Oct. 16, The ABC Dilemma of Health Reform: Third-party payment creates a big incentive problem.

Featured on The Wall Street Journal, Oct. 16, 2009, Written by Vernon L. Smith

There is widespread agreement with the principle that our health-care system needs to be reformed. But our representatives and our neighbors have much trouble in reaching agreement on the particulars. There have been many legislative bills offered and hundreds of amendments with no clear path to a resolution… Click here to view full article

Oct. 12, Governing The Commons: No one should now say ''Elinor who?''

Featured on Forbes.com Oct. 12, 2009, written by Vernon L. Smith

I have just returned from an undergraduate multidisciplinary class that my colleague (Bart Wilson) and I teach, "Foundations of Economic Exchange." Fortuitously, the class readings for today included examples from Elinor Ostrom, Governing the Commons. Earlier today, after the announcement that she was awarded the Nobel prize in economics, perhaps thousands of economists and journalists would have asked, "Elinor who?" and rushed to the Internet to search online for an answer… Click here to view full article

Oct. 9th, Monica Smith, Ph.D. - A cognitive History of Material Objects:  The Archaeology of Possession, Inheritance, and Value

Monica L. Smith received her Ph.D. in Anthropology from the University of Michigan.  She is presently Associate Professor of Anthropology at the University of California at Los Angeles, and Chair of the Graduate Interdepartmental Archaeology Graduate Program.  She is also director of the South Asian Laboratory at UCLA's Cotsen Institute of Archaeology which houses reference material and facilities for studying the past of the Indian subcontinent.  She has directed archaeological research projects in India and Bangladesh, and participated in fieldwork in Italy, Tunisia, Turkey, Egypt, England, Madagascar, and the American Southwest.  Smith is the author of The Archaeology of an Early Historic Town in Central India (2001) and The Historic Period at Bandelier National Monument (2002), and editor of The Social Construction of Ancient Cities (2003).  Her research on archaeological subjects includes the consideration of early state networks, biological models of human behavior, and the role of the past in national identity.  At UCLA, she teaches courses on archaeological theory, cognition and material culture, and the development of urbanism. Click here to watch lecture

Sept. 25th, Bart J. Wilson, Ph.D. - The Ecological and Civil Mainsprings of Property: An Experimental Economic History of Whalers’ Rules of Capture

Abstract: This paper uses a laboratory experiment to probe the proposition that property emerges anarchically out of social custom. We test the hypothesis that whalers in the 18th and 19^th century developed rules of conduct that minimized the sum of the transaction and production costs of capturing their prey, the primary implication being that different ecological conditions lead to different rules of capture. Holding everything else constant, we find that simply imposing two different types of prey is insufficient to observe two different rules of capture. Another factor is essential, c’est-à-dire, that the members of the community are civil-minded.

Sept. 18th, Thomas W. Hazlett, Ph.D.  – Tragedy TV: Rights Fragmentation and the Junk Band Problem

Thomas W. Hazlett is Professor of Law & Economics at George Mason University, where he also serves as Director of the Information Economy Project.  He has previously held faculty appointments at the University of California, Davis, Columbia University, and the Wharton School, and formerly served as chief economist of the Federal Communications Commission.  An internationally known expert on law & economics, government regulation, and telecommunications policy, Prof. Hazlett has written for many general-interest periodicals, including the Wall Street Journal, New York Times, Los Angeles Times, Chicago Tribune, Forbes, Slate, The Economist, The New Republic, and The Weekly Standard, while publishing academic research in such publications as the Journal of Law & Economics, the Journal of Financial Economics, the Journal of Legal Studies, the Journal of Economic Perspectives, the RAND Journal of Economics, Economic Inquiry, the Southern Economic Review, Telecommunications Policy, the Review of Industrial Organization, Information Economics & Policy, Business & Politics, the Journal of Regulatory Economics, the University of Pennsylvania Law Review, Columbia Law Review, the Review of Law & Economics, Business & Politics, the Harvard Journal on Law & Technology, the Stanford Technology Law Review, and the Yale Journal on Regulation.  He has provided expert testimony for state and federal courts, congressional hearings, foreign governments, the Department of Commerce, the Congressional Budget Office, the General Accounting Office, and the FCC, and is a founding partner in Arlington Economics.  His book, co-authored with Matt Spitzer, Public Policy Toward Cable Television, was published by the MIT Press in 1997. Click here to watch lecture

