Introduction

Experimental economics is based on applying laboratory methods to economics. Experimental economists consider the experimental method applicable to the economy and innovative because it allows a level of realism that has been impossible for economic analysis.

Experimental economics started to be developed in the late 1940s and early 1950s (Davis and Holt 1993), and it grew in the subsequent decades and in particular in the 1960s (Roth 1995), up to the 1980s, when economic experiments were very popular. Von Neumann and Morgenstern’s work (1944) is considered the milestone for the emergence of experimental economics: their expected utility and game theory required a formali­zation of assumptions and implications of rational choice and so made possible their experimental verification. Although the role of von Neumann and Morgenstern’s work has been important for experimentation on decisions (both individual and strategic), it has had less of an impact on market experiments. Two different contributions are often cited as precursors of experimentation in economics: Thurstone (1931) for experiments on choices and Chamberlin (1948) for experiments on markets.

An economic experiment requires the involvement of real people who are asked to take choices in a controlled environment. Just as with experiments in natural sciences, it is possible for the economist to isolate one (or more) variable(s) and to check its (or their) impact on the choices taken by the subjects and replicate his or her experiments. During an economic experiment, a series of rules, called the experimental protocol, must be followed to ensure the validity of data.

The experimental method has been applied in particular to individual and strategic decisions and to market theory. Currently, the work of Daniel Kahneman and Amos Tversky is considered the landmark for conducting experiments on decisions, whereas the experiments on markets have as major landmark the work of Vernon Smith. The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel awarded in 2002 to Kahneman and Smith (Tversky died in 1996) is cited by many economists as a pivotal moment for the acknowledgement of the experimental method in economics.

Together with its spread, there has also been a diversification in the ways of conceiving and applying the experimental method. Some economists are, however, still not con­vinced about this method; their main criticisms focus on the difficulty of reproducing the complexities of the real world in a laboratory.