Speaker advocates experiments in economics

Prof. John A. List, Department of Economics, University of Chicago. Photo by Danny Alfonzo/ daniel.alfonzo@mu.edu

Economics is more than complicated charts; it can be used to solve problems. This was the focus of the 2012 Marburg Memorial Lecture on Tuesday, sponsored by Marquette’s department of economics and the Center for Global and Economic Studies, which featured John List as its main speaker.

List is a Wisconsin native and advised President George W. Bush for environmental and resource economics as a member of the president’s council of economic advisors. He is currently the chairman of the department of economics at the University of Chicago.

List’s lecture, “Life as a Laboratory: Using Field Experiments in Economics,” overviewed many potential benefits of economic experimentation, which he said is possible, although these experiments are not without flaws. He discussed how economic principles can be used to solve problems like the racial achievement gap, gender bias and discrimination.

“(Economists) cannot perform the controlled tests that chemists and biologists can perform,” List said. “But realism is needed (by going to) markets where people actually make these decisions.”

List spoke about more than just economics when he discussed the U.S. public school system.

He said urban Chicago schools have less than a 50 percent high school graduation rate. Most ninth graders are reading at a fourth grade level, and math and science scores are in the bottom percentiles. He said the U.S. ranks fourth in the amount of money spent per student and yet is 13th in reading scores, 15th in science scores, 18th in graduation rates and 23rd in math scores, placing it below countries like Hungary and the Czech Republic.

He pointed out many flaws in U.S. schools and said economic principles, such as responses to incentives, can be used to solve them.

List said reward-based pay is ineffective although commonly used. Merit pay for teachers, or increases in salary based on positive performance from students, has often been suggested as a solution for poor teaching methods. But a possible future of higher income has not proven to be sufficient incentive. Instead, List hopes to institute the idea of “loss aversion” incentives.

In an experiment, teachers were either given a bonus at the beginning of the year and warned it would be taken back should their students not show improvement, or they were told they would receive a bonus at the end of the year if their students improved. The results were very different: Students whose teachers faced potential loss of a bonus improved by almost half a grade level, far better than the students of those teachers who faced the potential of merit pay.

The very same principles applied to students.

Using Chicago schools as a testing pool, List conducted an experiment in which students were randomly selected to either receive $20 before the test or $1 before the test and were told both amounts would be taken back if students performed poorly. Other students were told they would receive $20 should they perform well. The control group received no incentives.

The performance among students who received $20 prior to the test was drastically higher than those of the other students. Even the racial achievement gap, or the idea that minorities tend to perform poorly on standardized tests, was closed by this “loss motivation.”

“A lot of the racial achievement gap is about effort,” List said. “We can shrink the racial achievement gap in one minute.”

The audience was engaged in the lecture, and Haley Jones, a freshman in the College of Business Administration said she enjoyed it.

“It was very interesting,” said Jones. “He spoke in terms that even a non-economics major could understand.”

List concluded the 2012 Marburg lecture by discussing other experiments he had performed that applied economic principles to explaining gender gaps and discrimination in the market.

David Clark, an economics professor at Marquette, said the Marburg lecture was created in memory of Theodore F. Marburg, a former member of the university’s economics department.

“[The Marburg Lecture Series was] formed to attribute a legacy to Dr. Marburg,” Clark said. “It provides a unique forum for moral, philosophical and social dimensions of economics.”