Spring 2003


 

Doctoral Student Asks Lemonade-Stand Owner:

How Much Are You Willing to Pay for a Weather Forecast?

 

When you were a kid, did you ever set up a lemonade stand, like the one sometimes seen in the Peanuts cartoon, or just sell lemonade to passers-by on a summer’s day?

        Daphne Ruth Raban, a doctoral candidate at the University, is doing just that, and her customers are business executives.

        No, the 38-year-old mother of three is not trying to pay her tuition through sales of the refreshing drink.   She is using the lemonade stand to help her research the subjective value of information for her dissertation at the Graduate School of Business.   In fact, it is the first time, she says, that someone is doing a doctorate on the well-known lemonade-stand game.

Actually, she took the game and designed it as a deceptively simple computer-simulation business game, to be used as a research tool for her study (see: http://gsb.haifa.ac.il/~draban/lemonade).  The originality of her work sufficiently impressed Dialog, one of the world’s leaders in on-line information services and telecommunication solutions, that it awarded Raban a scholarship to enable her to pursue her research.  It was the first time an Israeli had received Dialog’s Roger K. Summit Scholarship, named for one of the founders of the information industry and a past CEO of the company.

“How much is it worth it to you to know what the weather will be like?” Raban asks the potential lemonade stand owner.  Obviously, she points out, “Climate influences demand for the cold drink.  Demand affects prices.  Knowledge of the weather forecast, therefore, helps predict demand.”  In the game, the owner of the stand must submit a bid for this information if, or to the extent that, he or she considers it important.  The bid, she continues, expresses the business person’s subjective value of the information. 

Raban wants to study the roots of this buying and selling of information. Her research proposal bears the title, “Ownership and Subjective Value in the Trading and Sharing of Information.”

Raban’s debriefing of B-School students and others who have undertaken the simulation demonstrates, she believes, that “decisions by managers are not always rationally made.”  The students, some of whom are her own in a course on “On-Line Competitive Intelligence” that she teaches at the School, are not full-time students.  They are working managers who come to the University for one or two days a week of intensive study leading to the MBA degree. [See Focus, Winter 2001/2002, for a portrait of one such student.]  So the answers she receives about why they made certain decisions about buying lemons or ordering sugar or paying for a weather forecast do not come from novices.

She also ran the simulation in Tel Aviv for managers who came from peripheral areas of the country.  The invitation to do so came from a government project to reduce digital divide in Israel .  Her dissertation adviser, Prof. Sheizaf Rafaeli, ran the lemonade stand simulation in an English version in the U.S. and in Cyprus .

Raban cited a prime example of the irrationality she mentioned when it came to selling and buying information.  The price demanded for information—in this case, a weather forecast—was three times that bid by potential purchasers.  “This is not rational,” she comments.  “Economic principle says that the disparity between the projected selling and buying prices of a product is reasonable.  What we have here, in regard to information, is the influence of an ownership variable.  The owner of the information does not want to get rid of it.

“Loss aversion accounts for this disparity.  Losing [the information through selling it] is worse than gaining [money for the sale].  Because of the difference in values [between seller and buyer],” she summed up, “undertrading can result.  Less is sold.” 

The doctoral candidate noted that her game-simulation served not only her research, but it was also a training tool for acting and future managers.  Simulation is exciting for students, she has found, and helps them learn from experience, even if it’s virtual experience.  The lemon-stand game that she developed was also in effect putting into practice a theory developed by Daniel Kahneman, the 2002 Nobel Prize Laureate in Economics.  Kahneman, an Israeli-American, integrated insights from psychological research into economics, especially concerning human judgment and decision-making under uncertainty.    What, of course, could be more uncertain than the weather?

Daphne Raban wanted to research the value of information.  She looked for a simple game that would highlight the points she wanted to get across, but be simple.  The Internet brought up the lemonade stand, which was a well-established game.  No one, however, had used it to assess information value.  So she changed it to be able to research the roots of the buying and selling of information.  In other words, the sharing of information for commercial purposes. 

The Haifa-born student gained her bachelor’s degree at Iowa State University , when her husband, an industrial psychologist, was doing his doctoral research there.  She became interested in the value of information after she had opened her own business as an information-specialist and was exposed to the peculiarities of information as a good.    After five years in business, she decided to go back to school to concentrate on research, which she is presently carrying out in the framework of the Graduate School of Business and the Center for Study of the Information Society , Infosoc (http://infosoc.haifa.ac.il).   As Infosoc coordinator, Daphne organized, together with her adviser, a highlysuccessful international doctoral consortium at the University on computer-mediatedcommunication, the Internet, and their social aspects.  Another consortium is now in the planning stage.

As though her research and three children are not enough to handle, she teaches a course in information retrieval in the Haifa Technion’s External Studies division, as well as the course at the B-School.  Her interest in information actually derives from a job she held with the large Israeli paint company, Tambour, as an information specialist.  The company gave Raban the job and on-the-job training, despite her having a Master’s degree, from the Technion, in a completely different area: food engineering and biotechnology.  Knowledge of chemistry and chemical engineering was a prerequisite for the job.

On her way to winning the Dialog grant, she had to take that company’s grueling examination dealing with information searching.  Already experienced in the field, it was downing a cool lemonade.  She was officially awarded the scholarship at the Online Information 2002 conference in London this past December. 

Asked about future plans, the mother cum businesswoman cum budding scholar said she would like to stay in the academic world if there is a good opportunity to do so.  She already has a number of academic publications to her credit.  She is looking forward to delivering a paper that the International Association for the Advancement of the Information Society accepted for its conference in Lisbon in June.  Focus did not ask if she planned to take along any Jaffa lemons.                

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