Universität zu Köln 

Eliran Halali, Yoella Bereby-Meyer and Axel Ockenfels
Forthcoming. In: Frontiers in Human Neuroscience.
 

In the ultimatum-game, as in many real-life social exchange situations, the selfish motive to maximize own gains conflicts with fairness preferences. In the present study we manipulated the availability of cognitive-control resources for ultimatum-game proposers to test whether preference for fairness is a deliberative cognitive-controlled act or an automatic act. In two experiments we found that a shortage in cognitive control (ego depletion) led proposers in the ultimatum game to propose significantly more equal split offers than non-depleted proposers. These results can be interpreted as resulting from an automatic concern for fairness, or from a greater fear of rejection, which would be in line with a purely self-interested response. To separate these competing explanations, in Experiment 2 we conducted a dictator-game in which the responder cannot reject the offer. In contrast to the increased fairness behavior demonstrated by depleted ultimatum-game proposers, we found that depleted dictator-game allocators chose the equal split significantly less often than non-depleted allocators. These results indicate that fairness preferences are automatically driven among ultimatum game proposers. The automatic fair behavior, however, at least partially reflects concern about self-interest gain. We discuss different explanations for these results.

Sebastian Lotz, Fabian Christandl and Detlef Fetchenhauer
Forthcoming. In: Food Quality and Preference.
 

Many consumers consider a variety of ethical issues in product choice and preference. The aim of the present research is to explore the effect of ethically labeled foods and drinks (e.g., Fair Trade) on consumers’ reported taste experience. In three studies, we asked participants to taste coffee (Study 1) or chocolate (Studies 2 and 3), and participants in all studies reported that the products tasted significantly better when they were labeled Fair Trade. Moreover, prior to rating the products, the majority of participants in Studies 2 and 3 indicated that they did not believe products with ethical labels to taste differently. Yet, even the participants who explicitly made this claim reported that the chocolate tasted better when it was labeled Fair Trade.  Additionally, Study 3 suggests affect as a critical variable mediating this effect. Thus, consumers rate Fair Trade products more positively, because they experience positive affect through consumption of ethical goods. We discuss this result with respect to consumers and producers, and we argue that the observed effect can increase value for both.

Sebastian Lotz and Andrea Fix
Forthcoming. In: Journal of Economic Psychology
 

Since the recent financial crisis, regulators and the general public have focused on financial speculation as one of its potential causes. In addition to the roles played by rating agencies and complicated financial engineering, speculative short sales have been put into question. However, laypeople’s moral judgments about this type of financial speculation have rarely been investigated in economic psychology. The present study aims to fill this gap. Across four studies, we find that laypeople’s moral judgments of short selling are significantly harsher than their judgments of long positions. Both successful (Study 1) and unsuccessful (Study 2) short selling receives harsher moral judgments. In addition, studies which manipulate the moral character of the shorted asset (Study 3) or the time horizon of the investment strategy (Study 4) support the conclusion that short selling is considered less moral than taking a similar long position. The results present consistent support for a judgment bias of economic laypeople in the domain of financial economics.

Veronika Grimm and Lyuba Ilieva
Forthcoming. In: Journal of Regulatory Economics  
 

In theory, efficiency and compliance levels induced by an emission trading system should not depend on the initial allocation mechanism for permits in the absence of transaction costs. In a laboratory experiment we investigate this prediction by comparing frequent and infrequent auctioning as well as two different grandfathering schemes under market rules that closely resemble those of the European Union Emission Trading System (EU ETS). Our experimental results suggest that, contrary to theoretical predictions, the initial allocation procedure has the potential to affect efficiency of the final permit allocation. While we do not identify an effect of the initial allocation procedure itself (auction vs. grandfathering), we observe higher final efficiency after infrequent auctioning of permits than for frequent auctioning. Surprisingly, for a grandfathering scheme that distributes permits proportional to expected needs the high initial efficiency is substantially reduced by secondary market trading. An analysis of behavioral patterns shows that permit prices and abatement levels are initially substantially higher if permits are allocated by auction and we also find more over-banking as compared to the grandfathering treatments. Treatment differences diminish in the course of the experiment.

