In Chapter 1, we observed that one of the big differences between laboratory experiments conducted by political economists and those conducted by political psychologists is the use of financial incentives to motivate subjects. That is, in political economy laboratory experiments subjects' payments for participation are tied to the choices that they make, whereas in political psychology experiments subjects are typically paid a flat fee for participation or receive class credit. Why is there this difference and does it affect the validity of the experiments? In this chapter we consider these questions. We begin with the reasons why political economists use financial incentives.

Financial Incentives, Theory Testing, and Validity

How Financial Incentives Work in Theory Testing

Most political economy experiments involve either theory testing or stress tests of theories (see Chapter 6). The theories are largely based on formal theoretical foundations. The emphasis of the research is often on political and economic institutions (i.e., election systems, legislative committees, stock markets, first-price auctions, etc.) and the behavior of actors within those institutions. The theories make relationship (either comparative static or dynamic) and point predictions about how these institutions will affect human behavior. We discuss these types of predictions in Chapter 6.

Importantly, the theories assume that subjects have assigned particular values to each outcome in the theory, and that, given these values, the institutional differences have predictable effects on the subjects' choices.