Kay-Yut Chen

My Research

I have established the first experimental economics research program within an industrial research organization. Much of my research has been transferred into and use by many HP business organizations. Here is an Newsweek article, published in 10/2003, that features some of these research.

In March 2006, Scientific American published an article about my work. You can find it here.

In Jan 2007, Nature published an article about my joint research (with Tad Hogg & Ray Beausoliel) in quantum games.

Here are some research areas that I am involved:

Contract Designs & Experimental Evaluation

I am leading the research of using experimental methods to help HP business divisions design “good” contracts and policies in their distribution channels. This work has resulted in a series of experiments (1999-2001) examining contract terms from return policies to minimum advertise price policies. These experiments have provided HP business divisions with valuable information to make better policy decisions. In 2004, we finished a project to help HP's printer division to define a new reseller program, which was rolled out Dec 2004.

In another recent project, in collaboration with Ford Research Lab, experimental methods were used to study the interaction between lease contracts that embed an option to purchase and an underlying used-goods market. Experiments, with subjects playing roles of heterogeneous consumer, have confirmed features predicted by a corresponding theoretical model. One such interesting feature is how the used-goods market will expand or shrink as a result of changes in strike prices. In 2004, a modified version of this model was used to analyze and validate a new Ford supply chain restructuring initiative. This new program was rolled out in summer 2004.

Currently, I am working on a study of a channel system with a traditional retailer as well as a direct (internet) channel owned by the manufacturer.

Information Aggregation

Another area of interests is information aggregation. From 1996 to 1999, in collaboration with Caltech, I conducted a series of field experiments within HP. Markets of Arrow-Debreu securities were used to forecast various business events such as sales of certain products. This research shows the potential of using economics mechanisms as forecasting tools. In 2001, a new information aggregation mechanism for small groups was developed in collaboration with the Information Dynamics Lab. Laboratory experiments have shown that this new mechanism can outperform markets significantly when information is independent and private across individuals. We also have developed an extension to the mechanism that will identify and aggregate a mixture of private and public information.

Reputation Experiments

A series of experiments were conducted to study how information policies (one of which is an eBay-like feedback mechanism) affect the formation of reputation in the context of a double sided market economy. We have been able to show that subjects responded strategically to different information policies. We are in the planning stages of a collaboration project amongst UC Berkeley, Stanford and HP Labs to study market behavior when a market of reputation is introduced to an exchange economy.

Quantum Game Theory

The mathematics of quantum mechanics can be used to broaden the strategic space of conventional games, which can help to induce more efficient outcomes. We  have designed a quantum mechanism to solve the free-rider problem in the context of a one-shot n-player public goods game with no trusted third party to enforce contributions. We have shown that the Nash equilibrium of this mechanism approaches the efficient outcome. In addition, the mechanisms we considered can be implemented with technologies in the near future. After publishing our results in a 2002 paper, we followed up with experimental work (with simulated quantum devices), testing whether human subjects, with no formal training in quantum physics, can play quantum games well. These are the first experiments of real people playing quantum games. We found that people could play close to what theory predicts with the help of a well-designed software training system in the context a simple quantum public goods game.

We are currently pursuing the research in two directions. On one hand, we are exploring new applications based on quantum information processing technologies such as new forms of auctions. On the other hand, we are expanding the experimental study to expand our understanding of how people play quantum games in different scenarios.