Feb. 23 (Bloomberg) -- John List, a University of Chicago economics professor, strides through the Griffin Early Childhood Center chatting with teachers, complimenting girls on their braids and hollering out the window.
He acts like it’s his school, and in many ways, it is. The preschool in the low-income suburb of Chicago Heights is the centerpiece of one of the largest field experiments ever conducted in economics, and it’s List’s brainchild.
With $10 million from hedge-fund billionaire Kenneth Griffin, List will track the results of more than 600 students-- including 150 at this school. His goal is to find out whether investing in teachers or, alternatively, in parents, leads to more gains in kids’ educational performance, Bloomberg Markets magazine reports in its April issue.
List, 42, is a pioneer in designing experiments that test how well economic theories explain the real world. He works in venues ranging from sports-card shows in Denver to villages in Tanzania. His field experiments on altruism, reputation and discrimination upended theories reached in the lab and spurred other economists to use his methods.
Now, List wants to use experiments to solve youth violence in schools and gender bias in hiring. In each case, he wants to isolate why people behave the way they do.
Why They Do It
“Economists obsess about what people do, and what’s missing is why people do it,” List says. “Field experiments tell you why people do it.”
Experiments conducted by List and his followers have the potential to shape public policy in everything from education to energy. While medical researchers have long used randomized, controlled trials to test drugs, only in recent decades have economists deployed them to answer questions about behavior.
List says that his experiments will give policy makers, executives and investors much greater certainty about why students, donors and shoppers make the decisions they do.
Squatting on a toddler’s chair in one of the classrooms in the Griffin school, List sketches out the design of the experiment with a magic marker on an easel. Local families with kids 3 to 5 years old were encouraged to enter a lottery and were randomly sorted into three groups.
Students selected to attend the Griffin school are enrolled in the free, all-day preschool. Children in another group aren’t enrolled in the school, while their guardians take courses at a “parenting academy” and receive cash or scholarships valued at up to $7,000 annually as a reward.
The more than 300 kids in the third contingent receive no benefits -- nor do their parents -- and serve as a control group.
List and his collaborators, Steven Levitt of the University of Chicago and Roland Fryer of Harvard University in Cambridge, Massachusetts -- both economists with an interest in education -- will monitor the students through annual tests, attendance records and graduation rates.
As the students move into adulthood, their employment, pay and criminal records, if any, will also be tracked. While early results from the experiment may be published as soon as this year, the project has money to follow the students “until they die,” List says.
The Griffin experiment may show that the U.S. doesn’t spend enough on helping parents, List says. “We have too many eggs in the kid basket,” says List, himself a father of five. “We need to spend much more time and many more resources on helping parents.”
List says he doesn’t know much about education theory, so he enlisted specialists to consult on the preschool curriculum. One such consultant, Clancy Blair, a New York University professor of applied psychology, says he was astonished by the size of the project and by how it focuses on financial incentives without looking at such variables as how the parents interact with their children.
“That’s a crazy idea,” says Blair, who studies how young children learn. “It’s not based on any prior research. This isn’t the incremental process of science. It’s ‘I have a crazy idea and I convinced someone to give me $10 million.’”
List says too many decisions in fields from education to business to philanthropy are made without any scientific basis. Without experimenting, you can’t evaluate whether a program is effective, he says.
“We need hundreds of experiments going on at once all over the country,” he says. “Then we can understand what works and what doesn’t.”
List is the author or co-author of more than 150 academic papers and is the top-rated economist in the world with less than 15 years of experience, according to a ranking of economists that weighs how much they publish, how often their papers are cited by peers and the quality of journals that use their work.
He’s ranked 133rd among the more than 27,000 economists tracked by IDEAS, a database of economic papers maintained by Christian Zimmermann, an economics professor at the University of Connecticut in Storrs.
List may one day be rewarded with a Nobel Prize, says Gary Becker, who won the 1992 Nobel Memorial Prize in Economic Sciences for his work studying human behavior and is a fellow University of Chicago professor.
