journal of Economic Behavior and Organization. Professor Houser has previously lectured at experimental economics summer schools held by the University of Arizona, George Mason University, the International Foundation for Research in Experimental Economics, Purdue University, University of Mannheim and the Russell Sage Foundation.