Doctoral Student Asks Lemonade-Stand Owner:
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
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.
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.
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.
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.”
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
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
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.
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
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?
Haifa-born student gained her bachelor’s degree at
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
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
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