Wednesday, March 06, 2013

Yahoo Offers 4 Natural Experiments

The 1990s were the golden age of the "natural experiment".  Today, the NY Times reports that Yahoo is offering ambitious young researchers three natural experiments to study at the same time.  The young CEO of that company has mandated free food in the Yahoo cafeterias.   Economics makes 4 lofty predictions about the effects of the free food.

  • Yahoo employees will eat more during the work day (the law of demand)
  • Yahoo workers will gain weight (hyperbolic discounting, unless workers reduce their food consumption at other points in the day when they face the marginal cost of purchasing their own food).
  • Yahoo employees will talk more face to face and this will lead to new ideas at the firm (social interactions is good for idea permutation)
  • Yahoo will be able to attract and retain better workers at the same wage (compensating differentials)

This blog post is meant to show you how a non-experimental science runs experiments even when we don't have the resources or the subject pool to run a field experiment.  The old "double-difference" is a powerful research tool.