July 6th-10th and 13th-17th, This month IFREE sponsored two hugely successful Vernon L. Smith High School Workshops in Experimental Economics hosted at the Economic Science Institute of Chapman University. This year workshops were taught by a former IFREE supported doctoral student, Dr. Kyle Hampton. Kyle graduated from GMU and recently relocated University of AK Anchorage. Dr. Hampton received great reviews from the students and sparked interest in the subject through his “great word choices, enthusiasm and pop culture references in power points”.

Two weeklong workshops were offered and for the first time, several travel scholarships were offered to students from the east coast. This was implemented to attract the most interested students in economics. Highly motivated students made a larger commitment by spending a week on the other side of the country and competing vigorously for a small number of spots.

According to Drs. Kyle Hampton and Bart J. Wilson, there were several future Experimental Economists among the attendees who were interested in perusing economics as a major in college and an internship with the Economic Science Institute. Over the years these workshops have sparked interest in many now Experimental Economists.

July 2009, Auctions, Market Experiments and Public Policy

A discussion with Professors Vernon L. Smith, Stephen Rassenti and Bart Wilson

Featured in ETHOS, Issue 6, pp. 54-59, July 2009

June 3rd, Be Your Best Friend If You'll Be Mine: Alliance Hypothesis For Human Friendship

Featured in Science Daily, June 3, 2009. Based on an article by Dr. Peter DeScioli of Chapman University and Dr. Robert Kurzban of University of Pennsylvania. 

University of Pennsylvania psychologists studying the cognitive mechanisms behind human friendship have determined that how you rank your best friends is closely related to how you think your friends rank you. The results are consistent with a new theory called the Alliance Hypothesis for Human Friendship, distinct from traditional explanations for human friendship that focused on wealth, popularity or similarity…Click here to view full story

May 20th, Gerd Gigerenzer Ph.D. - Homo Heuristicus: Why Biased Minds Make Better Inferences. Click here to watch lecture

Bio: Gerd Gigerenzer Ph.D. is Director at the Max Planck Institute for Human Development in Berlin and former Professor of Psychology at the University of Chicago and John M. Olin Distinguished Visiting Professor, School of Law at the University of Virginia. He is also the director of the Harding Center for Risk Literacy, Berlin, Batten Fellow at the Darden Business School, University of Virginia, and Fellow of the Berlin-Brandenburg Academy of Sciences and the German Academy of Sciences. He won the AAAS Prize for the best article in the behavioral sciences and the Association of American Publishers Prize for the best book in the social and behavioral sciences. His award-winning popular books Calculated Risks: How To Know When Numbers Deceive You, and Gut Feelings: The Intelligence of the Unconscious were translated into 18 languages. His academic books include The Empire of Chance, Simple Heuristics That Make Us Smart (with Peter Todd & the ABC Research Group) and Bounded Rationality: The Adaptive Toolbox (with Reinhard Selten, a Nobel Laureate in economics). Rationality for Mortals, his most recent book, investigates decisions under limited time and information. He has trained U.S. Federal Judges, German physicians, and top managers in decision-making and understanding risks and uncertainties.

May 7th, Matt Ridley Ph.D. - The Role of Exchange and Specialization in Human Prosperity. Click here to watch lecture

Abstract: Biological evolution results in progressive diversification by specialization among species. I will argue in this talk that human cultural evolution is a process of progressive (though not irreversible) specialization among individuals as producers, allowing contrasting diversification as consumers and that this process is made possible by the human habit of exchange, which is different from the older animal habit of reciprocity and whose origins I will explore. Exchange plays the same role in cultural evolution as sex does in biological evolution, with invention playing the role of mutation. Being rich essentially means being able to get your needs and wants met by purchasing small fractions of other people’s production, in exchange for your own.

