Recent developments in behavioral and experimental economics: Introduction.

Summary The experimental method has profoundly influenced recent developments in economic science. The use of experiments, and its quasi-systematic character from the 1990s onwards, has allowed the development of an empirical evaluation of both the hypotheses on which the theoretical analysis is based (e.g. how many actors are needed to make sense of the notion of atomicity, which translates empirically into agents who behave as price-takers? What time horizon replicates the notion of an infinitely repeated game, whose essential consequence is to make contemporary decisions independent of future events?), but also predictions of specific models (the supply-demand equilibrium in a market, the formation of prices and the allocation of a good in an auction). Experimental economics has thus demonstrated the relevance and validity of certain theoretical approaches, despite often very strong assumptions about individual and social behavior, but also their limitations in a number of other situations. The two winners of the "Nobel Prize in Economics" (or the Bank of Sweden Prize in memory of Alfred Nobel), whose distinction was explicitly motivated by their experimental contributions, illustrate this tension perfectly: Vernon Smith's work shows that, for certain well-defined trading institutions, markets function in a way that is very consistent with the theory of pure and perfect competition, even though most of the underlying assumptions of this theory are, at best, moderately satisfied. On the other hand, Daniel Kahneman, co-winner the same year, received the prize for his evidence of cognitive biases and a tendency for individuals to deviate from the canons of rationality put forward in microeconomic models. On the basis of this tension and in close connection with experimental economics, a new field of research has developed, behavioural economics, whose objective is to enrich and improve the theoretical approach to individual and social decisions on the basis of psy-chological regularities. The aim is to incorporate into the canonical models the non-monetary motivations and the less-ego¨ıst inclinations of individuals, or the cognitive shortcuts on which they may base their decisions, or even possible inconsistencies in behavior. The results of experimental economics, at least the most robust and most often replicated ones, are no longer the subject of debate within the discipline, and the behavioral approach has gradually spread to all fields of economic analysis.