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A Monte Carlo Analysis of the Fisher Randomization Technique: Reviving Randomization for Experimental Economists

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  • Robert Moir

Abstract

Data created in a controlled laboratory setting are a relatively new phenomenon to economists. Traditional data analysis methods using either parametric or nonparametric tests are not necessarily the best option available to economists analyzing laboratory data. In 1935, Fisher proposed the randomization technique as an alternative data analysis method when examining treatment effects. The observed data are used to create a test statistic. Then treatment labels are shuffled across the data and the test statistic is recalculated. The original statistic can be ranked against all possible test statistics that can be generated by these data, and a p-value can be obtained. A Monte Carlo analysis of t-test, the Mann-Whitney U-test, and the exact randomization t-test is conducted. The exact randomization t-test compares favorably to the other two tests both in terms of size and power. Given the limited distributional assumptions necessary for implementation of the exact randomization test, these results suggest that experimental economists should consider using the exact randomization test more often. Copyright Economic Science Association 1998

Suggested Citation

  • Robert Moir, 1998. "A Monte Carlo Analysis of the Fisher Randomization Technique: Reviving Randomization for Experimental Economists," Experimental Economics, Springer;Economic Science Association, vol. 1(1), pages 87-100, June.
    • Handle: RePEc:kap:expeco:v:1:y:1998:i:1:p:87-100
    DOI: 10.1023/A:1009961917752
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    References listed on IDEAS

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    1. Kennedy, Peter E, 1995. "Randomization Tests in Econometrics," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(1), pages 85-94, January.
    2. Kenneth S. Chan & Stuart Mestelman & Rob Moir & R. Andrew Muller Moir, 1996. "The Voluntary Provision of Public Goods under Varying Income Distributions," Canadian Journal of Economics, Canadian Economics Association, vol. 29(1), pages 54-69, February.
    3. Stuart Mestelman & Douglas Welland, 1988. "Advance Production in Experimental Markets," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 55(4), pages 641-654.
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    Keywords

    Randomization test; Monte Carlo simulation;

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