Final Round of the Centre of Excellence Process

Professor Bertil Tungodden and Alexander W. Cappelen, The Choice Lab, NHH.
Professor Bertil Tungodden and Alexander W. Cappelen, The Choice Lab, NHH.
By Sigrid Folkestad

23 June 2016 10:58

(updated: 23 June 2016 11:12)

Final Round of the Centre of Excellence Process

Inequality in childhood manifests itself strongly in adulthood. Why is this the case, and is this fine with us? This is some of what a group of NHH researchers intend to study. They are now in the final round of the Centre of Excellence process

The Wild Hunt for Nanoseconds

High-frequency trading can be a shortcut to good trades on the stock exchange.

When we ask Professor Alexander W. Cappelen about the early beginnings of behavioural economics at The Choice Lab about ten years ago, he says. "We were at Heathrow."

"It's a lovely story. We realised that many behavioural economists lacked knowledge about normative theory and philosophy, while it is our strength," says Professor Bertil Tungodden.

Extremely focused

The two share management responsibilities at The Choice Lab. They spend much time together, and are extremely preoccupied with research, teaching and dissemination.

"We never talk about anything else, except for when Alexander pretends to be interested in how the Brann football team is doing," says Tungodden.

Every morning, repeated knocking is heard outside Tungodden's office door at the Department of Economics. Cappelen has parked his bicycle outside, after having taken his children to school, puts down his personal items, and crosses the hall to Tungodden. He greets him loudly, then they go right down to NHH's coffee shop.

Straight into the American Economic Review

"Back then, we saw that researchers conducted experiments where the subjects were supposed to share money among themselves, without taking consideration of the origins of the money. We were able to do something about this. We high-fived each other and said that 'this will go straight into the American Economic Review'," recounts Cappelen.

"And our dreams became reality. Our first experiment was published. This was the beginning, and our immediate success really motivated us," comments Tungodden.

Today The Choice Lab is the undisputed headquarters for research on behavioural economics in Norway. It is competing to stand out among the best in Europe in the discipline. The group has grown into a large research organisation, an enterprise with a turnover of millions that regularly receives research funding for individual researchers and major projects, teaching prizes and NHH bonuses for publication in the best journals.

The FAIR Centre

In order to be able to implement completely new ideas, behavioural economists and researchers at the Center for Empirical Labor Economics (CELE) have joined forces in a joint centre. They have applied to the Research Council of Norway for status as a Centre of Excellence (CoE). This will give them a chance for 10 years of funding, something that is unique in Norway.

The centre has been named Centre for Experimental Research on Fairness, Inequality, and Rationality (FAIR). Tungodden will be FAIR's director. NHH will be represented by Cappelen, Professor Kjell G. Salvanes (head of CELE), Associate Professor Ingvild Almås and Professor Erik Ø. Sørensen The team will be completed by Harvard Professor Sandra E. Black.

The centre will have three basic pillars, which will separately address fundamental questions in the debate on inequality:

•    What forms of inequality are considered unfair?
•    What are the drivers of unfair inequality?
•    What forms our view of justice?

Professor Kjell G. Salvanes (research director CELE), PhD-student Ingar K. Haaland, senior advisor Bjarte Grønner, Tungodden and Cappelen.
Professor Kjell G. Salvanes (research director CELE), PhD-student Ingar K. Haaland, senior advisor Bjarte Grønner, Tungodden and Cappelen. Photo: Helge Skodvin

NHH's first Centre of Excellence

"What would it mean to NHH to have a Centre of Excellence?"

"It is important to NHH that it establishes its first Centre of Excellence. CELE and The Choice Lab will be equal partners, and together we will be able to carry out very many important and exciting projects during the coming decades. This will give us funds and a framework that allow us to achieve more than is possible today," says Tungodden.

"One of the main focus areas is about how inequality in childhood drives great differences later in life," states Tungodden.

"Inequality in childhood manifests itself strongly in adulthood. The problem is the black box in the middle. Why is this the case? What role does genetics play, or parents' way of being and preferences? What creates this link? Administrative data alone cannot answer these questions. We want to understand the big picture, or the pattern, and then begin experimenting," he says.

"Just Luck" (2013)

If NHH is awarded a Centre of Excellence, this will contribute to more international interdisciplinary collaboration. One of the researchers who works with The Choice Lab today is James Konow, Professor, Department of Economics, Loyola Marymount University.

"We have a fundamental, strong common interest in the use of experimental, theoretical methods to analyse ethical economics questions. One example of this is the collaboration that led to our study of justice and risk-taking."

Professor Hans K. Hvide at Department of Economics, University of Bergen, with NHH-economics Cappelen and Tungodden.
Professor Hans K. Hvide at Department of Economics, University of Bergen, with NHH-economics Cappelen and Tungodden. Photo: Helge Skodvin

"The study 'Just Luck: An Experimental Study of Risk-Taking and Fairness' was published in the American Economic Review in the spring of 2013."

"What separates The Choice Lab from other behavioural economics research communities?"

"It is unique because it manages to bring leading researchers from different disciplines and from around the world together in a corner of the far North. It conducts remarkable development of core questions related to economics and ethics, including studies in different parts of the world," says Konow.

