Dr. Daniel Neal’s dissertation consists of a set of economic experiments in bureaucracy, insurance, and monetary economics. While they are eclectic in their subject matter, they all rely on the same basic foundation: good experimental methodology.

In today’s world of economics, research can usually be divided into one of two categories; theory-based or empirical. Theory based research often suffers from weak or unrealistic assumptions that the researcher makes to then base their subsequent conclusions on. Meanwhile, much empirical research suffers from the problem of induction. In addition, real world data is very messy, and rarely is an economic change able to be studied without confounds present. These critiques do not doom these approaches from providing sound economic insights. These challenges do however highlight the need for good experimental methodology to be present in the research to supplement, challenge or reinforce theory and empirical-based work. A well-defined experiment can remove the confounds from an environment without having to make any assumptions that cannot be replicated in the real world.

It is also important to recognize the unique challenges that experiments face in the economics
profession. Experiments often suffer from problems of external validity. Do experiments conducted
in the lab have applicability to individuals outside of a lab? It is Dr. Neal’s opinion that the question can be flipped on its head to state that if a model cannot be replicated in a lab, then how realistic is that model outside of the lab? Experiments are an incredibly useful tool in comparing economic models and economic theory to the behavior of real-life, breathing individuals.

Experiments in economics have a very important position in the field, and at the root of any
good experimental research is a good experimental design. Dr. Neal’s dissertation highlight three
experiments in different areas of economics to demonstrate various experimental techniques that
when appropriately applied to different contexts, produce usable data gathered free of confounding factors.

Aside from experimental methodology, the experiments have one more commonality that
ties them together as a body of research. This research is focused on the problem of inefficiency and waste in a variety of arenas. Systems that misallocate scarce resources through inefficiencies slows economic progress and make society as a whole worse off. The larger theme of this dissertation is to use experimental economic tools to find, investigate, and mitigate wasteful inefficiencies where ever they might be found.

This post is taken from Dr. Daniel Neal’s dissertation, which is available via DigiNole.

The feature image is from Study.com.