Charles R. Plott
Edward S. Harkness Professor of Economics and Political Science BS, Production Management, Oklahoma State University, 1961; MS, Economics, Oklahoma State University, 1964; PhD, Economics, University of Virginia, 1965
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Home page Address Division of the Humanities and Social Sciences 228-77 California Institute of Technology Pasadena, CA 91125
LABORATORY EXPERIMENTS IN ECONOMICS AND POLITICAL SCIENCE
The value of experimental methods: an interview with Charles Plott
Early in the 1970s Plott, Edward S. Harkness Professor of Economics and Political Science, began to explore the use of laboratory experimental methods. His discoveries led to the testing of many theories that could have never been tested with tradition al field data. During the past decades the progress has been stunning.
The economics profession is experiencing an explosion of the application of laboratory experimental methods. Volumes of experimental papers are now being produced each year and the number of laboratories is rapidly growing. The Caltech laboratory that he developed is a major facility, which is serving as a model for laboratory development throughout the world. Knowledge about the potential uses and limitations of experimental methods has been an important tool for Caltech graduate students in launching their careers. At Caltech experimental economics is one of the courses that satisfies the Institute laboratory course requirements for undergraduates.
The logic of experimental method is straightforward. Experimental methods provide an important and inexpensive means for weeding out and improving bad theories. By studying the decisions of individuals motivated by real money within well defined and co ntrolled institutional contexts one can gain deep insights about theories of economics and political processes that are routinely accepted by the research community and applied in vastly more complex contexts. General theories that cannot explain behavio r in the simple and special cases are not general theories and once identified as such, can be either discarded or improved. In the laboratory the degree of success can be assessed and the nature of failures can be analyzed. Both the motivation and the in s titutional features can be changed to gage the accuracy and robustness of models and the conditions under which they perform the best. Thus the laboratory not only provides the foundations for science it also provides a foundation for complex field appl ic ations.
Plott’s research has led to some of the most fundamental discoveries in economics and political science. In the general area of public economics and political science his work with Morris Fiorina was the first discovery of the equilibration tendencies of committees that operate under majority rule. His subsequent research with many co-authors led to the discovery of the power of the agenda and other procedural institutional features in dictating the outcomes of group deliberations. He was the first to report the equilibrating tendencies of two and three party elections in experiments. His research was the first to demonstrate the circumstances in which the classical "free riding’ phenomena can be observed. In economics his work with Vernon Smith led to the discovery of the "posted price effect" and to the measurement of efficiency in experimental markets, both of which are central to the foundations of policy related experimental work on market institutions. The research in economics has continued to b e the first in the opening of new basic scientific issues including externalities in markets, the nature of information aggregation in markets, market stability, the operations of multiple markets including general equilibrium, international trade, inter n ational finance and macro-economics.
His Caltech laboratory has been a major producer of technologies used in laboratory experimental methods beginning with the development of powerful local area networked tools to be used in the conduct of experiments and now to the development of intern et technology for conducting large, world wide experiments.
Much of his research has been devoted to exploring how laboratory experimental methods might be applied to complex policy issues. In this capacity he has contributed to problems of allocating landing rights at the major airports. He was the first to ap ply modern laboratory methods to policy issues, including regulation, deregulation and anti-trust. He worked on policies for the allocation of resources on Space Station Freedom, the markets for emissions permits in southern California (RECLAIM), and mec h anisms for pricing the use of natural gas pipelines. The challenge has been to develop a methodology for designing and testbedding new types of decentralized processes for making decisions and replacing the classical administrative processes that are fr eq uently used by societies. In that capacity the research as focused on such diverse problems as the auctioning of the right to use railroad tracks, markets for electric power in California and the design and implementation of the auction used by the Fed era l Communications Commission for the sale Personal Communications Systems licenses.
More recently Professor Plott has been focused on two major issues. The first is the design of information aggregation mechanisms. These are mechanisms that depend upon the classical notion of rational expectations and are implemented for the purpose o f gathering useful information that is otherwise scattered across individuals in the form of intuitions and opinions. The second issue is the design of experimental tools to conduct large and world wide experiments. Already experiments that use people fr o m around the world participating in a single market have been successfully conducted. This type of methodology promises to open new horizons to experimentalists.
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