Assume you board an aircraft and the captain says, “In a few minutes, we’ll take off on the plane’s first trip.” We anticipate that it will halve your journey time. We have not yet tested the plane—but our expert panel is sure that it will be the quickest and safest ever constructed. “Reinforce your seatbelts.”

Would you want to remain on the plane? I have my doubts. Prior to being certified for commercial flight, aircraft are examined in wind tunnels and flown by test pilots to iron out any kinks. Why would an airline fly an untested jet when the risks of failure are so high – and so avoidable?

The same may be said for new public policy. Government policy changes, such as new fisheries laws, may have a significant impact on people’s lives. Should we adopt an untested policy proposal purely on the basis of expert expertise or testimony from those with an interest in the outcome?

That is where experimental economics, a rapidly developing area, comes in. Experimental economics use controlled, scientific studies to ascertain how individuals really behave in certain situations. Vernon Smith was awarded the 2002 Nobel Prize in Economics for inventing a framework that enables academics to evaluate proposed new policies before to implementation.

How it works is as follows. The researchers develop an experiment that replicates important characteristics of the “real world” market being studied. Individuals who volunteer to participate in the experiment are given the roles of buyers and sellers conducting transactions. Participants have an incentive to make sound judgments, since the money earned via trading is theirs to keep.

Researchers may alter the rules of trade and the rewards during the experiment, and by analyzing how participants’ behavior changes in response to the altered rules or incentives, they can analyze the consequences of policy changes. They may then compare the experiment’s actual outcomes to theoretical assumptions about how people would react to a particular policy change.

Apart from laboratory experiments, teachers conduct experiments in the classroom to familiarize students with the power of markets and incentives. Students gain an understanding of how economics may be used to explain what happens in the actual world—and how those same economic principles can assist politicians in making more informed choices.

Experimental economics may be beneficial in a variety of policy disputes. For example, we could wish to investigate the relative benefits of various carbon trading schemes or the incentive qualities of various fisheries management ideas. Additionally, members of our lab have conducted research on theoretical solutions to noncompliance with environmental regulations, as well as utilizing experimental economics to distinguish between competing theories that may account for enterprises’ anticompetitive behavior.

The topic of experimental economics has exploded in popularity both domestically and globally during the past two decades. Our Laboratory Experimental Economics aim to deliver the advantages of this burgeoning discipline to field of experimental economics in Vietnam.