June 7, 2013
Economic research has long been subject to a pitfall: it lacks a laboratory in which to carry out simple experiments. Unlike sciences such as physics or chemistry, economic data are messy, imperfectly measured, and affected by any number of unknown variables. This makes it difficult to understand how humans and markets actually work.
The field of experimental economics attempts to address these challenges. Using controlled laboratory experiments and computer programs, researchers are able to take a more scientific approach to understand human behavior, and they are often uncovering new revelations about the way human societies work. Long-time friend of PERC and former board member Vernon Smith won the 2002 Nobel Prize in economics for his experimental economics research, which sought to go beyond mathematical abstractions and understand the role human institutions play in creating social rules and order.
Bart Wilson is a colleague and coauthor of Vernon Smith at the Economic Science Institute at Chapman University and a 2013 PERC Lone Mountain Fellow. This week, Bart visited PERC to explore how societies form rules and order. He even tested a laboratory experiment on the PERC staff to further demonstrate how human institutions emerge and how those institutions respond to sudden and dramatic changes. The experiment reveals something about how societies avoid collapse.
Here’s how it worked: Each PERC participant was provided a laptop and given instructions on how to navigate a virtual world resembling early human agricultural settlements. Players must harvest renewable resources—either green or yellow patches—to maintain a health rating. Each colored patch has a numerical value. The more health earned throughout the game, the more reward paid at the end of the experiment. The game is divided into “weeks” in which players can harvest and consume one resource per week.
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