THE SOCIAL EPISTEMOLOGY OF EXPERIMENTAL ECONOMICS DE SOCIALE EPISTEMOLOGIE VAN EXPERIMENTELE ECONOMIE THE SOCIAL EPISTEMOLOGY OF EXPERIMENTAL ECONOMICS DE SOCIALE EPISTEMOLOGIE VAN EXPERIMENTELE ECONOMIE Thesis to obtain the degree of Doctor from the Erasmus University Rotterdam by command of the rector magnificus Prof.dr. S.W.J. Lamberts and in accordance with the decision of the Doctorate Board. The public defence shall be held on Thursday 9th of November 2006 at 13.30 hours by Ana Cristina Cordeiro dos Santos born in Lisbon, Portugal. ISBN 90 9021 076 8 © Ana C. Cordeiro dos Santos, 2006 All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including information storage and retrieval) without permission in writing from the author. Cover Design by Luis Carlos Amaro See http://eps.eur.nl/dissertations for the electronic version of the thesis Printed by Gráficos à Lapa, Lisbon, Portugal DOCTORAL COMMITTEE Promotor: Prof.dr. I. U. Mäki Other members: Prof.dr. D. McCloskey Prof.dr. J. Sonnemans Dr. J.J. Vromen Para os meus pais, Conceição e António CONTENTS Acknowledgements ix 1 Introduction: Epistemology, Experiments and Economics 1 Part One: The Social Epistemology of Experiment 2 Experiment, Coherence and Materiality 25 3 The Argument from Sociality 61 4 The Social Epistemology of Experiment 89 Part Two: The Social Epistemology of Experimental Economics 5 The Market Experiment and the Foundation of Experimental Economics 107 6 The Epistemological Arguments of Experimental Economics 137 7 Human agency (or lack thereof) in Economic Experiments 175 8 ‘Human Agency’ and Inference 193 9 Preference Reversals or Good Experimental in Economics 209 10 Conclusion 237 References 243 Appendix 1 21 Appendix 2 57 Appendix 3 173 Summary (Dutch) 257 Curriculum Vitae 258 ACKNOWLEDGMENTS The Social Epistemology of Experimental Economics (SEEE) is about the inescapably collective nature of knowledge production, in time and space. Even though this thesis is singly authored, it certainly would have not been possible without the support and collaboration of a great many. The first accountable for the SEEE are my colleagues from the Economics Department at the Instituto Superior de Ciências do Trabalho e da Empresa (ISCTE), Lisbon. Special thanks are due to Helena Lopes, José Maria Castro Caldas and Raul Lopes, who supported this project from the very beginning and helped me to create the conditions for its successful accomplishment. Helena and José have extra responsibility for they introduced me to the exciting field of the philosophy of economics as a fruitful area of research to help answering our common concerns and anxieties. I also remember the on-going discussions we managed to keep alive and which gave me an extra reason for wishing a more active participation in future collective endeavours. Ana Costa, João Rodrigues, Luís Francisco Carvalho and Ricardo Mamede, neither are you innocent here. Having arrived at Rotterdam I found an exciting environment at the Erasmus Institute for Philosophy and Economics (EIPE). Inspiring teachers, provocative fellow students, and a host of visiting researchers who presented at the EIPE seminars first–hand accounts of the most recent contributions to the field. Arjo Klamer, Jack Vromen, Jonh Davis, John Gronewegen, Gregory Dow, Wade Hands, Mark Blaug, Deirdre McCloskey, Aki Lehtinen, Caterina Marchionni, Emrah Aydinonat, Frank Hindriks, Gülbahar Tezel, Roberta Muramatsu, you are, too, an important part of this work. The more active contribution, of course, belongs to my supervisor, Uskali Mäki, from whom I learned how to produce professional academic work and learned to appreciate the merits of precision and rigour. However, perhaps more importantly, I learned from him the importance of sheer and shared enthusiasm in the business of science, whose outcomes are not always certain and predictable. Your enthusiasm was, at points, the most tangible thing I could hold on to. Part of this package is the amazing freedom you gave me to take the paths of my own choosing and the confidence you demonstrated in having done so. Thanks for all that. There were also other direct contributions, specially the feedback I received from my written work. I gratefully acknowledge helpful comments from Igor Douven, Marteen Janssen, George Hendrikse, Emrah Aydinonat, Frank Hindriks, and Caterina Marchionni. I thank Aki Lehtinen who also helped me to improve the English of SEEE. A special thanks is due to Francesco Guala, who not only generously x THE SOCIAL EPISTEMOLOGY OF EXPERIMENTAL ECONOMICS commented on a substantial part of my thesis, but also provided hospitality during my CHAPTER 1 research visit at the University of Exeter, UK. Besides the intellectual support, I must also