How do institutions shape the choices people make? Yan Chen’s research explores the incentives behind human behavior

As a child in Beijing, University of Michigan School of Information professor Yan Chen became very good at waiting in lines.

During China’s Cultural Revolution and the years that followed, grocery store shelves were often empty. When fresh vegetables, meat or other produce arrived, Chen, like other children, was sent to wait. Lines could last anywhere between 10 minutes to a few hours. 

Then, as China’s economic reforms began, Chen watched those lines, and the scarcity behind them, disappear. Shelves filled. Private markets emerged. The rules of the economy began to shift,  increasingly rewarding people for what they produced rather than simply for showing up for work.

“It was exhilarating to watch the world around me transform, from scarcity to abundance, as institutions and incentives changed at every level of society,” Chen says. 

These experiences stayed with her and continue to shape the questions she asks today: How do the rules and institutions around us influence the choices we make? What motivates people to work harder, cooperate with others or change their behavior for the better? And how can systems be designed to produce better outcomes? 

Today, as the Daniel Kahneman Collegiate Professor of Information at UMSI, Chen studies these questions through the lens of behavioral and experimental economics. She uses lab and field experiments to understand how people actually respond to different incentives, rules and information. 

“I’ve always been interested in incentives,” she says. “The first 10 years of my life were during the Cultural Revolution when the central planning system was dominant. Its inflexible rules did not consider information asymmetry between the planner and the workers, and therefore produced inefficient outcomes. For example, if two people graduated from the university the same year, they got exactly the same salary, no matter how hard they worked or what they produced.

“When the Cultural Revolution ended, farmers became the residual claimants of their outputs, which led to  a dramatic increase in agricultural output and technological innovation. Living through those initial years of economic reform, you really felt the effect of how incentives can change culture, and can change people’s attitude and work ethic.” 

To Chen, the lesson following the end of the Cultural Revolution was clear: Institutions matter. The rules that shape people’s lives can change not only what they produce, but how they think about effort, opportunity and possibility.

That insight became a through line in Chen’s research, including her work in market design, a field that examines how institutions, platforms and allocation systems can be designed or improved so that they work better for the people who use them. But the “markets” she studies are not limited to buying and selling. They include public school assignment systems, ride-sharing platforms, online communities, microfinance websites and other digital spaces where visibility, incentives, recommendations and interactions with other people  can shape behavior.

Chen has studied matching markets, including public school choice in the United States and college admissions in China. In Boston, the public school assignment system once used an algorithm that gave parents incentives to misrepresent their true preferences. If a family did not get its first-choice school, it could be heavily penalized in later rounds.

Chen and her collaborators tested the Boston mechanism against a theoretically superior mechanism called deferred acceptance, which gives families an incentive to state their preferences truthfully. Their experiments showed that people were more likely to reveal their true preferences under deferred acceptance, which also produced more stable outcomes. The research became part of a broader body of evidence supporting the redesign of school choice systems. Boston voted to replace its old system with  the deferred acceptance mechanism. New York City followed suit for high school admissions.

Another example of improving a matching market is Chen’s work on China’s college admissions system. She and her collaborators compared different admissions mechanisms used in various provinces and showed that some were less vulnerable to strategic manipulation and produced more stable matches. The research helped spur reforms across China, and by 2020 all provinces had moved away from the more manipulable sequential admissions system and adopted variants of the parallel mechanism which are less manipulable and more stable. 

Chen’s research also examines how people respond not only to incentives, but to social information. People care about what their neighbors, colleagues and peers do, she says, and that information can sometimes guide people toward better choices.

“You can do a lot by using social information to nudge people to better behavior, such as increasing contributions to public goods, and reducing negative externalities such as traffic violations.” Chen says.

In one field experiment in Qingdao, China, Chen and her collaborators worked with a traffic department to reduce speeding violations. Drivers who had multiple speeding tickets received messages comparing their behavior with that of similar drivers. 

A driver might be told, for example, that they had three speeding tickets, while people who drove the same type of car had far fewer.

After receiving that information, drivers’ subsequent violations dropped. 

In one project with DiDi, the Chinese ride-sharing platform, Chen and collaborators studied whether organizing drivers into teams and creating team contests could improve their engagement with the platform and productivity. The company was experiencing driver attrition: many drivers signed up, tried the platform and then stopped responding to ride requests. 

Working with UMSI professor Qiaozhu Mei and other collaborators, Chen helped design two large-scale field experiments in which drivers were randomized into teams and engaged in team contests. In the initial experiment, drivers assigned to teams worked longer hours and earned 12% more revenue during the contest  than drivers in the control group. In the second experiment, the treatment effects continued up to three months after the end of the experiment. These studies showed how something as simple as creating a sense of belonging and shared identity could affect behavior in the gig economy. 

Before Chen became an economist, she studied literature. At Tsinghua University in Beijing, she majored in English for Science and Technology, a field that combined English and American literature with math, physics and computer programming. Her undergraduate thesis was on George Bernard Shaw.

But while researching Shaw’s writing, Chen found herself drawn to the economic reforms unfolding around her.

She wanted to understand how market economies and private ownership could dramatically transform society. She went to the California Institute of Technology (Caltech) to study mechanism design and economic theory and eventually earned her PhD in Economics from Caltech. 

After completing her PhD, Chen joined the University of Michigan Department of Economics as an assistant professor. In 2002 she moved to UMSI, a transition she describes as transformational.

“There is lots of overlap in methods and in research interests, and I get to collaborate with very cool people and be much more open to theories and methods from other fields,” she says. “I can use that to enrich my own research.” 

That openness is part of what Chen values about teaching and working at UMSI. The school’s interdisciplinary environment allows her to bring economics into conversation with technology, data science, human-computer interaction and online community research.

As a professor, Chen’s favorite part of teaching is the exchange of ideas she encounters with her students. 

“Sometimes you have that bright student in your class who asks questions that challenge your paradigm,” she says. “They are young, maybe untrained, and therefore unconstrained and unafraid.”

Outside of research and teaching, Chen enjoys swimming, hiking, meditation, and traveling, both for conferences and for personal exploration. 

She also enjoys reading and spending time with friends. When her two children were younger, she loved reading with them. Now, she writes and edits books for her children and extended family. Not for publication, but to preserve family history and help them understand where they come from.

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Learn more about Yan Chen by visiting her UMSI faculty profile and personal website.