This area combines research from economics and psychology to provide a profound understanding of fundamental drivers of economic decision-making and social interaction, such as economic preferences, dispositions (in particular, self-control abilities), values and beliefs. Our research provides a behavioral foundation for the development of economic models and informs the design of policies targeting pressing societal challenges. We investigate how different preferences affect economic outcomes and how these preferences interact with dispositions and beliefs. An important focus is on the role of the socio-economic environment for the formation of preferences.
This research area yields a firm empirical basis for various other research areas in the Cluster, and will provide insights on elements to be incorporated into the design of market or policy interventions that are based upon a better understanding of human nature. An overarching goal of our research is to utilize the insights on the fundamental drivers of human behavior to advance policy design.
Research in this area is motivated by the increasing complexity of many market environments. One source of complexity is related to the digital transformation of the economy, which allows for an increasingly individualized service provision. Uber, the new competitor of traditional taxi business, is a player on a personalized matching market, aiming to balance demand and supply in real time at the local micro-level. Important aspects of this market cannot be captured by the conventional economists’ ideal of markets as an anonymous exchange at commonly observed, uniform prices. Technology is another source of complexity. In the design of spectrum auctions, the computation of feasible allocations is already rendered impractical by what are known as “interference constraints” imposed on the radio spectrum.
Our research will provide the theoretical methods that are needed for a systematic analysis of markets & public policy in complex environments. Specifically, we plan to advance economic theory in the fields of mechanism design, matching and decentralized markets.
This research area combines expertise from economics, psychology and business ethics to explore the possibilities and limitations of moral value orientation in market environments. Recent years have seen a vivid debate on whether and under which circumstances markets erode morals. Research in this area advances our understanding of how different market environments and market designs interact with moral awareness and moral concerns of market participants. This will provide the basis for understanding when policy interventions would be required if the main objective was to meet individual or societal moral concerns.
Moral values orientation is a pressing topic also for environmental protection. Environmentally responsible individuals and societies call for institutions, markets and ultimately public policy interventions that efficiently foster sustainable resource consumption. This research area explores behavioral interventions that sharpen the awareness of resource consumption.
All research projects in this area share an interest in exploring the effectiveness of behavioral interventions, such as nudging or micro-targeting. We not only ask how nudges and micro-targeting shape behavior but also how such interventions are perceived morally, and explore the determinants of acceptance as well as unintended counter-effects.
This research area is concerned with the design of organizational structures and management practices in order to align behavior of the members of an organization with overarching goals such as individual well-being, the creation of economic value, and societal welfare. Research in the area is based on fundamental research in behavioral economics and psychology to advance our understanding of how employees respond to changes in management practices and organizational design. It applies formal models rooted in behavioral microeconomic theory to study reactions to such changes and, in turn, to advance our understanding of the optimal design of such practices. Our research benefits from close collaborations with firms and public organizations to access detailed personnel data that are analyzed with microeconometric methods, and to conduct field experiments in organizations to evaluate causal effects of changes in the use of management practices.
Recent advances in computer and communication technology make new kinds of economic interaction and transactions feasible, and thus allow radical innovation in how markets are designed. The goal of our research is to develop and test innovative market mechanisms that are based on modern computer and information technologies, and that address important economic and societal challenges. One particular focus is on the use of tools from behavioral and experimental economics to design markets that take into account the complexity of human behavior, an approach that could be called “behavioral economic engineering”.
Research in this area deals with three categories of market design challenges. First, we study the design of complex real-time markets to address congestion in transport and flaws in financial markets, such as excessive rewards for speed. Second, we analyze the design of effective reputation building systems to promote cooperation in large anonymous communities and to address informational asymmetries in credence goods environments. Third, we investigate the design of markets where repugnance is a constraint to market design, such as markets for blood donations and various matching markets, where moral and equity concerns constrain the choice of market formats.
Consumer protection is a key instrument of public policy to safeguard consumer welfare. A central premise of our research is the observation that many consumer products are complex in the sense that it is difficult to understand and compare them because this requires a basic level of expertise (e.g. financial, legal, scientific or technical), or because sellers have superior information about their products. Important examples are financial services, expert advice, food, consumer electronics such as computers, but also firms’ privacy provisions that accompany data-sensitive products and transactions. In this research area, we investigate consumer protection policies in markets for complex products from both a traditional perspective, emphasizing externalities caused by asymmetric information or market power, and from a behavioral economics perspective, which seeks to improve the choices of boundedly rational consumers, using both empirical and game theoretical approaches.
The global financial crisis of 2007–2009 has not only caused deep economic disruptions in many countries but has also displayed a lack of understanding of the financial system both by policymakers and by the economics profession. While it has been acknowledged that financial regulation should take a more “macroprudential” approach – focusing on the stability of the financial system as a whole instead of only looking at individual financial institutions –, the notion of systemic risk and its implications for financial regulation are still poorly understood. A particular challenge is the low interest rate environment, which may give rise to asset price bubbles, including the recent boom in the bitcoin market. Finally, the increasing complexity of the financial system, including new financial products, institutions and risk management strategies, poses new challenges. This research area aims to contribute to a better understanding of the underlying conceptual issues and to provide new empirical evidence.
The distribution of income, wealth and opportunities is central to the well-being of individuals and the functioning of market economies. For many industrialized economies, indicators show a substantial increase in economic inequality in recent decades. Rising inequality and increased societal segregation raise important challenges for public policy, both at the individual and aggregate level. Persistent inequality points to a lack of social mobility and calls for new approaches in public policy that address the origins of economic inequality, not only the consequences.
Research in this area focuses on the conditions under which the political process yields desirable outcomes, and on the way in which extreme market outcomes, such as financial crises, distort that political process. It relates performance measures from welfare economics to the analysis of political institutions, and investigates whether an improved design of political institutions or of specific policies is called for. Specifically, one strand of our research focuses on the conditions under which policy measures find sufficient support in the political process. It develops a notion of political implementability that complements the traditional analysis of public policy that aims at a correction of market failures. For instance, it seeks to clarify the conditions under which a welfare-improving tax reform is likely to be supported by a majority of taxpayers.
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