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Experimental Exploration into Macro Economics

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Development in India

Part of the book series: India Studies in Business and Economics ((ISBE))

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Abstract

Economics, long thought beyond the reach of experimentation, began gradually to yield some of its inaccessible secrets to laboratory and field investigations over the past century. Observation and analyses of laboratory games have led economists to think about markets as social artifacts, whether evolved or designed, to achieve predictable outcomes in specified environments. The value of potential insights into properties of macro economic models and policies had to overcome the barrier of virtual impossibility of conducting controlled experiments at macro economic scale. Fortunately, micro models of macro phenomena have allowed experiments to identify the more plausible from sets of multiple or indeterminate outcomes, and assess policy alternatives and institutional designs. Without attempting a comprehensive survey, this paper summarizes some important discoveries from experimental economics, with special emphasis on macro economics. Challenges ahead are mentioned briefly.

Presented at the Silver Jubilee International Conference at the Indira Gandhi Institute of Development Studies, Mumbai, December 1–3, 2012. Revised February 1, 2013. I thank Qin Tan for her assistance.

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Notes

  1. 1.

    I do not address the deeper philosophical issue of whether human free will, and the idea of replicable laws of individual behavior, are irreconcilable with each other. Major aspects of experimental economics that I shall mention here are confined to regularities in the outcomes of social institutions (e.g., markets) that constrain the behavior of individuals who interact with one another. Even if populated with individuals whose free will cannot be captured in identifiable laws of behavior, it is entirely possible for social institutions to exhibit regular and replicable properties. It is an issue I return to in sections on the role of optimization and markets as artifacts.

  2. 2.

    See Sunder (1995) for further results.

  3. 3.

    Unlike the other four economies with two phases, Economy 5 has three phases: no extrinsic shock, extrinsic shock, and no-extrinsic shock again.

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Authors and Affiliations

  1. Yale University, New Haven, USA

    Shyam Sunder

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  1. Shyam Sunder
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Correspondence to Shyam Sunder .

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Editors and Affiliations

  1. Director, Indira Gandhi Institute of Development Research, Mumbai, Maharashtra, India

    S. Mahendra Dev

  2. Professor, Indira Gandhi Institute of Development Research, Mumbai, Maharashtra, India

    P.G. Babu

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Sunder, S. (2016). Experimental Exploration into Macro Economics. In: Dev, S., Babu, P. (eds) Development in India. India Studies in Business and Economics. Springer, New Delhi. https://doi.org/10.1007/978-81-322-2541-6_10

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