DEFINITION of 'Experimental Economics'
A branch of economics that focuses on individual behavior in a controlled laboratory setting or out in the field. Experimental economics helps to prove or disprove economic theories and create predictions and insights about real-world behavior.
BREAKING DOWN 'Experimental Economics'
2002 Nobel laureate Vernon Smith was a pioneer in the field of experimental economics. His early experiments focused on theoretical equilibrium prices and how they compared to real-world equilibrium prices. Smith also conducted experiments to test theoretical assumptions about different types of auctions, allocating airport time slots and organizing energy markets. Smith's economics experiments were groundbreaking in part because it had previously been assumed that economic research could only be based on real-world observations and data. His work set the standard for good economics experimentation.