gratefully acknowledge the financial INTRODUCTION: EPISTEMOLOGY, EXPERIMENTS AND ECONOMICS support of Fundação para a Ciência e a Tecnologia (Grant SFRH/BD/2822/2000), Portugal, and Vereniging Trustfonds Erasmus Universiteit Rotterdam, The Netherlands. FCT funded my visiting periods in Rotterdam. Vereniging Trustfonds funded the visit to the University of Exeter, UK, in 2005. Last but not the least, I must thank Juliano to whom I owe my endurance in the making of this thesis and five fantastic woman that became good friends and that have made this the most rewarding experience: Cate, Carlo, Gul, Mar and Rô. Man, being the server and interpreter of nature, can only do and understand so much ... as he has observed in fact or in thought the order of nature: beyond this he neither knows anything nor can he do anything. Neither the naked hand nor the understanding left to itself can effect much. It is by instruments and helps that the work is done, which are as much wanted for the understanding as for the hand. And as the instruments of the hand give motion or guide it, so the instruments of the mind supply either suggestions for the understanding or cautions. (Bacon 1859 [1620]) 1.1 THE SOCIAL EPISTEMOLOGY OF EXPERIMENTAL ECONOMICS The principal aim of this dissertation is to study the processes in which knowledge is produced and established in experimental economics. This investigation requires the construction of a framework by reference to which the experimental practice of economics can be comprehended and evaluated. At first this might seem a rather unnecessary endeavour given that equivalent attempts might be expected to have already generated a comprehensive account of experimental practice that captures the underlying principles of knowledge production and justification. After all experimentation has been a constitutive part of knowledge production since as early as the seventeenth century. However, it was not until the latter quarter of the twentieth century that experimentation attracted the interest of philosophers of science. This is not to say that the role of experiments in the progress of science was denied. It simply means that until then experiments were not considered a philosophically interesting subject matter. In spite of the views of a couple of visionary philosophers, like Francis Bacon, who soon realised the significance of the interactive work performed by the ‘hand’ and the ‘mind’, most philosophers in the past continued to focus on the “the understanding left to itself”. As a result, theory continued to be perceived of as the complete expression of scientific accomplishment and the proper subject matter of the philosophy of science. The interest in scientific experimentation was motivated by the rise of the sociological studies of science, which denied experiments the adjudicator role traditionally ascribed to them, either because theories are immune to empirical evidence or because experimental reports fail to provide neutral evidence of nature. It is therefore not surprising that philosophical studies of experimentation are still very fragmented. A comprehensive account of experimental practice that captures the 2 THE SOCIAL EPISTEMOLOGY OF EXPERIMENTAL ECONOMICS EPISTEMOLOGY, EXPERIMENTS AND ECONOMICS 3 underlying principles of knowledge production and justification is not yet available. philosopher-scientists such as Galileo Galilei (1564-1642) and Isaac Newton (1642- Constructing such a framework is thus the first goal of the present research. The 1727) did not ignore them. Moreover, already at the end of the sixteenth century, second goal consists of applying this framework to the social processes of knowledge Francis Bacon (1561-1626) noted the importance of the interactive work performed production, the method, the arguments, the procedures, the designs and the results of by the ‘hand’ and the ‘mind’ and the sterility of the ‘naked hand’ and that of the experimental economics. ‘understanding left to itself’. As Bacon remarked, the ‘naked hands’ of the practical The framework for the analysis of scientific experimentation put forward in this scientists (who resemble ants) can only collect and use their gatherings whereas the thesis – The Social Epistemology of Experiment – aims to provide an analytical device ‘minds’ of the theoretical scientists (who resemble spiders) can only make cobwebs that enables the identification of the basic attributes of scientific experimentation out of their own substance. Scientists should be instead like the bee “that gathers that justify experimenters’ beliefs in knowledge generated by laboratory material from the flowers of the garden and the field, but transforms and digests it by experiments. The epistemology of experiment