WP4 Economic experiments

CRISIS will carry out what we believe is the first use of economic experiments to help build an agent-based model. We will carry out laboratory experiments in which people are paid to take on the role of agents so we can observe the decisions they make.

The experiments will include ones designed to capture key situations that played a critical role in the crisis. The basic groundwork to do this has already been laid by the Hommes group in Amsterdam[link?], which has pioneered the interpretation and analysis of economic experiments.

The models will capture people’s expectations about movements in incomes and assets, which play a fundamental role in economics. Expectations about the future shape the economic decisions of consumers, firms and investors and their views about aggregate variables. In turn, these views affect individuals’ expectations.

Traditional models assume agents have rational expectations. However, rational expectation models are not satisfactory, neither in their predictions of the economy nor in their highly unrealistic assumption of full rationality. This WP will study how people behave in complex non-linear feedback environments.

Key objectives

  • Use laboratory and large scale internet experiments with paid human subjects to study, behavioural decision rules (e.g. individual expectations) and aggregate behaviour in complex financial and macro-economic non-linear feedback environments.
  • Develop a behavioural model of expectation formation and bounded rationality consistent with the experimental data that can be used as a building block in large-scale agent based models of financial and macroeconomic crises in other WPs.

Deliverables

  •  D4.1          A paper on laboratory experiments with students
  • D4.2          A paper on constructing a behavioural model
  • D4.3          A paper on laboratory experiments with policymakers
  • D4.4          Development of a software package
  • D4.5          An experimental paper on large scale internet experiments
  • D4.6          Experimental data set of individual decision rules and aggregate behaviour