Publications

Experimental economics is a rapidly growing field of inquiry, and there currently exist several textbooks and surveys describing the results of laboratory experiments in economics. This primer, however, is the first hands-on guide to the physical aspects of actually conducting experiments in economics. It tells researchers, teachers and students in economics how to deal with human subjects, how to design meaningful laboratory environments, how to design experiments, how to conduct experiments and how to analyse and report the data. It also deals with methodological issues. It can be used to structure an undergraduate or graduate course in experimental economics.

In Ms contribution recent Dutch theoretlcal andpractical developments are discussed in computerized - semi-intelligent - assistance of legislators. Special attention ispaid to the so-called drafling-support Systems. In the Netherlands two drafting-support Systems are being — or have recently been — developed (LEDA, developed for the Dutch Ministry of Justice and OBW developed by the Dutch Ministry of Education and Science). This paper will deal with one of these Systems (the LEDA-system) in particular. In discussing the development, the structure and particular functionalities of the LEDA-system some general characteristics and possibilities of legislative draftingsupport Systems will be illustrated.

Hahn and Hird provide the first comprehensive analysis of the costs and benefits offederal economic and social regulation. They assess several alternative methods of measuring the effects of regulatory policies, noting the advantages and drawbacks of each. They find that previous estimates of the costs of economic regulation probably overstated the true costs by failing to distinguish between transfer payments and net changes in economic efficiency. Their study separates transfers from efficiency costs for each estimate and updates the figures for sixteen industries and seven areas of social regulation. Overall, they find that the efficiency cost due to economic regulation is large and that the benefit from social regulation is positive but small. Their study also finds a huge variation in estimates of the costs and benefits of particular regulatory policies, particularly in the transportation sector and in environmental protection. This variation indicates that most estimates may be merely "guesstimates". Nevertheless, Hahn and Hird argue that since the current political climate has increased the pressure on Congress to add regulatory burdens, the need to introduce such information into policy making has never been greater.

The psychological principles that govern the perception of decision problems and the evaluation of probabilities and outcomes produce predictable shifts of preference when the same problem is framed in different ways. Reversals of preference are demonstrated in choices regarding monetary outcomes, both hypothetical and real, and in questions pertaining to the loss of human lives. The effects of frames on preferences are compared to the effects of perspectives on perceptual appearance. The dependence of preferences on the formulation of decision problems is a significant concern for the theory of rational choice.

This paper presents a critique of expected utility theory as a descriptive model of decision making under risk, and develops an alternative model, called prospect theory. Choices among risky prospects exhibit several pervasive effects that are inconsistent with the basic tenets of utility theory. In particular, people underweight outcomes that are merely probable in comparison with outcomes that are obtained with certainty. This tendency, called the certainty effect, contributes to risk aversion in choices involving sure gains and to risk seeking in choices involving sure losses. In addition, people generally discard components that are shared by all prospects under consideration. This tendency, called the isolation effect, leads to inconsistent preferences when the same choice is
presented in different forms. An alternative theory of choice is developed, in which value is assigned to gains and losses rather than to final assets and in which probabilities are replaced by decision weights. The value function is normally concave for gains, commonly convex for losses, and is generally steeper for losses than for gains. Decision weights are generally lower than the corresponding probabilities, except in the range of low probabilities. Overweighting of low probabilities may contribute to the attractiveness of both insurance and gambling.