Toward Experimental Economics

Author(s): Barry Castro and Kenneth Weingarten

Source: Journal of Political Economy, Vol. 78, No. 3 (May - Jun., 1970), pp. 598-607
Published by: The University of Chicago Press
Stable URL: http://www.jstor.org/stable/1829654
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Toward Experimental Economics

Barry Castro
Hostos College of The City University of New York

Kenneth Weingarten
Human Resources Research Organization, Monterey

Introduction

Our purpose in this paper is to explain the manner in which experimental

techniques may be systematically applied to the analysis of basic economic
behavior. Our procedure will be: (1) to consider the obstacles that have
been impeding systematic experimental analysis of economic behavior; (2)
to describe a number of experimental techniques that have substantial
relevance to economics but have not, to our knowledge, been previously
noted in the economics literature; and (3) to propose specific experimental
designs that will illustrate the manner in which an experimental economics
can contribute to an understanding of economic behavior.
Our discussion will be confined to the relationship between individual
economic experiences and subsequent individual economic decision
making.' The individual economic experiences to be discussed include the
wage levels to which an individual economic decision maker has had
access, his past employment opportunities, the amount and nature of the
unearned income he has received, and the fluctuations in price level he has
experienced. The types of economic decisions to be discussed include the
decision to work for a given wage or to remain unemployed, the decision
to buy at a given price or to save, and the decision to invest at a given
interest rate or to hoard.

Obstacles to a Systematic Experimental Analysis of Economic Behavior

Systematic experimental analyses of economic behavior have not yet been

developed for a variety of reasons. The most prominent and least often

1 However, we believe that the analysis of social behavior is both relevant to an

consistent with the frame of reference we present here. We intend to undertake such
an analysis in a subsequent paper. Interested readers should refer to Weingarten and
Mechner (1966) who lay down some of the framework for such a study.

8ZO

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 EXPERIMENTAL ECONOMICS 599

considered of these is the economist's almost universal bias against infra-

human experimentation. Thus, while for at least thirty years psychologists
have been reporting infrahuman experiments that include implicit analyses
of economic behavior,2 and even though economists have occasionally
taken note of these reports,3 the original experimental designs that have
been suggested, and, in some cases, carried out by economists,5 have been
confined exclusively to human subjects. Restriction to human subjects has
imposed serious limitations on economic experimentation. These include
an inability to study the effects of substantial economic payoffs and risks,
an inability to eliminate significant contamination by the extraexperi-
mental wealth and income of experimental subjects, an inability to run
long-term experiments, and an inability to avoid distortion resulting from
the experimental subject's awareness of the artificial nature of the experi-
mental situation. While economists have noted these limitations,6 they
have incorrectly ascribed them to the experimental method per se, rather
than to the restriction of that method to human subjects. Consequently,
neither the feasibility nor the full implications of experimental economics
have yet been developed.
The obvious advantage of studying economic problems through experi-
mentation with infrahuman subjects is the much fuller environmental
control that the use of these subjects would make available to the economist.
The greatest potential disadvantage of their use is that species differences
between men and infrahuman subjects may be critical with respect to
economic behavior. However, the extent to which cross-species generaliza-
tions governing the economic behavior of, let us say pigeons, rats, and
monkeys, would not be relevant to men is an empirical question and must
be answered empirically. It is our view that neither the magnitude nor the
nature of such differences should be taken for granted. Thus, we foresee
an intradisciplinary role for experimental economics parallel to that of
experimental psychology within its discipline.

2 See, for example, Thurstone (1931), Wolfe (1936), Kelleher (1958), and Fantino
(1966).
3 For example, Wallis and Friedman (1942) note Wolfe's (1936) "very interesting
economic experimentation on chimpanzees"; Katona (1951) suggests that "the
elaborate experimental work on learning has . .. proceeded as if learning took place
solely in noneconomic behavior.... Psychological experiments may be useful for
economic psychology but, in most cases, they must be conceived, or redone, with that
purpose in mind"; Fellner (1965) notes our unfortunate failure to integrate psycho-
logical experiments on decision making and the relevant economic theory.
4See Samuelson (1937), Wallis and Friedman (1942), Friedman and Savage (1948),
Ellsberg (1954), Archibald (1959), and Fellner (1965).
5See Mosteller and Nogee (1951), Papandreou (1953), McClelland (1958), and
Stone (1958).
6 Wallis and Friedman (1942) suggested that "the fundamental difficulty (with
economic experiments) is that economic phenomena are so integral a part of life that
effective experimentation would require control of virtually the entire existence of the
subject.... It is probably not possible to design a satisfactory experiment for (the
study of) economic stimuli applied to human beings" (italics added).

