December 7, 2010
Naughty Or Nice? A Field Trip Into the World of Cybersquatters and Pornographers Uncovers New Ways to Study Behavioral Economics
When he took his behavioral economics research out of the lab and into the world of Internet domainers and pornographers, UC Berkeley professor John Morgan found that business professionals in industries typically considered "shady" are better collaborators and more "trusting, trustworthy, and altruistic" than college students whom he tested in a lab setting.
"People are kinder, gentler, less selfish, and more giving than what the standard economic model predicts, and this has led researchers to think about how we should incorporate these preferences in our models," says Morgan.
Morgan, who studies competition in online markets at the Haas School of Business, University of California, Berkeley, conducts the majority of his research in the school's Xlab, an experimental social science laboratory, which he helped found. "We were curious about whether the social preferences seen in the lab carried over into the real world." says Morgan.
In the working paper, "Who's Naughty? Who's Nice? Social Preferences in Online Industries," co-authored by Mitchell Hoffman, PhD candidate, UC Berkeley's Dept. of Economics, the researchers sought to learn what drives pro-social preferences. Pro-social behavior is caring about others and acting in ways to benefit others.
They took two field trips: to a "Domainfest" conference in Los Angeles for domain name traders, sometimes referred to as cybersquatters, people who acquire website addresses or domain names in order to sell them later at a profit, and to a "cybernet porn" conference in San Francisco for people working in the online pornography industry. Domainers participated in games that tested how trusting and how trustworthy they behaved. The pornographers, on the other hand, were subjects in a game measuring how altruistic or concerned they were about others, as well as their aversion or propensity to lie. Morgan and his co-author set up his own booth at both conferences. "We put up our booth and had a big briefcase filled with money and a sign that said "Economic Experiment." We explained that we were studying human behavior and that we wanted to give away a bunch of money."
To get the money, the domainer and pornographers played a classic investment game. Given a randomly chosen partner, the "investor" participants were given $30 and told they could invest the money; they would be taking a risk but could triple their return. If the investment paid off, the "partner" participant would have control of all the money and could decide whether to give back all or a portion of the money to the game's investor. "A trusting response is to invest," says Morgan, "You have to trust that your partner will give back some of the money. Furthermore, trustworthy behavior from the perspective of the partner is whether to give back or keep the money."
The domainer investors were twice as likely to trust their partner as undergraduate college students who played the same game in the lab. Moreover, the domainer partners were twice as likely to be trustworthy as the students.
When pornographers played the game, the "x-rated" partners were 25 percent more altruistic than the students when it came to deciding how much money to give back to the partner. The porn-industry investors were also half as likely to lie about how much money they had received in the beginning to invest as the students who played the game.
The results surprised the researchers. "After we had the results, we talked to a lot of the subjects to ask them what motivated them. The story that we found most compelling came from domainers. In the domain business, the law, for example, does not have a history of black-and-white contracts. In that regard, the Internet is like the Wild West," says Morgan, "The way that you do business and survive is through cooperation and trust, and a lot of deals are better on a handshake. This investment game seemed really familiar to them. This is a game they play all the time: I have to trust you not to backstab me."
The research also showed that those who work in the porn industry also rely on teamwork and consequently, pro-social behavior such as trust and collaboration are essential to producing their products.
Morgan says discovering the fundamental characteristics of human nature in real life will help economists build more accurate models. The process is also inspiring, says Morgan: "The fact that positive characteristics of human behavior actually manifest themselves across industries and in different types of people makes me feel better about living in the world."