Student Participation in Experimental Economics By David Baumer, J.C. Poindexter, and Julie Earp, 2005 ©

Experimental Economics Created because of dissatisfaction with the basic economic of utility maximization Experimental economics has been used to test the correlation between What respondents to surveys say they do and their actual behavior Much research suggests that there is a large gap between what people say they do online and what they actually do

Involving Students Relative to previous generations, today’s students spend a lot more time in front of computer monitors Although much time is undoubtedly wasted, there are certain tasks for which computers are an unambiguous aide to students Clearly most students use computers to search for jobs

Experimental Economics Allows for isolation of variables after an equilibrium has been achieved Laboratory methods allow for repetitive testing and replication of results Participants (in economic experiments) are differentially rewarded with money Participants who make good or lucky choices receive more money

Experimental Economics Relative to Surveys Experimental economics is likely to be a more accurate measure of what respondents will actually do when faced with a situation because there are consequences to their choices Prior research indicates that the predictions of motivated participants are more accurate than polls conducted by the top pollsters and There is less forecasting variability

Pilot Experiments In our first two experiments, we used grades instead of money Two-thirds of the way through the semester, students were offered an opportunity to participate in an economic experiment in lieu of completing a term paper Participation in these experiments was completely voluntary Students were told that 1/3 of the participants would receive an “A”, 1/3 a “B” and 1/3 would receive a “C” Participants received a running total of monopoly money as explained below At the end of the experiment, grades were allocated based on money accumulated

Pilot Experiments: Job Search For most students, job search begins with a decision to submit their resumes online to various websites, which include: General Employment Websites (GEWs) Employer Websites (EWs) Headhunter Websites (HWs) Student participants are not required to submit their PII online in form of resumes. They can limit their job searches to Offline Searches (OSs)

Pilot Experiments: Round One Students make money by being hired Students have a 50% chance of being hired Starting salaries are $30K for GEWs, $40K for EW, and $60K for HWs In order to get the higher salaries, participants have to submit more information It is not common to include SS #s on resumes, but EWs typically ask for SS #s. We assume that HWs ask for health information

Pilot Experiments: Round One In the first round, participants are asked to make their selections Since data from the pilot experiments was entered manually, it was not feasible to run and rerun the experiments until a Nash equilibrium was accomplished Given this infeasibility, we assumed Nash equilibrium after one round If a participant was hired, their net worth was increased, but if not, it was unchanged unless they were a victim of ID theft or other risks Participant wealth was decreased if they were a victim of ID theft or were viewed as a health risk Results were reported to subjects in a way that protected privacy but each individual could see the incidence of identity theft and other problems

Pilot Experiments: Round Two In the second round, we allow participants to make decisions that allow for protection Participants are still supposed to submit their resumes, but they can Encrypt their PII for a modest price, thus reducing probability of being a victim of ID theft Encrypt their health data, thus reducing the probability of being labeled a “health risk” The willingness to pay for protection is a measure of the demand for privacy Most, but certainly not all, participants were willing to spend money to protect their PII

Pilot Experiments: Round Three In the third round, participants were asked to react to a change in the legal environment HIPAA was passed, which Prevented employers and others from pooling health data Probability of being labeled a health risk is radically reduced We believe that the impact of this change in the legal environment will be remembered Following the faux announcement of the passage of HIPAA, far fewer purchased encryption of their health data

Pilot Experiments: Round Four Round four was intended to investigate the effects of a technological change in the environment Participants were told, alternatively, that ID theft became more prevalent and costly, or ID theft became less prevalent and costly For the group told that ID theft has become more prevalent, many elected to go offline for job search and vice versa

Other Aspects We have already constructed another experiment based on general Internet usage Participants were paid money Other examples that could be the venue for economic experiment include: E-Commerce, online banking, other financial data, file swapping and downloading of music, legal and illegal, e-medicine—online ordering of prescriptions The basic formula is to shock the system with an external change after equilibrium has been achieved With repeated experiments it is legitimate to attribute behavioral changes to external change in the environment

Other Aspects Since the pilot experiments we have developed software that allows for administration of economic experiments online An advantage is that the experiments are conducted online, which adds to realism Since the experiments are conducted online, the time gap between decision and results is eliminated, making the setting less realistic

Other Aspects Some have questioned the ethics of subjecting student grades to chance Articles have been written suggesting same Same comments were made by some at the WEIS conference at Harvard in June Some students complained even though participation was completely voluntary Our plans are to obtain money from NSF and divorce grades from economic experiments