Detlef Fetchenhauer, Wolfgang Jagodzinski, Kazufumi Manabe, Axel Ockenfels, Akira Okada, Gisela Trommsdorff, and Toshio Yamagishi

Forthcoming. In: Dynamics of Traditional Research Societies in a Rapidly Changing World. IUDICIUM Verlag, München, 35-65.

John F. Nash, Rosemarie Nagel, Axel Ockenfels and Reinhard Selten
Forthcoming. In: Pro­cee­dings of the Na­tio­nal Aca­de­my of Sci­en­ces 
 

In society, power is often transferred to another person or group. A previous work studied the evolution of cooperation among robot players through a coalition formation game with a non-cooperative procedure of acceptance of an agency of another player. Motivated by this previous work, we conduct a laboratory experiment on finitely repeated three-person coalition formation games. Human players with different strength according to the coalition payoffs can accept a transfer of power to another player, the agent, who then distributes the coalition payoffs. We find that the agencies method for coalition formation is quite successful in promoting efficiency. However, the agent faces a tension between short-term incentives of not equally distributing the coalition payoff and the long-term concern to keep cooperation going. In a given round, the strong player in our experiment often resolves this tension approximately in line with the Shapley value and the nucleolus. Yet aggregated over all rounds, the payoff differences between players are rather small, and the equal division of payoffs predicts about 80% of all groups best. One reason is that the voting procedure appears to induce a balance of power, independent of the individual player's strength: Selfish subjects tend to be voted out of their agency and are further disciplined by reciprocal behaviors.

[further information]

Jos Jansen and Juan-Jose Ganuza
Forthcoming. In: Journal of Industrial Economics
 
By using general information structures and precision criteria based on the dispersion of conditional expectations, we study how oligopolists’ information acquisition decisions may change the effects of information sharing on the consumer surplus. Sharing information about individual cost parameters gives the following trade-off in Cournot oligopoly. On the one hand, it decreases the expected consumer surplus for a given information precision, as the literature shows. On the other hand, information sharing increases the firms’ incentives to acquire information, and the consumer surplus increases in the precision of the firms’ information. Interestingly, the latter effect may dominate the former effect.

Thomas Kittsteiner, Axel Ockenfels and Nadja Trhal
2012. Economic Letters, Vol. 117: 394–396 
 
We experimentally compare two partnership dissolution mechanisms, the widely-used buy-sell clause and the winner’s bid auction. While standard theory does well in organizing many laboratory patterns, it does not easily capture that many subjects bid valuations, especially in the buy-sell clause. As a result of this behavior, the buy-sell clause weakly outperforms the auction with respect to efficiency.

Jos Jansen
2012. Research in Economics, Vol. 66: 239-245

This paper studies the incentives for production cost disclosure in an asymmetric Cournot oligopoly. Whereas the efficient firm (consumers) prefers information sharing (concealment) when the firms choose accommodating strategies in the product market, the firm (consumers) may prefer information concealment (sharing) when it can exclude its competitors from the market. Hence, the rankings of expected profit and consumer surplus can be reversed if exit of the inefficient firms is possible. Although the efficient firm has stronger incentives to share information when it shares strategically, there remain cases in which the firm conceals information in equilibrium to induce exit.

Gary Bolton, Ben Greiner, and Axel Ockenfels
Forthcoming. In: Management Science

Reciprocal feedback distorts the production and content of reputation information, hampering trust and trade efficiency. Data from eBay and other sources combined with laboratory data provide a robust picture of how reciprocity can be guided by changes in the way feedback information flows through the system, leading to more accurate reputation information, more trust and more efficient trade.