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6oo JOURNAL OF POLITICAL ECONOMY

Like economists, psychologists are primarily interested in human

behavior, and their reliance on infrahuman subjects has for the most part
been a tactical expedient intended to implement that interest. Economists,
however, have allocated no such role to infrahuman experimentation.
Their reluctance to do so has not been derived from any compelling
theoretical or methodological reasoning but seems to have followed from
several theoretically irrelevant factors: infrahuman experimentation would
have been a radical departure from the profession's traditions; the
psychological literature, which has reported most of the relevant experi-
mentation, is not organized in a manner helpful to the interested econo-
mist; the jargon of the two disciplines is largely noncomplementary; and
highly specialized skills and equipment are necessary to run sophisticated
infrahuman experiments. All of these factors should be regarded as
immediate rather than permanent obstacles for the economist. If, as seems
to us to be the case, these obstacles have thus far altogether deterred the
development of an analytic perspective of considerable importance, there
should be no question but that economists ought to devote some attention
to overcoming them. Our intention is to take what we hope will be a
significant step in that direction.

The Distinction between Work and Purchase

Most of the relevant experimental literature has been reported by psycholo-

gists studying nonreflexive, noninstinctual, learned behavior. The term
generally used to describe this very broad area of interest is operant con-
ditioning.7 In the simplest sort of operant-conditioning procedure, a
regular reinforcement schedule, the subject's performance of some task is
followed by the presentation of a reward, and the subject may reinstitute
the sequence of response and reward at any time. This basic design, which
has been repeated and elaborated in a very great number of experiments,
has an important shortcoming for economists. It allows for no operational
distinction between work and purchase. Thus, while subjects may be said
to "purchase" units of a commodity at the "price" of one response per
commodity unit,8 they may with equal justification be regarded as " work-
ing" for a "wage " of one commodity unit per response. Neither analogue
is compelling and, consequently, neither is very useful. A simple technique
that can be used to discriminate between these concepts operationally has
been presented in the psychological literature. It requires that two re-
sponses be serially executed in order for the subject to be rewarded. The

7 A lucid discussion of the nature of operant conditioning can be found in Keller

and Schoenfeld (1950), Skinner (1953), and Verhave (1966).
8 This conception of price differs from the ordinary economic usage, however,
insofar as the subject has an unlimited supply of purchasing opportunities (unless
limits of physical stamina are reckoned as scarcity).

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EXPERIMENTAL ECONOMICS 6o I

first, or work, response may be said to earn a purchasing credit or unit of

money; the second or purchasing response will be followed by a com-
modity reward. The subject cannot purchase without credits, and he will
not receive credits unless he works.
There is no question but that this sort of design is feasible. It has been
carried out with a variety of laboratory animals. Skinner (1936) first used
it with pigeons as subjects. Wolfe (1936) and Cowles (1937) did similar
work with chimpanzees, Ellson (1937) with dogs, Smith (1939) with cats,
and Zimmerman (1959) with rats. These experimenters demonstrated that
their infrahuman subjects could work for long periods without primary
reinforcement if secondary reinforcers (that is, purchasing credits) were
provided. Some of them also demonstrated their subjects' ability to dis-
criminate between various types of purchasing credits, each of which could
be used only for specified subsequent reinforcers (for example, food of
varying sorts, water, recreational activity) or which could be used only
after various waiting periods had elapsed. However, no experiment we
know of has systematically explored the possibility of independently
varying credits earned for work (wages) and credits required for con-
sumption (prices). Without this step we know only that the sort of design
economists need can be implemented. With it, we will be able to derive
experimental demand functions, experimental labor-supply curves, experi-
mental differentiations between real and money wage responses-that is,
experimental analogues of many of the variables economists have attended
to in studying individual economic behavior.