Matt Ridley received his PhD. in zoology at Magdalen College, Oxford. He is the author of Nature via Nurture, The Origins of Virtue and Genome. He is an independent author based in the north of England.

Apr. 24th, Dan Bogart Ph.D. - Parliament and the Adaptability of Property Rights: A case study of Estate Acts and the London Property Market. Click here to watch lecture

Dr. Dan Bogart received his Ph.D. in Economics from UCLA in 2003. He has been an assistant professor at UC Irvine from 2003 to the present. Most of his research focuses on how governments have fostered or hindered private infrastructure investment over the past 300 years. Bogart examines these issues in Britain during the Industrial Revolution and across countries during the nineteenth century. His more recent research focuses on how the British Parliament adapted property rights during the Industrial Revolution.

Apr. 17th, Jasmina Arifovic Ph.D. – A Behavioral Model for Mechanism Design: Individual Evolutionary Learning

Abstract: We describe a new and different behavioral model for individuals playing in repeated games, called Individual Evolutionary Learning (IEL). It is based on a exible learning process, does not require calibration, and can handle very large strategy sets. It can be used as a computer testbed to study the probable performance of a wide range of mechanisms over a wide range of environments prior to testing them in a laboratory or using them in practice. We illustrate the behavior of IEL and the utility of the testbed approach by analyzing an open question in mechanism design - the dynamics of Groves-Ledyard mechanisms. Contrary to standard theories, the prediction from the IEL behavioral model is that the average time to convergence varies smoothly and is U-shaped in the mechanism's free parameter. We validate the results from the testbed with data from economic experiments with humans. Click here to watch lecture

Apr. 6th, From Bubble to Depression?

Featured in The Wall Street Journal April 6, 2009, by Dr. Steven Gjerstad and Dr. Vernon L. Smith

Bubbles have been frequent in economic history, and they occur in the laboratories of experimental economics under conditions which -- when first studied in the 1980s -- were considered so transparent that bubbles would not be observed.

We economists were wrong: Even when traders in an asset market know the value of the asset, bubbles form dependably. Bubbles can arise when some agents buy not on fundamental value, but on price trend or momentum. If momentum traders have more liquidity, they can sustain a bubble longer… Click here to read full article

Apr. 6th-8th, 2009 a team from the Economic Science Institute including Dr. Rimvydas Baltaduonis, Jeff Kirchner and Dr. Bart Wilson traveled to Lithuania to host a work shop in Experimental Economics made possible by the collaboration of the International Foundation for Research in Experimental Economics (IFREE) and ISM University of Management and Economics in Vilnius, Lithuania (ISM). National and international policy makers, graduate students, undergraduates and faculty participated in the workshop. ISM was one of the first initiatives to offer private education and research at the university level in Lithuania and it is the only private university in Lithuania offering doctoral programs in economics.

Apr. 1st-4th, 2009 Drs. Stephen Rassenti and Rimvydas Baltaduonis traveled to Guatemala to attend the opening of the experimental economic lab named after Professor Vernon L. Smith: the Centro Vernon Smith de Economía and workshop hosted by Dr. Diego Aycinena and Universidad Francisco Marroquín. This is the first experimental economic lab to open in hispanoamérica! While there, Drs. Rassenti and Baltaduonis lead a policy discussion on electric power on Friday with “Experimental Economics and Electric Power Markets” highlighting the day. The workshop was attended by members of the Guatemalan electric Energía Eléctrica (CNEE)- and invited guests from the regulatory commissions of the other Central American countries.

Apr. 3rd, John Dickhaut Ph.D.- High Stakes Behavior with Low Payoffs: Inducing Preferences with Holt-Laury Gambles

