Secrets of the Moneylab: How Behavioral Economics Can Improve Your Business.

• Author: Marshall, Jeffrey

By Kay-Yut Chen and Marina Krakovsky. Portfolio, 246 pages. $25.95

This is an intriguing book about an unusual idea: doing in-house testing for financial decision-making, using human participants instead of (or to supplement) conventional spreadsheet forecasting. Doing so brings in behavioral economics, the way in which behavioral choices, motivations and emotions affect monetary outcomes.

Chen, the lead economist at Hewlett-Packard Labs, developed this science for the company--the first of its kind in corporate history, the authors claim. Chen has a doctorate in economics from CalTech; Krakovsky is a science writer in the Bay Area who sat in on one of Chen's sessions and was fascinated enough to team up with him on a book.

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The authors claim that Chen's work has saved Hewlett-Packard Co. millions of dollars by showing how attitudes toward incentives can make people behave differently. One example: HP wanted to reward key retailers like Wal-mart Stores Inc. and Best Buy Co. Inc. for being among the top three sellers of HP products. But Chen's research showed that such a scheme could...