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The (In)stability of Social Preferences: Using Justice Sensitivity to Predict When Altruism Collapses

Sebastian Lotz, Thomas Schlösser, Daylian Cain and Detlef Fetchenhauer
2013. Journal of Economic Behavior and Organization, Vol. 93, pp. 141-148.

Recent research suggests that altruism can be surprisingly tenuous; minor situational variations can turn altruism on and off. For example, if provided with sufficient cover, “reluctant altruists” will often avoid situations that compel them to give, and they may even secretly renege on gifts they just made. This behavior puts pressure on classic explanations of altruism and raises many questions about its stability. Is everyone’s altruism prone to such collapse? If not, how can one predict it? We show that some people exhibit more stable altruism, predicting who is who weeks prior to the task. We show that high degrees of justice sensitivity is associated with pro-social behavior across situations, while low degrees of justice sensitivity relate to the use of situational variables as excuse to display less altruistic behavior. Our findings contribute to recent research on altruism and give insight into how to predict it.

Engineering Trust - Reciprocity in the Production of Reputation Information

Gary Bolton, Ben Greiner, and Axel Ockenfels
2013. Management Science, Vol. 59, 265-285.

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.

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An Experiment on Supply Function Competition

Friedel Bolle, Veronika Grimm, Axel Ockenfels and Xavier del Pozo
2013. European Economic Review. Vol. 63, pp. 170-185.

We experimentally investigate key predictions of supply function equilibrium. While, overall, equilibrium organizes bidding behavior well, we observe three important deviations. First, bidding is sensitive to theoretically irrelevant changes of the demand distribution. Second, in a market with symmetric firms we observe tacit collusion in that firms provide less than the predicted quantities. Third, in a market with asymmetric capacities, the larger firm bids more competitively than predicted, while the smaller firms still provide less than equilibrium quantities.

Capacity Market Fundamentals

Peter Cramton, Axel Ockenfels and Steven Stoft
2013. Economics of Energy and Environmental Policy, Vol. 2(2).

Electricity capacity markets work in tandem with electricity energy markets to ensure that investors build adequate capacity, in line with the preferences for reliability of consumers. The need for a capacity market stems from several market failures. One particularly notorious problem of electricity markets is low demand flexibility. Most customers are unaware of the real time prices of electricity, have no reason to respond to them, or cannot respond quickly to them, leading to highly price-inelastic demand. This contributes to blackouts in times of scarcity instead of the high prices needed to attract an efficient level and mix of generation capacity. Moreover, the problems caused by this market failure can result in considerable  price volatility and market power that would be insignificant if the demand-side of the market were fully functional. Capacity markets are a means to ensure resource adequacy while mitigating other problems due to the demand side flaws. Our paper describes the basic economics behind the adequacy problem and addresses important challenges and misunderstandings in the process of actually designing capacity markets.

Is it all about the self? The effect of self-control depletion on ultimatum game proposers

Eliran Halali, Yoella Bereby-Meyer and Axel Ockenfels
2013. Frontiers in Human Neuroscience. Vol. 7. 

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.

What is fair is good! Evidence of consumers’ taste for fairness

Sebastian Lotz, Fabian Christandl and Detlef Fetchenhauer
2013. Food Quality and Preference. Vol. 30 (2), pp. 139 - 144.

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.

Not all speculation is treated equally: Moral judgments of speculative short selling

Sebastian Lotz and Andrea Fix
2013. Journal of Economic Psychology. Vol. 37, pp. 34-41. 

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.



An Experiment on Emissions Trading: The Effect of Different Allocation Mechanisms

Veronika Grimm and Lyuba Ilieva
2013. Journal of Regulatory Economics, Vol. 44(3), pp. 308-338.   

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.

The evolution of trust: How trust is built up and destroyed in advanced society: Different Perspectives on Trust

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

2013. Dynamics of Traditional Research Societies in a Rapidly Changing World. IUDICIUM Verlag, München, 35-66.

Too Much Information Sharing? Welfare Effects of Sharing Acquired Cost Information in Oligopoly

Jos Jansen and Juan-Jose Ganuza
2013. Journal of Industrial Economics, Vol. 61(4), pp. 845-876. 
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.

Ending Rules in Internet Auctions: Design and Behavior

Axel Ockenfels and Alvin E. Roth
2013. Z. Neeman, A. Roth, and N. Vulkan (eds), The Handbook of Market Design, Oxford University Press, 325-344.

Similarity increases altruistic punishment in humans

Thomas Mussweiler and Axel Ockenfels
2013. Proceedings of the National Academy of Sciences (PNAS). Vol. 110 (48), pp. 19318-19323.

Humans are attracted to similar others. As a consequence, social networks are homogeneous in sociodemographic, intrapersonal, and other characteristics—a principle called homophily. Despite abundant evidence showing the importance of interpersonal similarity and homophily for human relationships, their behavioral correlates and cognitive foundations are poorly understood. Here, we show that perceived similarity substantially increases altruistic punishment, a key mechanism underlying human cooperation. We induced (dis)similarity perception by manipulating basic cognitive mechanisms in an economic cooperation game that included a punishment phase. We found that similarity-focused participants were more willing to punish others’ uncooperative behavior. This influence of similarity is not explained by group identity, which has the opposite effect on altruistic punishment. Our findings demonstrate that pure similarity promotes reciprocity in ways known to encourage cooperation. At the same time, the increased willingness to punish norm violations among similarity-focused participants provides a rationale for why similar people are more likely to build stable social relationships. Finally, our findings show that altruistic punishment is differentially involved in encouraging cooperation under pure similarity vs. in-group conditions.