Money

Purchasing credits, as we have operationally defined them, are a form of

money and, as such, are the central feature of an experimental design
relevant to economic analysis. Money, in both experimental and field
settings, need not necessarily be earned. In experimental settings, its supply
can be controlled by the experimenter (for example, by regular purchasing
credit allowances or by the provision of "windfall" gains and losses). With
infrahuman experimental subjects, as with children, an ability to spend
without earning is a convenient introduction to the use of money. Sub-
sequently, money stocks can be supplemented by the subject's work and
depleted by his purchase, though the availability of work (employment)
and the ability of subjects to use their wealth for purchase in any period of
time (liquidity) can be manipulated by the experimenter.
Experiments, including a number of those already cited, have utilized a
variety of objects to help their subjects keep track of the amounts of money
they have available. Thus, for example, Wolfe (1936) and Cowles (1937)
had their chimpanzees earn poker chips for the completion of work
requisites and required them to surrender these chips when they chose to

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602 JOURNAL OF POLITICAL ECONOMY

consume specified goods; Smith (1939) used rubber balls for a similar
purpose in his experimentation with cats; Skinner has often used light bars
to serve this function with pigeons.
Fantino (1966) made a further advance toward an infrahuman economics
when he reported an experiment in which pigeons refused current con-
sumption opportunities in favor of a subsequent opportunity to receive
still higher rewards. He reported that the tendency to defer current con-
sumption increased both when the ratio of future to current returns was
increased and when the required waiting period was decreased.

Wages

Wages can be defined in a number of ways. A pure piece rate is analogous

to a fixed-ratio schedule of reinforcement (that is, a fixed number of work
responses earning a fixed wage). At the opposite pole, wages may be
received after a fixed time period (hourly, weekly, etc.) regardless of the
number of work responses made. This arrangement is similar but not
identical to a fixed interval schedule in the experimental literature.9 The
typical " real-world " wage scheme combines aspects of both these schedules
in that it requires a minimum number of work responses within a given
time period if wages are to be received and/or if the subject is to remain
employed. Experimental analogues to typical real-world wage schemes
might also stipulate a maximum number of remunerative work responses
(after this number has been reached, further work does not result in wage
payments until a new time period is signalled).
The ability of infrahuman subjects to discriminate between different
wage arrangements has been demonstrated many times and is exhaustively
documented by Ferster and Skinner (1957). Taking wage discrimination
one step further, Findley (1958) has demonstrated that infrahuman sub-
jects (in this case, pigeons) could learn to switch from less-preferred to
more-preferred wage arrangements by making a specified number of
responses which were rewarded only by an increase in wage rate. These
birds were then rejecting an existing opportunity for work (and consump-
tion) and more advantageous opportunities for future work/consumption.
The economic relevance of Findley's experiments is apparent but, like
almost all of the work we have cited, it has not previously been noted in
the economics literature.

Personal Economic History and Economic Decision Making

We have pointed out that the rates at which work and purchase are
available (the current wage and price levels) are subject to the control of

9 See Ferster and Skinner (1957).

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 EXPERIMENTAL ECONOMICS 603

the experimenter, as is the difficulty or regularity of the required work task

and the regularity of the subject's unearned income. While the subject's
economic behavior can be explained in part by current parameters of this
sort, control of these parameters, by themselves, will not permit explana-
tion of all of the variation in the behavior of individual subjects. It is
crucial that these variations not be relegated, as they have been tradi-
tionally by economists, to the indeterminacy of individual differences.
There is ample reason to believe that the subject's "disposition" toward
various reactions to particular wage-price structures will be conditioned by
past wages and prices, by the relative difficulty and duration of past work
situations, and by his previous receipts of unearned income. Aside from
the general findings of experimental psychology which make it reasonable
to suppose that these dispositions are a joint function of current and past
economic contingencies, an experiment of Crespi's (1942) is particularly
relevant. Crespi reported lower levels of performance for subjects who had
previously experienced high rewards than for subjects who had been at a
uniform response-reward ratio for some time. His findings have been
verified and elaborated by a number of experimenters (for example,
Gonzalez, Gleitman, and Bitterman 1962; Davis and North 1967).

