Professor Explores Economics Using the Virtual World
By Jim Greif and Colleen Kearney Rich; video by Paul King
For Mason economist Kevin McCabe, economics is a matter of trust. Trust, or what he sometimes calls the trust paradigm, has been at the root of his economic experiments for the past decade.
McCabe, who is director of the Center for Study of Neuroeconomics, came to Mason from the University of Arizona as part of Nobel laureate and Mason University Professor Emeritus of Economics Vernon L. Smith’s research group. It was at Arizona that the first trust experiments and the idea of neuroeconomics began.
“We were looking at individual behavior and realized there wasn’t a really good [scientific] model for it,” he says. The research led McCabe and his colleagues to explore evolutionary and cognitive psychology and then to cognitive and social neuroscience.
“In exploring, we realized that this whole new field was starting to get at the biological foundations of human cognition,” says McCabe. “It became obvious that if we were going to build a scientific model of the economic behavior of individuals, it would need to be based on the same biological model that neuroscientists were exploring.”
And the field of neuroeconomics was born.
McCabe’s group maintains a laboratory at the Krasnow Institute for Advanced Study and shares a prospective pool of almost 1,000 research subjects, mostly undergraduates, with the Interdisciplinary Center for Economic Science, where he is on the faculty.
The experiments have cash incentives, and the subjects interact using avatars in a virtual environment similar to Second Life, a three-dimensional social networking world. Simply put, a research subject can “earn” more money if he or she is willing to trust the other subject.
“We think this is the kind of social dilemma people face in their lives all the time,” says McCabe, who has been publishing research about the trust paradigm since 2001.
“We want to understand how people behave not just in trust relationships, but in strategic relationships and noncooperative relationships, as well.”
McCabe also has designed and taught a course called Economics of the Metaverse (ECON 496) in which lessons, presentations, and field trips are completed from within the virtual world.
Now taught by one of his graduate students, Peter Twieg, the class is conducted with the students using avatars. During the course, the students participate in experiments in which they trade virtual goods with other students.
“Trust is important because behind the scenes in every economic interaction is a network of trust between people,” McCabe explains. “Many of our laws are established around what happens when trust fails, so we need to learn more about the role that trust plays in these breakdowns.”
McCabe has been studying the economics of virtual worlds since 2006 and became interested in using them to analyze how economic institutions emerge.
McCabe’s faculty appointment across economics, law, and neuroscience may seem widely varied, but his work has application across all three disciplines. McCabe believes that applying research from neuroscience, economics, psychology, and law help one comprehend the process of how people make monetary decisions.
To further this understanding, the center conducts experiments involving live interpersonal economic interactions and studies economic activity in the brain using the MRI scanner housed at Krasnow. However, McCabe explains that there are many advantages to conducting virtual world experiments in addition to the real-world studies.
“In a virtual experiment, we’re able to repeat the circumstances and can reduce outside influences that may occur in real-world situations,” he says. “A lot of the experiments we conduct online would be difficult to replicate in a lab in any reliable way.”
The center also works closely with the International Foundation for Research in Experimental Economics (IFREE), which was founded by Smith.
Last summer, McCabe hosted a weeklong summer workshop for high school students, which was sponsored by IFREE. The students participated in virtual experiments related to trading, public goods, and economic bubbles, and then formed teams to build their own economic experiments. During an open house on the last day, the students demonstrated their experiments to family and friends.
Mason will host the workshop again this year from July 23 to 27 at the Arlington Campus. Details on enrollment are available here.
“For students with an interest in science, technology, engineering, or math, this is the perfect science-based introduction to economics,” McCabe says. “For students who have already taken economics, this workshop will expose students to some of the cutting-edge research in experimental economics.”
This article originally appeared on the university’s News site.
To read more stories about Mason, check out the university’s News site.