Abstract: A continuing goal of experiments is to understand risky decisions when the decisions are important. Often a decision’s importance is related to the magnitude of the associated monetary stake. Khaneman and Tversky (1979) argue that risky decisions in high stakes environments can be informed using questionnaires with hypothetical choices (since subjects have no incentive to answer questions falsely.) However, results reported by Holt and Laury (2002, henceforth HL), as well as replications by Harrison (2005) suggest that decisions in “high” monetary payoff environments are not well-predicted by questionnaire responses. Thus, a potential implication of the HL results is that studying decisions in high stakes environments requires using high stakes. Here we describe and implement a procedure for studying high-stakes behavior in a low-stakes environment. We use the binary-lottery reward technique (introduced by Berg, et al (1986)) to induce preferences in a way that is consistent with the decisions reported by HL under a variety of stake sizes. The resulting decisions, all of which were made in a low-stakes environment, reflect surprisingly well the noisy choice behavior reported by HL’s subjects even in their high-stakes environment. This finding is important because inducing preferences evidently requires substantially less cost than paying people to participate in extremely high-stakes games. Click here to watch lecture

Mar. 27th, Arun Sood Ph.D. – Self Cleansing Intrusion Tolerance. Addition information for lecture. Click here to watch lecture

Bio: Dr. Arun Sood is Professor of Computer Science, Director of Laboratory of Interdisciplinary Computer Science, and Co-Director of International Cyber Center at George Mason University, Fairfax, Virginia. He is CEO of SCIT Labs Inc., a start-up that is licensing SCIT technology from the university. Professor Sood has published more than 150 papers, and two edited books. He has been awarded 1 patent, and has applied for 4 patents based on SCIT. His research has been supported by the government and private sector. He was awarded BTech (1966) from Indian Institute of Technology, Delhi, and MS (1967) and PhD (1971) by Carnegie Mellon University. All degrees in Electrical Engineering. For more information about the new International Cyber Center: http://cs.gmu.edu/~lics

Mar. 20th, John Ledyard Ph.D. – Individual Evolutionary Learning, Other-regarding Preferences, and the Voluntary Contributions Mechanism

John O. Ledyard is the Alan and Lenabelle Davis Professor of Economics and Social Sciences at the California Institute of Technology, where he has been teaching since 1986. He holds an AB degree in Mathematics from Wabash College and MS and PhD, both in economics, from Purdue University. At Caltech, he was a Sherman Fairchild Distinguished Scholar (1977-78) and later was the Chairman of the Division of the Humanities and Social Sciences (1992-2002). Professor Ledyard did pioneering work on both the theoretical foundations and the applications of mechanism design, and has contributed greatly to our understanding of the roles of incentives and information in organizations. His more applied work includes the design and development of computer-assisted markets for trading pollution rights, managing resources for spacecraft and instrument design, acquiring logistics contracts, swapping portfolios of thinly traded securities, prediction markets, fishing permits and advertising time. An author of over seventy scientific articles, his papers have been published in leading journals in economics, social choice, political science, law, mathematics and statistics. Click here to watch lecture

Mar. 19th, Healthcare Reform Simulation Summary

Featured on Fixedforamerica.com, March 19, 2009 Based on report by Dr. Stephen Rassenti of the Economic Science Institute and Dr. Carl Johnston of the Interdisciplinary Center for Experimental Science

A new NFIB-sponsored study of health insurance markets yields striking results and gives researchers a valuable new analytical tool. In one of the first-ever applications of experimental economics to healthcare policy, Stephen Rassenti and Carl Johnston, with NFIB’s help, tested reform proposals in a laboratory. Rassenti and Johnson are protégés of Nobel laureate Vernon Smith, who calls the study “path-breaking.”… View full article

Mar. 13th, Gregory Waymire Ph.D. - Transaction Records, Impersonal Exchange, and Division of Labor

Abstract: Adam Smith hypothesized that impersonal exchange was necessary for a society to develop specialized division of labor and create wealth. Douglass North and Vernon Smith argue that successful developed economies are the result of institutions. We hypothesize and provide evidence from ethnographic data that the basic accounting technology of recording transactions is associated with more extensive impersonal exchange and increased specialization in the division of labor. Our intuition is that extensive impersonal exchange requires reliable memory of trading partners’ past behavior to sustain trust and encourage reciprocity when a group expands beyond the size of traditional hunter-gatherer groups. Our findings are consistent with the hypothesis that transaction records are necessary for the emergence of complex economies as suggested by the archaeological evidence of recordkeeping in Mesopotamian societies 10,000 years ago. Click here to watch lecture

Mar. 6th, James Murphy Ph.D. – Rent Dissipation in Competitive Fisheries: An Experimental Analysis

Abstract: Most fisheries around the world have substantially more inputs than are needed to catch the amount of fish available for harvest. As a result of this overcapitalization, harvesters are spending far more money and investing substantially more effort than necessary, thereby reducing their earnings. Limiting entry was a politically feasible alternative to open access, but this does not eliminate the rent dissipation problem. Instead, this creates incentives to participate in a derby-style race for fish during which the season is open for a short period of time, sometimes just a few days.

