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

Abstract

In recent years a methodology for performing laboratory experiments in economics has been developed. The object of the methodology is to integrate clearly motivated but largely subjectively determined human decisions with the organizational features of markets. The nature of the incentive system and the use of market organization as an independent variable are described. Initial results of basic research that involved assessment of the effects of the "posted-price" institution 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 to the 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.