Virulent Word of Mouse

July 5, 2009

Mid-course correction and economic experiments


To paraphrase Nathan Rosenberg, Economic experiments occur in settings where firms find it cheaper to learn about their technologies and business through market actions than to learn from experiments in a laboratory. (If you want more, see this journal or chapter 5 of this book.)

Perhaps it goes without saying, but laboratory science works well for a certain domain of technologically intensive activities, such as bio-tech or chemistry, and not too well in other contexts, such as service markets employing frontier IT. It also may be a platitude to some, but we live in an era with quite a lot of economic experimentation, and an era in which there always seems to be at least one venture-funded firm who does well in such settings.

The New York Times contained a short article about a company exploring one particular green technology.  It contained the title, “That long, long road from idea to success.” It said nothing about economic experiments, but it could have.

I try to teach principles of exploratory behavior to students, and something nothing works better than a good illustration and a good quote. This article contained a short story of one firm’s long exploratory road. I have no idea whether this firm will make it or not, but the details mattered less than the general lessons. They describe what experiments look like to one set of managers trying to find the right combination of price, cost, and service to make their business fly.

This article had a good illustration of learning through experimentation. It ended with this good quote: “You see again and again the companies that succeed are not the ones that have the brilliant strategy, but the ones that course-correct along the way.”

Got any other good illustrations?

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