To overcome these problems, economists have long advocated a rights-based management scheme in which harvesters are allocated individual rights to catch a pre-specified share of the total allowable catch. Despite the economic advantages that these individual fishing quota (IFQ) programs offer, there has been substantial resistance to policy reform. A number of reasons are frequently discussed, such as philosophical objections to privatizing a public resource, or strategic attempts to manipulate the allocation rules.

This study uses lab experiments to investigate the problem of over-capitalization and the resulting rent-dissipation. We also explore the potential for voluntary cooperatives as an alternative to mandatory quota systems. Click here to watch lecture

Feb. 27th, Amnon Rapoport Ph.D. - Coordination in Large-scale Networks under Two different Information Structures: A Laboratory Study.

Bio: Dr. Rapoport is a Karl Eller Professor of Management and Organizations in the Eller College of Management at the University of Arizona, and an Adjunct Professor of Marketing at the Hong Kong University of Science and Technology. Starting January 1, 2009, he’ll assume a position of a Distinguished Professor of Management and Marketing at the Gary Anderson School of Management, University of California Riverside. He received his B.A. in Psychology and Philosophy (double major) from the Hebrew University of Jerusalem and M.A. and subsequently Ph.D. in Quantitative Psychology from the University of North Carolina at Chapel Hill. Dr. Rapaport's teaching interests include individual decision making, interactive decision making (including bargaining and negotiations), behavioral game theory, and statistics. His research on individual and interactive decision making has been interdisciplinary in nature, cutting across the disciplines of psychology, sociology, political science, operations research, marketing, and economics. Click here to watch lecture

Feb. 13th, Elena Asparouhova Ph.D. - Cognitive Biases, Ambiguity Aversion and Asset Pricing in Financial Markets

Abstract: We test to what extent financial markets trigger comparative ignorance (Fox and Tversky (1995)) when interpreting news, and hence, to what extent such markets instill ambiguity aversion in participants who do not really know how to correctly update. Our experiments build on variations of the Monty Hall problem, which, when tested on individuals separately, are well known to generate obstinacy: subjects often refuse to acknowledge that they are wrong. Under comparative ignorance, however, subjects who are not able to correctly solve Monty-Hall-like problems should become ambiguity averse. In a financial markets context, we posit that such feeling of comparative ignorance emerges when traders, who do not have the correct solution, face prices that contradict their beliefs. Previous experiments with financial markets have shown that ambiguity aversion makes subjects hold portfolios that are insensitive to prices; subjects instead prefer to hold balanced portfolios, and hence, are not exposed to ambiguity. And because subjects are price-insensitive, they do not contribute to price setting. This led us to hypothesize that, when faced with Monty-Hall-like problems, (i) there would be subjects whose portfolio decisions are insensitive to prices, (ii) price quality would be inversely related to the proportion of price-insensitive subjects, (iii) price-insensitive subjects tend to choose more balanced portfolios (correcting for mispricing), and (iv) price-insensitive subjects trade less. Our experiments confirm these hypotheses. We do discover, however, the presence of a minority of price-sensitive subjects who simply tend to buy more as prices increase. We interpret the behavior of such subjects as herding, a hitherto unsuspected reaction to comparative ignorance. Altogether, our experiments suggest that cognitive biases may be expressed differently in a financial markets setting than in traditional single-subject experiments.

