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Economic Theories on Induced Value Theory - Dictionary of Arguments

Parisi I 82
Induced value theory/Economic theories/Sullivan/Holt: Experimental control over subjects’ preferences is especially important in this abstract and small-scale context. Whether studying supply and demand, bargaining, or various game-theoretic behaviors, it is generally convenient and often necessary for the researcher to know something about subjects’ preference primitives in order to understand the results of the experiment relative to theoretical predictions. The theory of induced valuation is the tool experimental economists use to gain control over subjects’ preferences (see Smith, 1976)(1).* Put simplistically, the idea is that a human subject with non-satiable preferences for some valuable resource (usually money) can be induced to exhibit nearly any preference ordering ordering in an experiment by varying the shape of an applicable payoff function.
Problems/collateral preferences: (...) experimental economists are not naïve about the sometimes uncontrollable collateral preferences of subjects. Universal experiences such as boredom and effort avoidance, for example, apply in economics experiments the same as anywhere else. To some extent, these preferences may be controlled by increasing the payoffs associated with experimental choices. But preferences over social stigmatization or perceived degradation are more serious obstacles that may not be controllable in many experiments.
Solution: how to account for such uncontrolled preferences is a complicated question best addressed on an application-by-application basis.

* For additional discussion of preference induction, see Friedman and Sunder (1994(2), S 2.3), Davis and Holt (1993(3), p. 24), and Holt (2007(4), pp. 10-11).


1. Smith, V. L. (1976). “Experimental economics: Induced value theory.” American Economic Review 66(2): 274–279.
2. Friedman, D. and S. Sunder (1994). Experimental Methods: A Primer for Economists. New York: Cambridge University Press.
3. Davis, D. D. and C. A. Holt (1993). Experimental Economics. Princeton, NJ: Princeton University Press.
4. Holt, C. A. (2007). Markets, Games, & Strategic Behavior. Boston, MA: Pearson Education, Inc.


Sullivan, Sean P. and Charles A. Holt. „Experimental Economics and the Law“ In: Parisi, Francesco (ed) (2017). The Oxford Handbook of Law and Economics. Vol 1: Methodology and Concepts. NY: Oxford University Press.


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Economic Theories
Parisi I
Francesco Parisi (Ed)
The Oxford Handbook of Law and Economics: Volume 1: Methodology and Concepts New York 2017


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