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The German 4G Spectrum Auction: Design and Behavior

Peter Cramton and Axel Ockenfels
2014. In: The Economic Journal.

The 2010 German 4G spectrum auction was an unusually large simultaneous ascending multi-band auction. The bidding was competitive, the final assignment was efficient and the revenue was close to expectations. However, our analysis suggests that, theoretically, independent and rational bidders had an opportunity to implicitly coordinate on a low-revenue outcome. Coordination was difficult, though, because of a multiplicity of focal points. One important focal point involved post-auction negotiations, posing risks to bidders and the auctioneer. We analyze different bidding scenarios and in particular how post-auction negotiations can affect values, bidding and efficiency. We also briefly discuss how the simultaneous ascending auction format can be augmented to mitigate the risks implied by the possibility of strategic play.

Introduction to a Special Issue Honoring Werner Güth

Martin Dufwenberg and Axel Ockenfels
2014. Journal of Economic Behavior and Organization Vol. 108, pp. 290-291.

The Ultimatum Game and the Empirical Nature of Fair Choice

Gary E. Bolton and Axel Ockenfels
2014. Journal of Economic Behavior and Organization Vol. 108, pp. 300-302.
(This is a chapter in the paper "How Werner Güth’s ultimatum game shaped our understanding of social behavior" by Eric van Damme; Ken Binmore, Alvin E. Roth, Larry Samuelson; Eyal Winter; Gary E. Bolton, Axel Ockenfels; Martin Dufwenberg, Georg Kirchsteiger; Uri Gneezy; Martin G. Kocher, Matthias Sutter; Alan Sanfey; Hartmut Kliemt; Reinhard Selten, Rosemarie Nagel; and Ofer H. Azar.)

Impulse Balancing in the Newsvendor Game

Axel Ockenfels and Reinhard Selten
2014. Games and Economic Behavior, Vol. 86, pp. 237-247.

One striking behavioral phenomenon is the "pull-to-center" bias in the newsvendor game: facing stochastic demand, subjects tend to order quantities between the expected profit maximizing quantity and mean demand. We show that the impulse balance equilibrium, which is based on a simple ex-post rationality principle along with an equilibrium condition, predicts the pull-to-center bias and other, more subtle observations in the laboratory newsvendor game.

Beliefs and Ingroup Favoritism

Axel Ockenfels and Peter Werner
2014. Journal of Economic Behavior and Organization Vol. 108, pp. 453-462.

We report on two experiments designed to investigate the role of beliefs for ingroup favoritism. On average, dictators transfer substantially more to recipients who are publicly known to share the same group identity, compared to transfers given to recipients who are publicly known to be outgroup matches. However, there is substantially less ingroup favoritism if the dictator is informed that the recipient is unaware of the shared group membership. Moreover, dictators tend to ask less often for information about a recipient’s identity if disclosure would imply that the dictator’s identity is also disclosed to the recipient. The evidence supports the view that ingroup favoritism is partly belief-dependent, in addition to the notion that shared group identity per se changes charity preferences.

Does Laboratory Mirror Behavior in Real World Markets? Fair Bargaining and Competitive Bidding on eBay

Gary E. Bolton and Axel Ockenfels
2014. Journal of Economic Behavior and Organization, Vol. 97, pp. 143-154.

We conducted a framed field experiment on eBay, and examined to what extent both social and competitive laboratory behavior are robust to institutionally complex real world markets with experienced traders, who selected themselves into these markets. For buyers, the data strongly confirm the dichotomy between equitable bargaining and competitive bidding predicted by social preference equilibrium and suggested by lab evidence. Importantly, reputation building on eBay cannot explain the social behavior. We also observe that the behavioral patterns in the field experiment mirror fully naturally occurring trading patterns in the market. In particular, some sellers fail to use their commitment power as predicted by theories of both selfish and social behavior, with the pattern of deviation reflecting traders’ market experience outside the experiment. These patterns further amplify the dichotomy between bilateral and competitive bidding.

Scale Manipulation in Dictator Games

Axel Ockenfels and Peter Werner
2014. Journal of Economic Behavior and Organization. Vol. 97, pp. 138-142.

We let subjects estimate behavior and expectations of others before they play dictator games, and only vary the quantitative scales for their estimates. Our data show that this manipulation may significantly affect economic decisions: dictators who are presented a scale with a higher midpoint transfer on average more than dictators who are presented a scale with a lower midpoint. The effect is stronger and significant in a treatment where dictators are asked to guess the average transfer expected by the recipients, compared to a treatment where they are asked to guess average transfers. Our experiment suggests that scale manipulation can be used in laboratory social interaction to systematically affect specific beliefs and to study their causal effects on behavior.

How activating cognitive content shapes trust: A subliminal priming study

Ann-Christin Posten, Axel Ockenfels and Thomas Mussweiler
2014. Journal of Economic Psychology,  Vol. 41, pp. 12 - 19.

The activation of cognitive contents plays a prominent role in social psychological research. Yet, so far this has received little attention in economics. In our research we connect a standard social psychological manipulation to activate cognitive content (a trust vs. distrust priming manipulation) to a classic paradigm from economics (a trust game). Our findings demonstrate that subliminally activating the concept of trust (vs. distrust) leads participants to judge a series of strangers as more (vs. less) trustworthy. Moreover, our research shows for the first time that such a subliminal priming manipulation shapes the subsequent sending behavior in a fictitious version of a standard economic trust game. This suggests that psychological priming techniques allow new insights into what determines beliefs in economic games.

Economics and Design of Balancing Power Markets in Germany

Felix Müsgens, Axel Ockenfels and Markus Peek
2014. International Journal of Electrical Power and Energy Systems (55), pp. 392-401.

This article analyzes the economic fundamentals that govern market design and behavior in German balancing power markets. Then, partly based on theoretical work by Chao and Wilson (2002), we illustrate the role of the scoring and the settlement rule as key elements of the market design. With sufficiently competitive markets, a settlement rule based on uniform pricing ensures efficient energy call in the balancing power market. A scoring rule based on capacity prices only ensures an efficient production schedule. Thus, both rules together with rational bidding ensure simultaneous efficiency on the balancing power market and the wholesale electricity market.