US economist says process should have been suitably implemented
SHILLONG: The economy and social life of the country witnessed an upheaval after Rs 1,000 and Rs 500 notes were pulled out of circulation. There were mixed reactions with some questioning the sudden move while others lauded Prime Minister Narendra Modi’s decision.
James C. Cox, founding director of the Experimental Economics Center at Andrew Young School of Policy Studies, Georgia State University, US, said demonetisation in the country should have been suitably implemented as it is an uncontrolled and natural experiment.
“In this case, a controlled experiment cannot be done because you cannot have one India without demonetisation and the other with demonetisation. So it is an experiment but not a controlled one,” he told reporters after the inauguration of the International Workshop on Experimental Economics, a programme organised by the Meghalaya Economic Association.
“That is what we call a natural experiment and the problem with natural experiment is that it is an experiment but there is no control. Another example where you can do an experiment is when in one state you introduce a particular kind of new tax and in the other you don’t, then you could do a controlled experiment and compare outcomes. In this case you can’t do demonetisation as an experiment across the whole country as there is no counterfactual control. At the same time it would not have been practical because there is only one currency and that is a national currency,” he added.
Replying to queries on experimental economics, Cox said, “We look at economics as a science because we conduct controlled experiments to test when the predictions of economics are accurate or inaccurate. When it is inaccurate, we go back and revise the theory and we can say that we are practising economics in the same way that natural sciences practise using scientific activities.”
Cox informed that experimental economics was met with a lot of resistance in the early 1970s and 80s. “It is now well-established. We are now holding experimental economics conferences all over the world and publishing in international journals which have led to four Nobel prizes.”
He highlighted the uses of experimental economics in modern studies in which controlled experiments are run to test economic theories, economic policies and come up with empirical advice on better ways to improve economic policies.
When asked whether experimental economics is displacing behavioral economics, Cox said, “Behavioral economics do some experiments and it is an approach to doing theory on some types and proposing some questions whereas experimental economics is a method of research.”
“It is not that one is displacing the other, however, experimental economics is older than behavioral economics by 25-30 years,” he added.