“He absolutely could be a candidate,” Becker says. “The No. 1 contribution he’s made, which has had considerable influence on others, is showing that field experiments are an important way to extract information about behavior.”
New for Economics
Unlike other scientific disciplines, economics hasn’t relied on experimenting as a source of data, says Gregory Mankiw, who chaired President George W. Bush’s Council of Economic Advisers, where List worked from 2002 to 2004.
“You can’t experiment with whole economies,” says Mankiw, who’s now an economics professor at Harvard. “It’s not like you have 100 economies in financial crisis and you can apply this remedy to half and this remedy to another half.”
List’s field experiments are part of an effort to find information beyond government statistics, Mankiw says. “There has been a big movement of looking for more data sources, more ways of observing the world,” he says.
While experiments can be helpful, “they’re not the magic bullet that people think they are,” says Angus Deaton, an economist at Princeton University, who has written about the shortcomings of experiments in developing countries. Results reached with a specific population of test subjects may not be transferable to larger groups, he says.
Adam Smith’s Influence
“They tend to be very good at proving causality but often in a very narrow framework,” Deaton says. “Just because something works in this crazy, local way doesn’t necessarily mean that’s very useful.”
The first economists, including Adam Smith, the Scot who published The Wealth of Nations in 1776, derived theories from logical deduction, says David Colander, a professor of economics at Middlebury College in Middlebury, Vermont, who’s the co-author of History of Economic Thought (Houghton Mifflin, 1994).
Economists in the 1930s began using data and statistical analysis to prove theories or build new ones, he says. Harvard’s Edward Chamberlin was one of the first economists to begin experimenting. In the 1940s, he used students to test how transactions conducted between people differed from theory.
One of Chamberlin’s students, Vernon Smith, designed experiments with undergraduates at Purdue University in the 1950s, duplicating the bid-ask structure of the Chicago Board of Trade, the world’s oldest futures and options exchange.
“I was teaching introductory economics and I realized I didn’t know the connection between supply-and-demand theory and what people actually do in the world,” says Smith, 84, who’s now a professor at Chapman University in Orange, California. Smith, who later designed experiments that simulated the effects of deregulation and privatization, shared the 2002 Nobel Memorial prize for his work in pioneering lab experiments.
Experiments have become an important part of the discipline, Colander says. Economists experiment in three ways: They look for “natural experiments” in historical data, such as from neighboring states that have different laws; they experiment in the laboratory; and they experiment in the field.
List is a leader in field experiments, Colander says. Field experiments have been slower to catch on than lab work because of their cost and the effort they entail, says Richard Thaler, a University of Chicago economics professor, who does both types of experiment.
“It’s much easier to run a regression than to travel to India and run an experiment!” Thaler wrote in an e-mailed response to questions.
Field Testing’s Drawbacks
Field experiments aren’t always superior to lab experiments, Thaler says. Sometimes they aren’t practical, such as in investigating how people react to large financial losses.
“I am a big believer in a multimethod approach,” Thaler says. “In a large majority of cases, we get similar behavior in the lab and the field. Where we get divergence, we need to figure out why: Was it the realism in the field that was important? Or was it the lack of proper controls in the field?”
List says more of his peers should take up field experiments.
“If Adam Smith saw what I do now, he would say it’s about time these economists started to go to the factories and go to the shops where people do business to see how people are behaving,” he says.
List followed an unconventional path to economics. The son of a truck driver and a secretary from rural Wisconsin, he attended the University of Wisconsin-Stevens Point on a partial golf scholarship. (A scratch golfer in college, List says he now has a 4 handicap because he has time to play only twice a month.)
After initially aspiring to be a stockbroker or golf pro, List says he was drawn to a career in academia after noticing economics professors on the golf course almost daily and wondering how he could emulate their lifestyle.
He applied to graduate programs in environmental economics, which studies the costs and benefits of environmental policies, and ended up at the University of Wyoming in Laramie.
