Improving the Power of Economic Experiments Using Adaptive Designs

Abstract: An important issue for many economic experiments is how the experimenter can ensure sufficient power for rejecting one or more hypotheses. Here, we apply methods developed mainly within the area of clinical trials for testing multiple hypotheses simultaneously in adaptive, two-stage designs. Our main goal is to illustrate how this approach can be used to improve the power of economic experiments. Having briefly introduced the relevant theory, we perform a simulation study supported by the open source R package asd in order to evaluate the power of some different designs. The simulations show that the power to reject at least one hypothesis can be improved while still ensuring strong control of the overall Type I error probability, and without increasing the total sample size and thus the costs of the study. The derived designs are further illustrated by applying them to two different real-world data sets from experimental economics.