Friday, February 18, 2011

Manipulating maths for whose amusement?

Amplify’d from

Q&A: The Experimenter

Gary Loveman, the CEO of Caesars Entertainment, says there are three ways to get fired from the hotel and casino company: theft, sexual harassment, and running an experiment without a control group.

Loveman, who has a PhD in economics from MIT and was a professor at Harvard Business School, has impressed the importance of data analysis on his employees, who are expected to quickly scale small tests into company-wide initiatives. For example, they might test which is likelier to get customers to spend more: a free meal or a free night in a hotel.

When you got your economics PhD from MIT in 1989, subdisciplines like behavioral economics and experimental economics had a mixed reputation. Now—a couple of Nobel Prizes in the field later—they seem to be cornerstones of how many businesses and industries try to innovate.

My impression is that when I got my PhD, we were really manipulating mathematics for our own amusement, and we weren't producing all that much to help real people make real decisions. That was dissatisfying to me and, frankly, frustrating. The notion that we could do experiments based on the central tenets of economics and have that make a real-world difference was exciting. Of course, with Freakonomics and Predictably Irrational these themes have become more popularized and accessible. It's a very heartening development, and it's increased my enthusiasm for my own discipline enormously. 

What do you like to tell your academic colleagues about the challenges of real-world experimentation and innovation?

Honestly, my only surprise is that it is easier than I would have thought. I remember back in school how difficult it was to find rich data sets to work on. In our world, where we measure virtually everything we do, what has struck me is how easy it is to do this. I'm a little surprised more people don't do this.


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