New ideas in economics traditionally emerge either from abstract theories or from the accumulation of massive amounts of real-world data. But because real-world economic outcomes are influenced by so many factors, especially human behavior, it’s always been hard to convincingly link the two -- making for theories that are much less useful than we’d like.
Experimental economics offers a way to bridge the two approaches, by asking people to tackle real economic problems in a laboratory setting. Such a setting offers economists a controlled, but still realistic, environment to test and refine their theories.
Our approach
HP Labs operates the first industrial research facility to apply experimental economics techniques to real-world business problems.
In the lab, people compete against each other in games for rewards. By running such competitive simulations, the lab can quite accurately assess business ideas -- e.g. to determine what might happen when a business raises or lowers prices, changes its return policy or alters its advertising.
Such research is highly attractive to business owners because it lets them test new ideas first before risking them in the marketplace.
Research focus
We use experimental economics research to meet two principal goals:
to improve existing business practices, such as rewriting supply chain contracts to better motivate participants in the deal
to contribute to the fundamental theoretical underpinnings of economics, such as suggesting and refining models of novel economic mechanisms
Current work
Current research projects include:
wind tunnel for business -- experiments that help businesses write better contracts and policies for their distribution channels
information aggregation -- exploring the potential of economics mechanisms such as games and markets for forecasting tools
reputation -- looking at how reputation works in market situations and whether it is feasible to set up a market for trading reputation assets
quantum game theory -- applying quantum mechanics to game theory. Quantum versions of conventional games broaden the range of available strategies, which can help improve participants’ outcomes
experimental economics software platform -- a flexible experimental economics software platform (MUMS) that allows rapid implementation of economics experiments
Technical contributions
Insights gained from HP Labs research have been incorporated into stand-alone business simulation games designed to help predict future outcomes (such as demand for a particular product) more accurately.
Both HP business units and external clients have contracted with HP Labs to design and run such games -- helping customers reformulate the contracts they sign to realign them in the interests of both signatory parties.
The MUMS platform is licensed to a number of academic institutions around the world to assist with experimental economics research.
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