Lab Rats

-Hannah Mead, MCPP intern, 2008

This past week a contingent of interns at free-market institutions met in D.C. for a conference hosted by our sponsor organization, the Institute for Humane StudiesKoch Summer Fellow Program. Fascinating and stimulating as all of the lectures were, I particularly enjoyed the change of pace provided by Prof. Bart Wilson‘s experimental economics demonstrations. This is an area of economics I haven’t explored much, and I couldn’t help but be impressed as he constructed a perfect supply/demand chart solely based on our interactions in a double-bid auction process.

Wilson’s third presentation was the most complex but also the most engaging. Each group of interns was either a supplier or station for gasoline, and each determined the group’s price based on the price of inputs and the prices charged by other stations. Suppliers were the sole providers for their stations so they competed indirectly through their stations. A grid displayed the location of the gas stations and the prices of each, and an automated car randomly appeared at various points on the screen to drive to the closest and cheapest station.

The lessons from this experiment included the benefits of “zone pricing” and the ability of suppliers to squeeze their stations. In Wilson’s lecture explaining the results, he showed the folly of governmental restrictions on vertical integration of refiners and retailers and on zone pricing. Despite their intention to lower prices for consumers, the experiments — as well as real life experience — show the unintended consequences of these interventions only hurt us at the pump.

The truly amazing thing was that the results of Wilson’s experiments have been replicated among diverse age-groups in countries all over the world. I was skeptical of efforts to empirically prove theoretical economics, but I must admit my interest is piqued.

See: Wilson’s paper on this experiment.


One thought on “Lab Rats

  1. One of the most intriguing parts of Wilson’s work so far is how he has empirically shattered several of the basic assumptions of neo-conservative economics. For example, his experiments on game theory and market efficiency do not provide perfect information – actually the information is extremely limited – and the number of competitors in my experience was something around 8 or 9. What is more, Wilson claims to have had efficient markets regularly with only 3 competitors. To me, that is pretty impressive.

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