Life in Laramie was bleak. The city sits 7,200 feet (2,200 meters) above sea level, with short summers and long, cold winters. List’s wife, Jennifer, whom he met in high school and married in 1993, had to take a job at a Kinko’s copying shop, and from the Lists’ living-room window they could see into a Kmart store across the street.
Jennifer List, 41, now owns a children’s clothing business she runs out of their home in the Chicago suburbs.
Recruited to take part in a Wyoming professor’s project, List says he was told he represented a company and was asked to make pricing decisions based on facts given to him. He recalls being dumbfounded. Students in the lab couldn’t possibly replicate the complexities of decision making by a corporation, where officers balance the needs of shareholders, customers and employees, List says.
List knew where he could experiment with real decisions about prices: at sports-card trade shows, which he attended as a collector of baseball and football memorabilia. In one experiment, aimed at finding out why people in business transactions treat each other fairly, List had card buyers ask dealers for a card of Chicago White Sox slugger Frank Thomas in mint condition.
He found that when dealers didn’t think they were being watched and they knew the buyer couldn’t check the quality, they gave unfair prices, to a degree that rose with the dealers’ distance from their home markets.
‘Few Nice People’
The dealers gave the customers a fair price when they knew that transactions were being observed by third parties.
Dealers’ concerns about their reputation and its effect on future business mattered more than societal pressure to be fair, List concluded.
That study, “The Behavioralist Meets the Market: Measuring Social Preferences and Reputation Effects in Actual Transactions,” published in the Journal of Political Economy in 2006, helped refute a prevailing theory -- which behavioral economists had arrived at in the lab -- that humans were altruistic by nature.
“Very few people will not screw each other,” List says. “There are very few nice people out there.”
After receiving his Ph.D. in 1996, with a dissertation on pollution control, List applied for about 150 academic jobs. He was granted only two interviews: at Montana State University in Billings and the University of Central Florida in Orlando.
Grand Slam of Economics
Hired at Central Florida, List began churning out papers about environmental economics. He also continued tinkering with field experiments. In what would become a pattern, List took a mundane task -- raising money for his department -- and turned it into a field experiment that asked if the presence of seed money in a fundraising campaign increased donors’ willingness to give. The more seed money, List found, the greater the contributions.
In 2004, List published papers in four major journals: American Economic Review, Econometrica, the Journal of Political Economy and The Quarterly Journal of Economics. The feat was equivalent to winning the four Grand Slam tournaments in tennis, says Chad Syverson, a colleague at Chicago.
Job offers came pouring in from Cornell University; the University of California, Berkeley; and Princeton as well as from the University of Chicago’s Economics Department and Booth School of Business.
“He sort of forced people to take note of him,” Thaler says. “To come from Wyoming and Central Florida and wind up with job offers from Chicago and Princeton, that’s unheard of.”
List chose Chicago’s Economics Department because of the quality of its students, its reputation -- 25 Nobel winners in economics studied or taught there -- and proximity to his family in Wisconsin.
At Chicago, where he is the Homer J. Livingston Professor of Economics, List wears T-shirts to meetings, talks about the Super Bowl-winning Green Bay Packers football team and expands his roster of projects.
He consults for companies such as United Airlines, a unit of United Continental Holdings Inc., on pricing strategies and for Chrysler Group LLC on designing a weight-loss program for its employees. He says he turned down an offer last year to become chief economist at Amazon.com Inc., the Seattle-based online retailer, partly because the company wouldn’t have let him publish the results of research.
He’s also writing a college textbook, as well as a mass-market book on behavior with the tentative title Big Hairy Problems.
List has also been taking on more-ambitious field experiments. In 2006, he traveled to villages of the male-dominated Masai in Tanzania and the female-dominated Khasi in India to test differences between genders.
With almost $1 million in funding from the National Science Foundation, he and colleagues spent weeks asking members of the tribes to toss balls into a basket. The results showed that women can be raised to be more competitive than men.
Even though it was expensive, it was a worthwhile experiment, Princeton’s Deaton says. “Understanding the human brain is pretty important,” he says. “This is something that certainly contributes to human knowledge.”
