IFREE-Sponsored Lecture Series at ESI

Kevin McCabe, Ph.D.
Apr. 8th, 2011

"Experiments on the Role of Third Parties on Redistribution Decisions"

"The goal of this research is to use experiments to better understand how decisions are made for other persons. Such decisions are the ubiquitous result of cost reducing delegation in societies, and have been the center of much discussion in philosophy and economics over all of recorded human history.

In philosophy the problem is discussed in terms of justice, or how should others be treated. In economics the problem is usually discussed in terms of incentives, or why others are treated the way they are. Our experiments suggest that third party decision making often contains elements of both kinds of reasoning. Reasoning according to equity theory, or the idea that people should receive in proportion to what they contribute plays an important role, but it begs an important question: What do people count as contributions towards the group? At the same time reasoning according to personal incentives, described by the socially aware question, "what is in it for me?", also plays an important role.

These two forms of reasoning create a significant tension in how people resolve their third party decisions, and much still needs to be learned in how this tension is resolved."

Bio:
Kevin McCabe is a professor of economics, law, and neuroscience at George Mason University where he is director of the Center for the Study of Neuroeconomics. In 1997 professor McCabe became an IFREE (International Foundation for Research in Experimental Economics) Distinguished Scholar in Neuroeconomics.

Neuroeconomics uses computational theories of the brain to build computable models of economic decision making. A Neuroeconomics experiment allows economists to take noninvasive measures of brain activity before, during, and after a person makes an economic decision. These measurements can then be used to test these theories with the broader goal of understanding how emergent brain computations interact with emergent institutional computations to produce economic activity.

In his research with co-authors over the last twenty years a number of interesting discoveries related to impersonal exchange have been made including: It is critical to provide time and place decentralized information and incentives for the sufficient revelation of economic values; we can build centralized 'smart' markets to maximize allocative efficiency and compute decentralized prices; institutions should provide participants with a minimally sufficient message space for expressing values but minimizing strategic signaling; and, make the institutional algorithm as 'greedy' as possible to minimize strategic manipulation.

In addition, discoveries have been made with respect to personal exchange including: Personal exchange is built on social networks which balance competition and cooperation through shared rules of reciprocity; shared mental spaces, e.g. theory of mind and empathy, which are used to increase the efficiency of personal exchange; and decision making is adaptive, depends on individual learning strategies, and varies considerably within populations.

Recently Professor McCabe has started using Virtual Worlds as a platform for doing more immersive and persistent economics experiments. A virtual world experiment allows economists to study economic behavior where the message spaces of institutions interact with the natural language capacity of humans and where the complexity of human interaction can be studied in a more naturally immersive economic environment.

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