The same passion

Björn Bartling is a Professor at the Department of Economics, University of Zurich. He is also an important partner for The Choice Lab.

"What is most important is that we share the same passion and enthusiasm for learning how people make moral assessments when making economic decisions. Which inequalities are accepted, and which ones are not? What are the consequences for society? Which inequality is desirable, and which one is not?" asks Bartling.

Marina Schröder from University of Cologne presented her study "Remember Me? A Field Study on Memory Biases in Academia" at one of the Choice Lab-seminars.
Marina Schröder from University of Cologne presented her study "Remember Me? A Field Study on Memory Biases in Academia" at one of the Choice Lab-seminars. Photo: Marit Hommedal

Bartling and The Choice Lab researchers are interested in the same research questions. For example, which institutional and cultural factors determine perceptions of justice? Do institutions causally influence our preferences and shared norms for moral behaviour?"

Located in Bergen

"What's special about The Choice Lab?"

"The Choice Lab stands out from many other research groups because its research has a clear profile – the rise and acceptance of economic inequality and consequences for society. Everyone who works with empirical behavioural economics is aware of the work of the researchers at The Choice Lab, which is impressive."

Also Bartling is surprised at the number of internationally-renowned researchers who have made their way to Bergen. 

"The Choice Lab brings the best behavioural economists to NHH. This is far from an obvious choice, given the remote location. Naturally it is clearer to establish this type of research centre in Oslo, but in this case it has popped up in Bergen."

The critique

However the behavioural economists have not only been welcomed. Cappelen and Tungodden believe that a critique of the discipline that is both correct and important is the hunt for wrong decisions and irrational choices.

"Showing that the standard model is slightly wrong here and there is of no interest. The question is whether it is wrong on a higher level, in an important way. We know that money means a lot to people, but we believe that moral motivation is also very important in order to understand human behaviour. This is an example of an overall theoretical perspective in behavioural economics. This approach, which we call 'The moral mind' will be part of our CoE application."

jonas tungodden berkeley
PhD-student Jonas Tungodden at Berkeley Economics, University of California, having a Skype meeting with Cappelen  and his father Bertil Tungodden. Photo: Helge Skodvin

Some have also pointed out that a number of studies in social psychology, which are occasionally presented as behavioural economics, have not been reproducible, that the research has not been sound enough. Part of the explanation for this is that the samples have been small or unrepresentative. The new centre wants to address this, by establishing procedures to ensure that the experimental research yields sound results.

Business school 

"Is a business school your natural home?"

"Absolutely. We could not have been at a more exciting place. And we believe that our approach will only become more important at business schools in the future. It is critical that the leaders of tomorrow have a broader perspective on human behaviour and are familiar with the newest experimental methods in economics," says Tungodden.

Cappelen believes that the traditional boundaries between the disciplines will eventually be erased.

"Behavioural economics is fantastic for a business school because it links the different disciplines. The problem has been that a number of the strict assumptions we have made in the field of economics have created an artificial barrier between the disciplines," says Cappelen.

The institutions

They believe that economists have paved the way for other disciplines, and have strengthened the field. Tungodden highlights perspectives in sociology which show how our values and preferences are affected by societal institutions. This is something the discipline of economics must deal with.

"It is clear that the politics you shape and the society you create affect us. A line goes back to it. This is what we want to study," says Tungodden.

"Look at the example of subsidised kindergartens. It is a policy that balances inequality. How do kindergartens influence the perception of law among people?" asks Cappelen.

"Do they create other people? These questions are incredibly important. Discussions regarding educational policy are often about us having too poor an educational system in Norway, but the system's implications far exceed these. It is really quite obvious. It shapes children and pupils – more than their academic performance. It also shapes their attitudes towards justice, for example," says Tungodden.

Policy formation

In the United Kingdom and the United States, the authorities have built "behavioural insights teams" that bring the knowledge from behavioural economics into policy formation. Researchers believe that this clearly shows how far the discipline has progressed, and that this is recognised.

"A focus for the different 'behavioural insights teams' has been the ability to control people's behaviour without limiting their freedom. However, when forming policy, decisions must be made about the willingness to limit people's freedom," says Cappelen. 

Do we want people to be able to decide for themselves how much to save for their old age, whether to wear a seat belt or motorcycle helmet? Should children decide whether to go to school and whether to do homework?

– These are obvious choices for some groups, but not for others. So to what extent can the authorities legitimately intervene in people's private lives and control their behaviour?" asks Cappelen.

Ideas for the future

"As researchers, we ask people what level of intervention they can accept. If you know that people do not have all of the information, that they might not understand what is necessary in order to remain healthy, what it most important to you then? That they remain free or that they have a good long-term diet?" asks Tungodden.

The two researchers' days focus on the final round of the process for awarding of CoE status. They have an appointment with their research coordinator Janina Fetzer. They will then go to the final meeting with the partners in the FAIR centre. They only need to fine tune the details, before the deadline the next morning.

"We will need to celebrate this moment. No matter how things go at the Research Council, we have very many good ideas and possible projects for the future," says Tungodden.