Proposed Economic Experiments

Using any wage/price base, a set of interesting questions may be syste-

matically examined by varying both money wages and money prices.
Table 1 describes eleven basic wage-price relationships that could be
experimentally explored.
The nature of a "money illusion," that is, a propensity to react to higher
money wages as an increased reward even if price increases either hold

TABLE 1
BEHAVIORAL RESPONSES TO FLUCTUATIONS IN REAL AND MONEY WAGES

Wage/Price
Relationships Money Prices Money Wages Real Wages

1 .. .. .. increase greater increase increase

2 ........ . constant increase increase
3 ........ . decrease constant increase
4 ...... . . . decrease lesser decrease increase
5 ........ . constant constant constant
6 . . .. increase proportional increase constant
7 ...... . . . decrease proportional decrease constant
8 . . . . . . . . . increase lesser increase decrease
9 ........ . increase constant decrease
10. . . . . . . . . constant decrease decrease
11 . . . . . . . . . decrease greater decrease decrease

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604 JOURNAL OF POLITICAL ECONOMY

constant or diminish real wages (items 6 and 8 in the table) might then be
examined. Cumulative changes in wage-price relationships yield an
analogue to various inflationary conditions (items 1, 6, 8, and 9) and various
deflationary conditions (items 3, 4, 7, and 11). For present purposes, it
suffices merely to refer to the qualitative relationships indicated. However,
when experiments are actually carried out, both the absolute magnitudes
of the wage and price levels used and the relative magnitudes of shifts in
prices and wages will require specification. Thus, our method will lead us
unavoidably to a refinement of the qualitative relationships with which we
begin.
The effects of variations in these parameters over the course of the
experiment (and, as is possible in the case of some infrahuman subjects,
over their whole life span) can also be examined in relation to the sub-
ject's propensity to save (defined as the percentage of credits received
which are not transformed into consumption within a given time period
over which consumption opportunities remain available). The current
general understanding of the speculative motive suggests that consumption
will be held back in "anticipation" of lower future prices when prices are
rising. This understanding is plausible if one can assume that past price
changes have been cyclical. On the other hand, if past price changes have
been linear (over whatever the relevant time frame may be), a speculative
motive should induce increased consumption in anticipation of further
price rises. In other words, it would be reasonable to assume that the
speculative motive is a behavioral extrapolation from previous price
experience. Within the experimental method suggested, not only can
cyclical and linear price changes in both directions and various magnitudes
be examined, but also the response to randomly varying prices.
An increased propensity to save is also commonly explained by the
"precautionary motive," defined here as a function of wages in past work
situations and of the duration and recency of periods of unemployment
(that is, when work responses do not lead to additional purchasing credits
or when subjects do not have access to the apparatus necessary to perform
work responses). Deprivation levels resulting from either unemployment
or very low real wages may be of crucial interest and can be precisely
measured. The effects of the height of an interest rate, of the liquidity of
savings, and of past windfall gains or losses, could provide additional
parameters for an experimental analysis of the propensity to save. Varia-
tions in the liquidity of savings and of past windfall gains or losses can be
easily operationalized, and we will simply note their amenability to experi-
mental analysis here. Interest rates and variations in interest rates can be
similarly operationalized. However, the procedures required are somewhat
more advanced than those previously discussed. Insofar as experimental
use of interest rates is contingent on the prior development of the basic
model described above, and, in the absence of existing experimental

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 EXPERIMENTAL ECONOMICS 605

demonstrations of their feasibility, further discussion of this variable may

well be deferred for the present.

Conclusions

In this paper we have restricted ourselves to what seems to be a demon-

strably feasible experimental mode of economic analysis. Our references to
a number of experiments reported in the psychological literature illustrate
not only the operational feasibility of the proposed method but the
economic relevance of reported results. We do not think it unreasonable
to suggest that we are proposing the exploration of a field with the same
potential relevance to economics as experimental biology and experimental
psychology have to their disciplines. We have not assumed that generaliza-
tion from nonhuman to human subjects or from laboratory to field con-
ditions is without practical difficulties. However, the difficulties entailed in
experimental work seem likely to be more than compensated for by the
tremendous increment in control that experimentation affords.
In concluding, we might remind the reader that the experimental model
we have proposed is restricted to the study of the behavior of single
organisms as they are affected by economic contingencies entirely under
the control of the experimenter. Such a restriction is appropriate at the
present stage of experimental economics. However, an experimental
analysis of economic systems is also possible. The development of such an
analysis would require that the experimenter no longer directly control
variables of the sort discussed in this paper (for example, wage and price
levels). Instead, these variables would be the behavioral output of inter-
acting subjects within an elementary economic system. It is difficult to
estimate the point at which interactive designs of this sort could be
implemented. However, insofar as they do seem to be both highly desirable
and potentially feasible, we think it appropriate to at least call attention
to them here.

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6o6 JOURNAL OF POLITICAL ECONOMY

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