Incentives - Ante Up

In a recent blog I outlined a common experiment called the Ultimatum Game and asked people what they would do. Much thanks to one reader who hit on a big issue in behavioural economics, that of incentivisation.

She pointed out that the money was purely theoretical (sadly guruhogg has no real money to offer). Therefore, how can we be sure that the behaviour we observe is what would really happen? Individuals may say they will do one thing, but if the decision had real consequences they might act differently.

Real economics experiments are very careful to make sure that subjects have an incentive to answer honestly. This is done by making real money ride on the decisions people make. In the Ultimatum Game example there would be an incentive because of the £10 riding on it.

Experiments which do not involve adequate incentivisation tend not to be taken seriously in the academic world. However, there is a debate over what constitutes an adequate incentive. Some economists believe that experiments which offer only ten or twenty pounds aren't a good proxy for behaviour in real life, where important decisions can involve thousands of pounds. In response, it's argued that the few economists that have somehow found enough money to offer huge incentives tend not to find systematically different behaviour.

Anyway, I readily admit that the experiments on guruhogg do not offer adequate incentivisation, but that doesn't matter as I'm not collecting results. Incentives will have to wait until guruhogg has found some way of making money!

Recommended listening:
Ante Up by M.O.P.