The phasic firing rate of midbrain dopamine neurons has been shown to respond both to the receipt of rewarding stimuli, and the degree to which such stimuli are anticipated by the recipient. This has led to the hypothesis that these neurons encode reward prediction error (RPE)-the difference between how rewarding an event is, and how rewarding it was expected to be. However, the RPE model is one of a number of competing explanations for dopamine activity that have proved hard to disentangle, mainly because they are couched in terms of latent, or unobservable, variables. This article describes techniques for dealing with latent variables common in economics and decision theory, and reviews work that uses these techniques to provide simple, non-parametric tests of the RPE hypothesis, allowing clear differentiation between competing explanations.