In a later experiment, List and two colleagues posted an ad for an administrative job on Craigslist in 16 cities. About 7,000 job seekers responded and were then given different compensation plans. Some were offered a flat hourly rate while others had to compete for their money.
In general, women shied away from competition, although they were more likely to compete when they operated in teams and when they could earn more than the prevailing wages in their region, the research found. The study helps explain why there are relatively few women executives in fields where promotion is based on competition, List says.
“An important component of gender imbalance is compensation structure,” he says. “If you had a different type of compensation regime, the composition of the top echelon of workers would be different.”
In 2008, William Payne, a Chicago Heights physician who knew about List’s work in fundraising, sought the economist’s help in improving schools in the town, List says.
He devised an experiment to test whether cash incentives for ninth graders and their parents would increase academic performance in the town, where 92 percent of students are from low-income families.
Bankrolled by Griffins
List needed $400,000 for the experiment -- and got lucky. He was approached by Kenneth Griffin, founder of Chicago-based Citadel LLC, and his wife, Anne Dias Griffin, who were looking for someone to run their philanthropic foundation.
The Griffins, who had an interest in supporting education and had donated $2.75 million to a charter school run by the University of Chicago in 2005, met with List for two hours, during which he explained the school project he planned.
He convinced the Griffins to hire his graduate student, Min Sok Lee, a 32-year-old born in South Korea, to run their foundation, with the understanding that List would be available as a consultant.
“The next day, Ken wrote a check for $400,000,” List says. “I said, ‘Now, this is pretty cool.’”
The experiment was a limited success, List says. While the ninth graders and their parents responded to the cash incentives with better grades and fewer behavioral problems, the improvements weren’t enough to justify the cost.
‘Value of Parents’
“It was too expensive,” List says. “But it pinpoints the incredible value of parents and that if you use incentives in the right way, you can get people to move.”
List and the Griffins decided they would have more influence on education if they worked with younger children. The result was the current project involving the all-day preschool and parents academy, along with an incentive program for teachers.
The Griffins set aside $10 million -- a level of funding they say might be replicated in other communities. “If you’re going to do something that resonates and has an impact, it has to be at scale,” Dias Griffin, 40, says in an interview in the 53rd-floor boardroom of Chicago-based Aragon Global Management LLC, the hedge fund where she’s managing partner.
At the core of the experiment is List’s conviction that incentives will motivate family members to take part in the parents academy and become better tutors and coaches.
Toilet Training Incentives
List believes so strongly in incentives that he offers his own children lottery tickets to do extra math homework, he says. He promised a daughter a trip to Disney World in exchange for her becoming potty trained. The day he made the offer, she used the toilet and was trained, he says.
“Incentives are the pillar of economics and represent everything I’m about,” List says. “If you understand the incentives people are operating under, you have a good first guess about what they’re going to be doing in certain circumstances and how changes in the environment and/or in their institutions will influence their behavior.”
It makes sense that researchers would look at paying parents, says Fred Doolittle, director of K-12 education policy at MDRC, a nonprofit research institute with offices in New York and Oakland, California.
“There’s a lot of evidence that parental involvement in the process is important,” Doolittle says. Paying parents or students for school performance is an attempt to find new ways to motivate those who don’t see the value in education, he says.
Role of Teachers
Blair, the NYU psychologist, says he’s concerned that the design of the experiment emphasizes parents while discounting the work that teachers do.
“What educators need to know are what are the best ways to educate kids, and this is trying to short-circuit that,” Blair says. “We have fundamental problems in education, and this is sort of a distraction.”
List says he understands the objections. “If I was in the field, I’d hate me, too,” List says in November while driving to his sons’ indoor baseball practice in one of Chicago’s south suburbs. “There should be skeptics.”
List says that while he hopes his school experiment produces a result that can be reproduced elsewhere, that’s not the point. The idea is to further knowledge, one experiment at a time.
To contact the reporter on this story: Oliver Staley in New York at email@example.com.