Discussion questions on Vernon Smith, "Economics in the Laboratory"
Note: Smith's experimental work has been particularly concerned with auctions. He mentions several kinds in his essay. Just to help you follow his discussion:
An English auction begins with an opening price. Bids are accepted at any price above the current bic. When the bidding stops the last bid gets the item that is being auctioned.
A Dutch auction is in a sense the opposite. An opening price is announced and the auctioneer keeps lowering the price until someone buys the item at the announced price, at which point the auction ends.
In a continuous double-price auction after initial bid prices and offer prices are specified, buyers can make bids equal to or above the current market bid price and sellers can make offers equal to or below the current offer price. At any point buyers can make purchases at offered prices or sellers can make sales at bid prices.
Although one can attempt to investigate the properties of auctions purely theoretically by making assumptions about individual rationality, one can also study the properties of different kinds of auctions by means of experiments.
1. What is the difference between what Smith calls an environment and what he calls an institution? (p. 334)
2. On pages 335-7, Smith lists seven roles that experiments play in economics. Do any of these roles surprise you? How does these roles of experiments mesh with the view of science and scientific progress defended by Mill, Friedman, Popper, Kuhn and Lakatos?
3. What is the Duhem-Quine problem? In Smith's view, how serious is this problem?