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Self-interest, Social Wealth, and Competition as a Discovery Procedure : A classroom experiment that makes the "invisible hand" visible

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  • Kirstein, Roland
  • Schmidtchen, Dieter

Abstract

In Economics, as in any social science, empirical tests of theoretical results face a problem: researchers are unable to reproduce the whole economy (or at least its relevant parts) in their laboratories. Nowadays, Experimental Economics uses stylized experiments, drawing on the experience of Psychology, to test at least the basic assumptions of the economic theory of human behavior. Even classroom experiments may serve this purpose. This paper describes a simple classroom experiment that serves as an empirical test of Adam Smith?s invisible- hand hypothesis. Furthermore, it demonstrates to the students that competition acts as a discovery procedure. The experiment is of high didactical value, since the students gain insights into empirical research and experience how markets work.

Suggested Citation

  • Kirstein, Roland & Schmidtchen, Dieter, 2003. "Self-interest, Social Wealth, and Competition as a Discovery Procedure : A classroom experiment that makes the "invisible hand" visible," CSLE Discussion Paper Series 2003-08, Saarland University, CSLE - Center for the Study of Law and Economics.
  • Handle: RePEc:zbw:csledp:200308
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    References listed on IDEAS

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    1. John C. Eckalbar, 2002. "An Extended Duopoly Game," The Journal of Economic Education, Taylor & Francis Journals, vol. 33(1), pages 41-52, January.
    2. Vernon L. Smith, 1962. "An Experimental Study of Competitive Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 70, pages 111-111.
    3. Plott, Charles R, 1982. "Industrial Organization Theory and Experimental Economics," Journal of Economic Literature, American Economic Association, vol. 20(4), pages 1485-1527, December.
    4. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-955, December.
    5. Israel M. Kirzner, 1997. "Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach," Journal of Economic Literature, American Economic Association, vol. 35(1), pages 60-85, March.
    6. Smith,Vernon L., 2005. "Bargaining and Market Behavior," Cambridge Books, Cambridge University Press, number 9780521021487.
    7. Smith, Vernon L, 1982. "Markets as Economizers of Information: Experimental Examination of the "Hayek Hypothesis"," Economic Inquiry, Western Economic Association International, vol. 20(2), pages 165-179, April.
    8. Bradley J. Ruffle, 2003. "Competitive Equilibrium and Classroom Pit Markets," The Journal of Economic Education, Taylor & Francis Journals, vol. 34(2), pages 123-137, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Hayek-Hypothesis; Efficiency; Double Oral Auctions;

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • A20 - General Economics and Teaching - - Economic Education and Teaching of Economics - - - General

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