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CTESS Research

Caltech has dominated the development of experimental methods for the social sciences since the early 1970s, when, through the efforts of Charles Plott (William D. Hacker Professor of Economics and Political Science) and Vernon Smith (BS '49; Nobel Prize in Economics, 2002), experimental economics first found firm scientific footing. Their methods have been applied across the world in auction systems and trading platforms in a variety of settings—from allocating radio spectrum, airplane landing slots, and pollution credits to stabilizing fisheries and solving thorny scheduling problems for railroads. The core of the approach pioneered by Smith and Plott—the marriage of theory and experimental social sciences—has been built and expanded upon by other researchers at Caltech in the decades since.

CTESS researchers now explore a broader set of problems. These include auctions, political voting, decisions involving outcomes that are highly uncertain or spread out over time, bargaining, how communication can coordinate and influence allocations, and matching markets. At the same time, CTESS researchers continue to make progress on the fundamental question of understanding what is likely to happen, depending on how people make decisions and what the rules are. The Caltech approach emphasizes experiments that test competing theories.

Theory-based experiments aim to create simple yet real economic environments and to observe real subjects making decisions with real economic consequences. While the settings studied in these experiments are very complex (market interactions, political institutions, financial decisions), the objective of the experiments is to provide clean tests of core theories of human behavior—theories that are often hard to test using field data due to the scarcity of such data, unobservability of counterfactuals, endogeneity problems, and other confounding factors that prevent identification of causal effects.

Controlled laboratory tests of fundamental theories cut through the morass of field data. If the theoretical predictions fail in the simplest and most transparent version of the model, that casts serious doubt on the usefulness of the theory as applied to complex markets. Conversely, successful experiments should be a necessary condition before policies are implemented. The dialogue between theory and experiments allows data created from carefully controlled settings to further the development of better theoretical models.

CTESS researchers conduct experiments through Caltech's Social Science Experimental Laboratory (SSEL), where students are recruited to participate in decision-making tasks. These tasks are carefully designed to mimic essential trade-offs present in economic, political, and other social settings we seek to understand. The laboratory can record the choices people make, as well as how long decisions take, and—when scientifically useful—additional information, including what people look at on their computer screens and measurements of their facial and bodily emotions.