Posted by: TomA | 23 April 2008

Experimental Economics

Experimental economics was an area of particular interest through my undergraduate degree. Nottingham’s CEDEX research centre was the primary reason for returning to undertake my Masters here to continue studying experimental methodology and behavioural theory. Yet studying is one thing – doing another. So it was with some trepidation last week that I undertook my first experiment as an experimenter rather than a subject.

Having spent several weeks planning just how to run it, under the rather limiting classroom circumstances available, it all went fairly smoothly in the end. While this is only just a pilot study, some suggestive results indicate it might be an avenue worth pursuing for my dissertation this summer. Tomorrow morning, I present the results to our class along with the 3 others working with me on this which hopefully will provide some interesting feedback on our experimental design and preliminary results (and these are extremely preliminary).

The experiment looked into the effect of leadership within a voluntary contribution mechanism (the “public goods game”). Previous empirical evidence suggests those individuals that lead face some form of discomfort: in being taken advantage of, having extra effort and demands made of them, in being responsible for others [consider the CEO being the face of a big firm in taking the flak when required and earning a substantial wage premium for this (amongst everything else they contribute)].

So how to best elicit effort and cooperation from all group members? Industrial organisation, economics, business management – all fields for whom such a question is of relevance.

Our design turned out to be beautifully simple, a clean manipulation of established methods which should make it much easier to quickly progress this research further.

While I get around to tidying up the first draft (which I’ll pop online later), here’s the abstract:

The topic of leadership has been a central part of the management literature for some time, yet it has only recently been considered in the economics literature. We extend the work by Guth et al (2007) on leadership in public goods experiments by considering the effect of randomly assigning a leader. We find that when the burden of leading in contributions was randomised amongst group members, high contributions were sustained more effectively than under a single permanent leader.

And to explain these results? Well, standard economic theory doesn’t get anywhere. You’d need to add in a whole host of other potential motivations: conditional cooperation, guilt aversion, social preferences, altruism and more…

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