Saturday, April 24, 2010

Congrats to Esther Duflo

Congratulations to my MIT colleague Esther Duflo on winning this year's John Bates Clark Medal. The Medal is awarded to "that American economist under the age of 40 who is judged to have made the most significant contribution to economic thought and knowledge."

She has been a pioneer in Randomized Field Experiments, which is a powerful way to test the impact of new policies. She helped found the Poverty Action Lab, which conducts experiments to learn which types of anti-poverty programs work best. I predict we'll see a lot more use of field experiments by academics, policy-makers and especially business managers to understand the causal effects of various policies. It's something I encourage my students to do as much as possible and advocate in my lecturing and advising to business executives.

Here is a list of her papers with the most citations in Google Scholar.

Saturday, April 17, 2010

Web Coupons Know Lots About You

From the New York Times:

A new breed of coupon, printed from the Internet or sent to mobile phones, is packed with information about the customer who uses it. While the coupons look standard, their bar codes can be loaded with a startling amount of data, including identification about the customer, Internet address, Facebook page information and even the search terms the customer used to find the coupon in the first place.

Although this concept has been discussed for over a decade -- I almost started company based on it in the 1990s but decided that we were too early -- it is still far from fulfilling its potential. In the coming years, companies will do more and more true experiments, with treatment and control groups, to understand which marketing methods are most effective for different types of consumers and even specific individuals.

One effect is that we'll have more targeting communications and products that fit better for each consumers tastes and preferences. This makes is a win for both buyers and sellers, making the pie bigger.

Another effect is that sellers will better understand the how much each consumer is willing to pay for a given item in a given situation. They can use this knowledge to improve price discrimination. This increases sellers profits at the expense of consumer welfare. However, in most circumstances, the net effect is an overall gain in welfare even for this use of these coupons.