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Opportunities and Limits of Experimental Social Science

May 2016

Professor David Stark

Professor Nick Chater

Stark   Chater

Disrupting the Smooth Flow to Calamity:

How Ethnic Diversity Deflates Price Bubbles’

'Intuition, Experimentation, or Randomized
Controlled Trials?’

If there is one thing about which economists and sociologists agree, it is that friction is bad. Think of how often we hear of the importance of the “smooth flow of information.” The pop sociology version is “let’s all get together and iron out our differences.” But my tire dealer and I know that friction is not always a bad thing. On a snowy, icy road I don’t want things to be smooth. Market bubbles are like that too smooth, icy road. My colleagues and I designed a study to test the role of ethnic diversity in deflating prices bubbles. We did so by creating experimental markets where people versed in finance traded with other people for real money. The markets were identical except that some markets were ethnically homogenous and some were diverse. We found that ethnic homogeneity promotes conformity. Surrounded by people “like ourselves,” we can become overconfident in their judgments. We process information poorly. Ethnic diversity disrupts conformity. It leads to better information processing and less mispricing.

In forming public policy, running a business or coping with daily life, we have to make endless decisions about a world we scarcely understand. Mostly we make decisions by ‘intuition’---a process which, I suggest, draws flexibly and often imaginatively from a library of past ‘precedents.’ We tend to repeat successful decisions more than less successful ones. Sometimes, we actively engage in one-off experimentation (e.g., we speculatively explore a method and retain or abandon it, depending on results). Very rarely, we set-up a randomized controlled trial (RCT). Given cognitive and organizational limitations, and the continually shifting decision environment, which method should we use for which problem? This issue seems fundamental to understanding the efficacy of human and machine learning; to social epistemology and philosophy of science; and for understanding organization learning and public policy formation. I suggest that RCTs should be viewed as a last resort—but when they are needed, they can be of huge value.


Professor David Stark is the Arthur Lehman Professor of Sociology at Columbia University and Professor of Social Science at the University of Warwick. His book, The Sense of Dissonance: Accounts of Worth in Economic Life (Princeton University Press 2011) is an ethnographic account of how organizations and their members search for what is valuable. ‘Game Changer: The Topology of Creativity,’ a recent article on cognitive diversity and network social structures, appears in the January 2015 issue of American Journal of Sociology (AJS). Other articles on economic sociology appear in AJS (2006 and 2010) and the American Sociological Review (2012). Stark is the co-editor of Moments of Valuation: Exploring Sites of Dissonance (Oxford 2015). Among other awards, he is the recipient of a Guggenheim Fellowship (2002) and an Honorary Doctorate from the Ecole normale superieure de Cachan (2013). CV, publications, papers, course materials, ‘silent lectures,’ and other presentations.

Professor Nick Chater is Professor of Behavioural Science at Warwick Business School. He joined Warwick Business School in 2010, after holding chairs in psychology at Warwick and UCL. He is particularly interested in the cognitive and social foundations of rationality and language. He has over 200 publications, has won four national awards for psychological research, and has served as Associate Editor for the journals Cognitive Science, Psychological Review, Psychological Science and Management Science. He was elected a Fellow of the Cognitive Science Society in 2010 and a Fellow of the British Academy in 2012. Nick is co-founder of the research consultancy Decision Technology; is on the advisory board of the Cabinet Office's Behavioural Insight Team (BIT), popularly known as the 'Nudge Unit;' and is a member of the Committee for Climate Change.

Chair: Professor Celia Lury

Centre for Interdisciplinary Methodologies, University of Warwick