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Decision Labs

UNDERSTANDING BEHAVIOR THROUGH EXPERIMENTS 

If you want to find out how people behave or make decisions, then you usually ask them. However, surveys also have a disadvantage: People don’t always behave or make decisions like they say they do. The significance of some influencing factors is also difficult to survey – for example, many people claim they are not influenced by advertising.

If you want to determine with certainty how people really make decisions and which influencing factors have an impact on this process, observation – especially in a controlled experiment – is the method of choice.

EXPERIMENTAL ECONOMIC RESEARCH

Traditionally, empirical economic research investigates the behavior and decisions of market participants using “naturally occurring” or especially collected field data. However, this often has the disadvantage that the effects of different influencing factors on the observed behavior are mixed up and can be difficult to separate. Experimental research attempts to solve these problems. In experiments, test subjects are placed in strictly controlled situations, where their decision is observed in order to carefully examine causal relationships and their level of impact. The founding fathers of this form of experimental economic research are the Nobel Prize winners Vernon Smith and Daniel Kahneman.

Economic experiments investigate the basis for individual decisions in economically relevant situations in order to better understand human behavior and the handling of information in decision making. The economic relevance is ensured through an incentive-compatible remuneration scheme, whereby the participants assign a specific value to their decision. This also goes back to Vernon Smith’s “Induced Value Theory.” The remuneration of the test subjects depends on their decision. If they want to earn as much as possible, they have to decide in a way they think will maximize their payment.

In order to control the environment in such experiments as best as possible, they are conducted in laboratory experiments. These labs are usually equipped with isolated computer workstations where the test subjects have to make their decisions. A network of computer workstations and special software also enable interaction between the participants. This allows situations to be simulated in which – as in real markets – the decision of one participant depends on the decision of others.

THE “PROSUMER DECISION LABS” – POWERED BY THE GfK VEREIN

In order to better understand how people make decisions based on available information and their own values and goals (both as consumers as well as marketing decision makers), the GfK Verein has supported the setup of several behavioral economics labs: In addition to the lab at FAU Erlangen-Nuremberg and its own mobile lab in Nuremberg, the GfK Verein has set up another two labs in cooperation with the University of Pretoria in South Africa and the Central University of Finance and Economics in Beijing. Both are fully equipped and ready for research to start. In Pretoria, we have already been able to acquire an excellent lab manager in Ms. Sotira Petrou. These labs promise many exciting research projects on behavior and decisions in markets, which will be able to answer intercultural questions thanks to the international network. Such questions may be about the impact of additional information (augmented reality or recommendations from social networks) on purchasing decisions or the effect of new interactive data visualizations on the quality of the decisions made by product and marketing managers, to name just a few examples