 Engineering Trust - Reciprocity in the Production of Reputation Information

 Engineering Trust - Reciprocity in the Production of Reputation Information - Appendix

Ann-Christin Posten, Axel Ockenfels, Thomas Mussweiler
2012. University of Cologne Working Paper

Achim Wambach, Friedrich Breyer, Roman Inderst, Axel Ockenfels, Carl Christian von Weizsäcker et al.
2012. Gutachten des Wissenschaftlichen Beirats beim Bundesministerium für Wirtschaft und Technologie

Wege zu einer wirksamen Klimapolitik

Felix Müsgens, Axel Ockenfels, Markus Peek
2012. Zeitschrift für Energiewirtschaft, Heft 36: 1-7

This paper analyzes timing issues on the German balancing power market. We focus the analysis on the length of the bidding period, i.e. the length of the time period a supplier has to provide balancing power capacities, and the question of how far before the beginning of a bidding period the auction should be carried out. We show that different load levels require different plants for the optimal provision of balancing power. In a longer bidding period, the power plants that have the lowest average cost in the bidding period are unlikely to be efficient in all hours of the bidding period. Hence, shortening bidding periods can increase efficiency. Furthermore, we show that an early commitment on a power plant’s mode of operation (when uncertainty about resulting spot prices is still relatively high) also reduces efficiency. This suggests that the auction should be held relatively close to the beginning of the bidding period. Furthermore, we discuss some advantages of a liquid real time market.

Gary E. Bolton and Axel Ockenfels
2012. Journal of Economic Psychology, Vol. 33 (3): 665-676
  
Economic engineering is the science of designing real-world institutions and mechanisms that align individual incentives and behavior with the underlying goals. This paper discusses why behavioral economic engineering is a promising research field, how behavioral phenomena may affect economic engineering, and the role of theory and laboratory experiments for behavioral economic engineering in practice. We provide examples, many from our own work.

Gary E. Bolton, Axel Ockenfels and Ulrich Thonemann
Forthcoming. In: Management Science

We compare how experienced procurement managers and students solve the newsvendor problem. We find that managers broadly exhibit the same kind of pull-to-center bias as do students. Also, managers use information and task-training no better than students. The performance of managers is positively affected by the level of their education and their level in the organizational hierarchy. We discuss implications for theory and for how ordering might be improved in practice.

 Managers and Students as Newsvendors - Online Appendix

Axel Ockenfels and Alvin E. Roth
Forthcoming. In: Z. Neeman, A. Roth, and N. Vulkan (eds), The Handbook of Market Design, Oxford University Press

Ben Greiner, Axel Ockenfels, and Abdolkarim Sadrieh
Forthcoming. In: M. Peitz and J. Waldfogel (eds), The Oxford Handbook of the Digital Economy, Oxford University Press

Axel Ockenfels, Peter Werner
2012. Journal of Economic Behavior and Organization, Vol. 82 (1): 82-85

We conduct an Internet dictator game experiment in collaboration with the popular German Sunday paper “Welt am Sonntag”, employing a wider and more representative subject pool than standard laboratory experiments. Recipients either knew or did not know the size of the cake distributed by the dictator. We find that, in case of incomplete information, some dictators 'hide behind the small cake', indicating that beliefs directly enter the social utility function. 

Ben Greiner, Axel Ockenfels, Peter Werner
2012. Journal of Economic Behavior & Organization, Vol. 81 (2): 355-365

We study the interplay of inequality and trust in a dynamic game, where trust increases efficiency and thus allows higher growth of the experimental economy in the future. We find that trust is initially high in a treatment starting with equal endowments, but decreases over time. In a treatment with unequal endowments, trust is initially lower yet remains relatively stable. The difference seems partly due to the fact that equal start positions increase subjects’ inclination to condition their trust decisions on wealth comparisons, whereas conditional trust is much less prevalent with unequal initial endowments. As a result, with respect to efficiency, the initially more unequal economy fares worse in the short run but better in the long run, and the disparity of wealth distributions across economies mitigates over time.

Axel Ockenfels
2011. WPg Die Wirtschaftsprüfung, Jg. 64 (Aug): Editorial

Die Wirtschaftswissenschaft steht in der Kritik. Die Theorie habe die Krise nicht prognostiziert, sei einem falschen Menschenbild verhaftet und zu sehr mit sich selbst beschäftigt. Viel davon ist richtig, anderes ist überzogen. Was sind die Lehren aus der Wirtschaftskrise für die Wirtschaftswissenschaft?

