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

  • Kirstein, Roland
  • Schmidtchen, Dieter

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.

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Paper provided by Saarland University, CSLE - Center for the Study of Law and Economics in its series CSLE Discussion Paper Series with number 2003-08.

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Date of creation: 2003
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Handle: RePEc:zbw:csledp:200308
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  1. Plott, Charles R., . "Industrial Organization Theory and Experimental Economics," Working Papers 405, California Institute of Technology, Division of the Humanities and Social Sciences.
  2. Smith, Vernon L, 1982. "Microeconomic Systems as an Experimental Science," American Economic Review, American Economic Association, vol. 72(5), pages 923-55, December.
  3. 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 165-79, April.
  4. Vernon L. Smith, 1962. "An Experimental Study of Competitive Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 70, pages 322.
  5. 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.
  6. 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.
  7. John C. Eckalbar, 2002. "An Extended Duopoly Game," The Journal of Economic Education, Taylor & Francis Journals, vol. 33(1), pages 41-52, January.
  8. repec:cup:cbooks:9780521584500 is not listed on IDEAS
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