Lee Center for Advanced Networking

The engineering of a physical network (including, for example, computers, antennas, and fiber-optic cable) tends to be driven by the economic benefits that will flow from the network’s existence, says Charles Plott, Lee Center economist and Harkness Professor of Economics and Political Science at Caltech. As a result, two different bodies of scientific principles are at play—those of engineering and those of economics. Economic principles are basic to understanding the implications of cheaper networking, faster communication, the competition that takes place within and between networks, and the social regulation and policies that will govern a global communication network.

In the lab, Plott studies financially motivated buyers and sellers who are connected through experimental electronic markets. Generally, he’s interested in how computers, communication networks, and financial market networks may have evolved together and how they behave when subjected to stress, constraints, and change. As the world moves toward a global information network, seemingly unrelated markets will become more interdependent. Plott would like to know how such interdependence propagates itself, what principles affect interdependence, and how we can exploit interdependence economically.

Networking in the marketplace can now enable an individual to infer information by looking at patterns within networked systems. As more transactions take place in networked systems (such as eBay), it is becoming possible to track the exact timing of specific decisions and to extract from that data the meaning and causes of the decisions. While each individual decision maker may have only a small amount of information, the market as a whole may “know” enough to convey a strong, measurable signal.