Laboratory Experiments in Economics: The Implications of Posted-Price Institutions

Abstract

A laboratory experimental methodology has been developing in economics in recent years. The nature of the methodology is to integrate clearly motivated but largely subjectively determined human decisions with the organizational features of markets. The article summarizes the nature of the incentive system and how market organization can be used as an independent variable. Initial basic research results that involved the assessment of the effects of posted price organization demonstrated that the effect of the institution is to raise prices and lower market efficiency. The existence of such effects and the close proximity of the laboratory posted price institution and rate posting institution required by the government in several industries has led to a series of policy related experiments. The results have also led to more basic research efforts on seemingly unrelated topics.