Die Wirtschaftswissenschaft nach der Wirtschaftskrise 

Peter Cramton and Axel Ockenfels
2011. Energiewirtschaftliche Tagesfragen, 61.Jg., Heft 9: 14,15

Kapazitätsmärkte können angemessene Erzeugungskapazitäten gewährleisten und dadurch einen Beitrag zur Zuverlässigkeit der Stromversorgung leisten. Kapazitätsmärkte sind oft notwendig, weil andernfalls Marktversagen durch verzerrte Investitionsanreize droht. Insbesondere führt eine mangelnde Elastizität der Nachfrage bei Kapazitätsknappheit zu Problemen bei der Markträumung und Preisbildung. Im Ergebnis kann es zu Kapazitätsproblemen und unfreiwilliger Stromrationierung kommen. Eine aktuelle Untersuchung der Autoren erläutert die ökonomisch fundierten Gründe für einen Kapazitätsmarkt, präsentiert ein Marktdesign, welches die besten Merkmale verschiedener Lösungsansätze aus der Praxis und Wissenschaft zusammenführt, und erörtert weitere Lösungsansätze. Zudem wird auch diskutiert, ob die Einführung eines Kapazitätsmarktes derzeit für Europa und insbesondere Deutschland sinnvoll erscheint.

 Ökonomik und Design von Kapazitätsmärkten im Stromsektor

Peter Cramton and Axel Ockenfels
Forthcoming. In: Zeitschrift für Energiewirtschaft

Capacity markets are a means to assure resource adequacy. The need for a capacity market stems from several market failures the most prominent of which is the absence of a robust demand-side. Limited demand response makes market clearing problematic in times of scarcity. We present the economic motivation for a capacity market, present one specific market design that utilizes the best design features from various resource adequacy approaches analyzed in the literature, and we discuss other instruments to deal with the problems. We then discuss the suitability of the market for Europe and Germany in particular.

Economics and design of capacity markets for the power sector

Axel Ockenfels, Paul Resnick
Forthcoming. In: Gary Bolton, and Rachel Croson (eds), The Oxford Handbook of Conflict Resolution, Oxford University Press

Reputation information is useful to make markets and negotiations function when there is a threat of moral hazard or adverse selection. But what happens when the reputation information itself is endogenously provided? We explore the role of feedback provision as a lever in negotiations over the surplus from trade, and the impact of its negotiated status on the functioning of the reputation system. Throughout, we summarize evidence from laboratory experiments and field data from eBay.

Felix Müsgens & Axel Ockenfels
2011. Zeitschrift für Energiewirtschaft, Heft 35: 249-256 

Auf vielen kontinentaleuropäischen Energiemärkten werden derzeit die Regeln für das Feedback auf Regelenergiemärkten diskutiert: welche Informationen zu vergangenen Auktionen sollen wann veröffentlicht werden? Dieser Artikel beleuchtet Vor- und Nachteile verschiedener Feedbackpolitiken am Beispiel der Schweizer Regelenergiemärkte. Die Veröffentlichung des Grenzleistungspreises ist in der Regel zu empfehlen. Dies gilt jedoch nicht für weitere Informationen (insbesondere extramarginale Gebote). Die optimale Feedbackpolitik hängt allerdings vom jeweiligen Marktdesign und von der Marktstruktur ab.

Jeannette Brosig, Christoph Helbach, Axel Ockenfels and Joachim Weimann
2011. Journal of Public Economics, Vol. 95 (11-12): 1373-1376

Using data from laboratory experiments, we find that East Germans show consistently less solidarity than West Germans; there has been no convergence in the 20 years after the reunification. While it has recently been estimated that political values converge 20 to 40 years after the reunification (Alesina and Fuchs-Schündeln, 2007), we conclude from our findings that social behavior changes more slowly than political values. We hypothesize that this is due to complementarities involved in individual social behavior and the necessity to coordinate on social norms on the society level.

Achim Wambach, Roman Inderst und Axel Ockenfels
2011. Wissenschaftlicher Beirat beim Bundesministerium für Wirtschaft und Technologie

 Brief des Wissenschaftlichen Beirats zur Novelle des Erneuerbare Energien Gesetzes