Bio: Elena Asparouhova is an Assistant Professor of Finance at the University of Utah. She received her Ph.D. in Social Sciences from California Institute of Technology in 2004. Her research interests are in the area of theoretical and experimental financial economics. They include but are not confined to: the theory of asset pricing, corporate finance, decision theory, general equilibrium theory, and econometrics. Her research has been honored with the best paper awards at the "Review of Finance" and the "Journal of Financial Markets." In most of her studies, Dr. Asparouhova uses experiments to demonstrate the strengths and weaknesses of existing theories and to suggest improvements, which in turn are to be tested on new experiments, in a continuous dialogue between theory and experiment, with econometrics providing the link. Click here to watch lecture

Feb. 6th, Cary Deck Ph.D. - Sequentially Pricing Multiple Products: Theory and Experiments

Bio: Dr. Cary Deck is an associate professor of economics and chairs the Behavioral Business Research Laboratories in the Sam M. Walton College of Business at the University of Arkansas. Dr. Deck’s work focuses on economic system design including electronic markets and pricing strategies as well as individual behavior such as risk attitudes, arbitration strategies, and cooperative behavior in games. His research has been supported by grants from the National Science Foundation, the National Institutes of Health, and the Federal Trade Commission and has been published in American Economic Review, American Law and Economic Review, Economic Inquiry, Experimental Economics, and Journal of Law, Economics and Organization among others. Since receiving his Ph.D. from the University of Arizona in 2001, Dr. Deck has also been a visiting professor at the University of Melbourne, Georgia State University, and at the Economic Science Institute at Chapman University. Click here to watch lecture

Jan. 25th, Fair’s fair

Featured in The Atlantic, Jan. 25th, 2009 by Dr. Bart J. Wilson of the Economic Science Institute

For the past 25 years experimental economists--of which I am one--have been infatuated with a pie-splitting problem known as the Ultimatum Game. Experimental economists are the hands-on tinkerers of my profession; where other economists attempt to build models from first principles, or extract empirical data from a messy universe, we build our own little universe out of volunteers and computers, and see how our theories work when real people get our hands on them. The Ultimatum Game is so popular because it is simple to explain and simple to run, yet its results involve one of the most complex problems of society: what are we saying when we say something is "fair"?... View full article

Jan. 16th, Jean-Laurent Rosenthal Ph.D. – Market for Mortgages

Dr. Jean-Laurent Rosenthal is a Professor of Business Economics and executive officer for the Social Sciences, California Institute of Technology. He earned his B.A. in History at Reed College. He was awarded his Ph.D. in Social Science at California Institute of Technology. His current research focuses on the interaction between institutions and economic growth. More specifically along with Philip T Hoffman and Gilles Postel-Vinay he has investigated the growth of mortgage markets from the seventeenth to the end of the nineteenth century in France. Their most recent book is Surviving Large Losses: Financial Crises, the Middle Class, and the Development of Capital Markets. (Harvard University Press. 2007). With Thomas Piketty and Gilles Postel-Vinay, he is engaged in a large scale data project to document the evolution distribution of wealth in France from 1800 to the present. Another project with Timothy Guinnane, Ron Harris, and Naomi Lamoreaux investigates the evolution of law and enterprise in Britain, France, Germany and the U.S. with special interest for how entrepreneurs might have structured their firms so as to mitigate the costs of untimely dissolution or minority oppression. Click here to watch lecture

Jan. 13th, The Economic Science Institute hosted 64 students from two introductory economics courses at Fountain Valley High School in Orange County, CA. The students first participated in experiments followed by a discussion of how they could apply lessons from the laboratory to better understand economic principles in the classroom. This event is part of a larger project to design a curriculum to use experimental economics and ideas drawn from Scottish Enlightenment thinkers to teach high school economics.

Jan. 5th-10th, ESI hosted the Fourteenth Graduate Student Workshop in Experimental Economics at Chapman University sponsored by a generous grant from the International Foundation of Research in Experimental Economics (IFREE). The purpose of this workshop was to provide an introduction to laboratory methods in economics for Ph.D. students.

Graduate students from all over the United States and the world attended. The students participated in current research experiments and attended lectures with the faculty. The experiments they took part in during the week earned them an average of over $300 in cash.

IFREE has been generously funding this workshop since 1995, inspiring many researchers to use experimental methods to study economic problems.