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Summer 2004 CalBusiness  
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Berkeley 's New XLab Tests Social Science Theories to Help Business

XLab, a new Haas School research facility, is helping to lead a scientific revolution by bringing controlled laboratory experiments to social science fields that have until now not made much use of experimentation. Economists, political scientists, anthropologists, and other social scientists at UC Berkeley have begun testing their theories in the new high-tech XLab to determine whether they can be applied to real world problems, including those in business.

Haas School Professor John Morgan, an economist and director of XLab, recently conducted an experiment in the facility to find out what produces greater revenue for sellers when a company is put up for sale – asking for payment in shares of stock or cash. The test supported the theory that shares bring in more revenue for the seller in a bidding contest. “This idea comes from the economics literature, but it hasn't really made its way out of the ivory tower,” says Morgan. “With XLab, we assess whether the theory works in practice and whether it will have a big strategic payoff in the marketplace.”

XLab, which opened earlier this year, uses the latest in wireless and notebook computer technology and can accommodate up to 40 participants as experimental subjects. XLab is short for Experimental Social Science Laboratory.

In Morgan's experiment, students took on the roles of corporate chieftains bidding against one another to buy a firm. The students adopted a variety of strategies in deciding how much to offer for the firm, using laptop computers that provided real-time information on bids to all participants and helped to calculate the consequences of various decisions. Students who won could earn as much as $50 for themselves – providing incentive to play competitively.

Morgan wants Berkeley 's XLab to become the premier center for experiments with the hope of bringing together various fields in the social sciences through experiments involving human behavior and decision-making. Says Morgan “There is growing recognition of importance of the field as well as recognition that XLab is a critical tool to help us discover new knowledge.”

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George Akerlof, Teck Ho, John Morgan

Among XLab's principal investigators at Berkeley include Nobel Laureate George Akerlof, and Haas School professors Teck Ho, and John Morgan.

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