It started in 1948. Laboratory methods were first used to test economic theories when the U.S. proved unable to bounce back from the Great Depression. Economists wondered if standard predictions about market outcomes could actually explain behavior. To evaluate this, Edward Chamberlin had his Harvard grad students play a game featuring buyers and sellers. “The novelty was that the investigator could directly see both the supply and the demand curve and thus evaluate results in terms of a specific prediction,” explains economics professor Doug Davis.
Jump to 1986. VCU had just opened its Experimental Laboratory for Economics and Business Research -- one of the first in the country dedicated to computer-mediated experiments in economics. Thanks to a grant from IBM to network computers, VCU could became an active participant in this now burgeoning research area.
“Economics is a mathematical field,” explains Davis, who oversees the lab. “With simple lab experiments, you could evaluate directly the predictive power of theories. It’s not an arcane exercise. Policies are based on theories. If the theories don’t work in a streamlined laboratory environment, how can they explain what happens in the complex real world?”
Fast forward to 2017. Seniors in Davis’ Experimental Economics class test theories in the lab by designing experiments, collecting data, analyzing results and preparing a paper. “The lab is useful for teaching,” says Davis. “It allows a student to see what’s involved in asking a question and figuring out how to get an answer. Experiments teach students to frame questions in a way that allows evaluation with statistics so they can draw conclusions. The better students can really soar.”
However, economics students aren’t the only ones who avail themselves of VCU’s experimental lab. Currently six faculty members are actively engaged in experiment research, much of which is externally funded.
Look to the future. What’s next? Social preference theory is the big thing right now, says Davis. “It’s about both the psychological and economic motivations for behavior. This has led to the development of behavioral economics -- an important new bridge between the two sciences.”
When VCU hosts the North American meeting of the Economic Science Association in late October, Davis expects social preferences to be a focus. “Some 200 economists will come to talk about their investigations,” he says, “and you’ll get a quick overview of an immense field.”
For more information, visit the Experimental Laboratory for Economics and Business Research website.