Business ethics

Lecture 10: Experimental design

Today

• How to design an experiment

• Some business applications
• Group work
Warming up

- What kind of methods do you know to test whether some policy

achieved the desired outcome?

- Suppose you work for a charity, MSF, and in order to increase

donations, you decide to radically change the letter that your
organization sends to its target (emphasizing the impact of their
donations, that the majority in the neighborhood donate, and that they
will receive a gift in exchange of their donation). How do you evaluate
the impact?
The experimental method in social sciences

- A. Roth (Nobel Prize 2012), experiments are useful to:

• Test theories (“Speaking to theorists”)

• Test policies (“Whispering into the ears of princes”)
Speaking to theorists
 Prisoner’s Dilemma

Player 2

Cooperate Defect

Cooperate 2;2 0;3

Player 1
Defect 3;0 1;1

Mutual cooperation > mutual defection

No matter what partner does, defection > cooperation
A language for social interaction

Game theory:
→ Set of players
→ Set of choices for each player
→ Payoff for each player given each
possible combination of choices

Distill complex social interactions into simple games

→ Theory: what strategies should occur?
→ Experiments: what do people actually do?
Whispering into the ears of policy makers
(private and public)
The behavioral effects of contests

A contest has winners and losers Motivation: To boost its employees’ creativity, AG2R La Mondiale decided that it would
be good to organize a contest where each employee would put forward an original
solution to a given problem. A set of solutions would be selected by the management
and the winners would receive some sort of award.

Experimental study: My colleagues and I organized an experiment to test the invisble

effects from such an initiative.

Measure
self- Idea
confidence contest

1 day to establish
a ranking

Measure
self- Ranking
confidence

1 day after ranking

was made public
1. A real effort task
You need to position each
slider at the middle of the
line. You have 60 second to
do as many tasks as you can.
 2. Elicitation of employees’
confidence in their relative-
performance

Question: A votre avis, vous faites partie (A) des 20% les plus performants, (B) 40% les plus performants, (C) ni plus ni
moins performants que les autres, (D) 40% les moins performants, (E) 20 les moins performants.

Si réponse correcte: vous gagnez 5€.

Results: In red, when we measured their confidence in their relative
performance BEFORE the ranking.
In green, after the announcement of the ranking.
Katherine Milkman, a professor at The Wharton
School at the University of Pennsylvania, is one
of the co-founders of Behavior Change for
Good Initiative

It is a group of researchers in behavioral

science who conduct experiments to find the
best strategies that can make people behave in
a more socially responsible way but also in their
own interest

In this video, Prof. Milkman, lays down a few

strategies that can motivate people to exercise
more: https://www.youtube.com/watch?v=6T9-
HPNErJY
 What is experimental design?

The main principles of experimental design

→ Random allocation of participants to the experimental
conditions
→ The number of participants in each condition should be
equally balanced

A treatment is:
→ The manipulation of the variable of interest (e.g., a bonus
payment, temptation bundle)
→ The effect is then quantified by looking at the outcome
variable (e.g., employees’ productivity, number of gym visits)
 Treatments

We need:
→ different (or one) treatments to compare with a
control (e.g. different payment methods, different
information provided to subjects).

Good practice involves:

→ Testing hypothesis by changing one variable at a
time.
→ Avoiding confounds (don’t change more than one
thing at a time).
 Within vs Between

Within vs between (panel vs cross section) designs

allow some indirect experimental control.
→ Within subjects design (wsd): participants make
decisions in all treatments.
→ Between subjects design (bsd): different
participants make decisions in each treatment.

Under WSD, each subject is its own control. Advantage: we

need not worry about having diff characteristics of
participants in each treatment (fewer participants needed
than under BSD). Disadvantage: order effects, fatigue …
Group Work
Requirements

• Form groups of 4 students (register with me).

Requirements
You will have to:

A) Prepare a small experiment that you will run on

campus with other students as participants. This will
consist of:

- A nudge to change your target’s behavior (topics will be

presented during next lecture)
- Written instructions that your group will give to participants
- Your group will collect the participants’ responses
Requirements
You will have to:

B) Summarize your results in 2-3 graphs

- Present results to the entire class during a dedicated

session
- Explain the design, the implementation, and the results
- Hand in a one-page document that summarizes (1) your
nudge’s idea, (2) how you measured the impact of your
nudge, and (3) what were the results

50% of your grade

How you should start

1. Identify 2 nudges that you think could have the

largest impact on behaviors
2. Make sure that your solutions can be easily tested
3. Start thinking about the design of your experiment

Next time we meet, I will give you the topics that your
group will have to work on.