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ERC Advanced Grant "Economic Engineering of Cooperation in Modern Markets"

Recent advances in computer and communications technology have led to innovation in market design and strategy design. These enable radically new forms of social and economic relations, but also lead to new challenges. One question in the ERC project is how algorithmic decision-making and action can serve important social goals through smart design of market rules, and how, on the other hand, undesirable excesses of digitization can be prevented. The project also examines how ethical principles can be taken into account in the design of modern incentive systems.

See the website of the Community Research and Development Information Service (CORDIS) for more information about the project.

High Frequency Trading

Erich M. Aldrich, Peter Cramton, Daniel Friedman, Kristian López Vargas and Axel Ockenfels
2023. Working Paper.

The Aversion to Monetary Incentives for Changing Behavior

Viola Ackfeld
2023. Working Paper.

Individual versus Group Interventions

Philipp Doerrenberg, Christoph Feldhaus, Felix Kölle and Axel Ockenfels
2023. Work in progress.

Altruistic Punishment as a Norm Signaling Device

Kyril Khalmetski and Axel Ockenfels
2023. Work in progress.

Welfare Effects of Efficient Road Pricing in a Simple Model of a City with Heterogeneous Agents

Emmanuele Bobbio, Peter Cramton and Axel Ockenfels
2023. Work in progress.

A Bottleneck with Variable Capacity

Emmanuele Bobbio, Peter Cramton and Axel Ockenfels
2023. Work in progress.

Why is the Soft-Reserve Auction so Popular?

Dirk Bergemann, Kevin Breuer, Peter Cramton and Axel Ockenfels
2023. Work in progress.

Politicians' Social Welfare Criteria: An Experiment with German Legislators

Sandro Ambuehl, Sebastian Blesse, Philip Doerrenberg, Christoph Feldhaus and Axel Ockenfels
2023. CESifo Working Paper No. 10329. 

Keywords: positive welfare economics, politicians, preference aggregation, paternalism.

Abstract: Much economic analysis derives policy recommendations based on social welfare criteria intended to model the preferences of a policy maker. Yet, little is known about policy maker’s normative views in a way amenable to this use. In a behavioral experiment, we elicit German legislators’ social welfare criteria unconfounded by political economy constraints. When resolving preference conflicts across individuals, politicians place substantially more importance on least-favored than on most-favored alternatives, contrasting with both common aggregation mechanisms and the equal weighting inherent in utilitarianism and the Kaldor-Hicks criterion. When resolving preference conflicts within individuals, we find no support for the commonly used “long-run criterion” which insists that choices merit intervention only if the lure of immediacy may bias intertemporal choice. Politicians’ and the public’s social welfare criteria largely coincide.

The Dark Side of Reciprocity

Carlos Alos-Ferrer, Johannes Buckenmaier and Axel Ockenfels
2023. Working paper. 

Abstract: This preregistration describes a laboratory experiment to be conducted at the University of Zurich. The experiment investigates the (im)morality of reciprocity in a new behavioral economics paradigm. We describe the experimental design, the hypotheses, and sample size.

Empfehlungen für das Marktdesign zur Befüllung der Gasspeicher

Vitali Gretschko and Axel Ockenfels
2023. Wirtschaftsdienst, 103(2): 105–111. 

Abstract: Durch die Gasspeicherregelungen soll die Versorgungssicherheit im Winter erhöht werden. Ausschreibungen und direkte Beschaffung durch den Marktgebietsverantwortlichen sollen die Befüllung der Gasspeicher sicherstellen. Beide Instrumente können zu einer Verdrängung von anderen Speichermengen führen. Da diese Verdrängung bei der direkten Beschaffung geringer ausfallen dürfte und strategisches Verhalten der Markteilnehmer besser eingedämmt wird, dürfte sie generell effektiver sein. Für die Fortführung der Ausschreibungen wird empfohlen, einen Reservationspreis festzulegen und Handel mit Speicherverpflichtungen in einem Sekundärmarkt zu erlauben. Zudem wären eine gesonderte Ausschreibung der Abrufoptionen, eine Abschaffung des Arbeitspreiszuschlags sowie weitere Anpassungen des Ausschreibungsdesigns sinnvoll.

Was tun, wenn der (Gas-)Markt kollabiert?

Axel Ockenfels and Achim Wambach
2023. Wirtschaftsdienst, 2023, 103(1), 29-32

Abstract: Ein Versagen des Preismechanismus im Gasmarkt ist nicht ausgeschlossen. Der Beitrag erläutert, wie es zu einem Marktzusammenbruch kommen kann und welche Auswirkungen bereits die Möglichkeit eines Marktkollapses haben kann. Es wird gezeigt, welche Elemente ein ökonomisches Regelwerk im Schatten eines etwaigen Marktzusammenbruchs haben sollte.

Impartial policymakers prefer to impose carbon offset measures over other climate policies

Felix Kölle, Dorothea Kübler and Axel Ockenfels
2023. Working paper. 

Keywords: CO2 emissions, carbon taxes and offsets, decision-making experiment, choice architecture.

Abstract: A sustainable socio-economic development requires the global reduction of CO2 emissions. We utilize an incentivized experiment to map the preferences of ‘policymakers’ over climate actions of ‘decision-makers’. Importantly, our design guarantees that these preferences are unaffected by selfish motives such as a concern about being reelected or an unwillingness to pay for the greater good. Few of our impartial policymakers choose interventions that leave the decision-makers’ autonomy fully untouched. Yet, the choice patterns of those who intervene suggest that policymakers do not simply minimize emissions, but also care about how emissions are reduced. Policymakers strongly prefer pricing policies over directly capping emissions, and among the pricing policies they prefer those that involve voluntary carbon offsetting, even when this leaves considerable scope for decision-makers to selfishly emit CO2. The reason is that policymakers expect decision-makers to voluntarily offset some of their emissions at their own costs, and believe this would eventually improve the outcome with respect to both emissions and the profits of decision-makers compared to a standard carbon pricing policy (without offsetting). Our decision-making data confirm this expectation.

Behavioral science can aid household participation in gas savings

Sebastian Berger, Axel Ockenfels and Georg Zachmann
2023. Joule (Comment), 7(1), 1-4.

Personal information disclosure under competition for benefits: Is sharing caring?

Viola Ackfeld and Werner Güth
2023. Games and Ecoomic Behavior, 140, 1-32.

Abstract: Personal information is shared extensively every day, particularly when competing for others' attention on online platforms. In this paper, we experimentally investigate the interaction of peer comparison and incentives as drivers to disclose potentially privacy-sensitive information. We find that information sharing is higher under incentives, and further increases under peer comparison. This effect is driven by those initially disclosing less, who additionally report feeling more compelled to reveal information. Our results shed light on additional drivers for the current information-sharing trend, while pointing to neglected social pressure to disclose personal information in competitive environments.

An EU gas-purchasing cartel framework

Steven Stoft, Axel Ockenfels and Peter Cramton
2022. CEPR VoxEU Column.

Abstract: “Instead of outbidding each other and driving prices up,” on 25 March, the 27 EU nations decided to “pool [their] purchasing power” for the “voluntary common purchase of gas”. In short, they decided to form a buyers’ cartel. So far, difficulties have been identified, but what is needed is a systematic design effort addressing those difficulties. This column proposes a simple, but fairly comprehensive framework for an EU gas-purchasing cartel.

Diversification vs. Monopolization: A Laboratory Experiment

Jonas Frey, Axel Ockenfels and Martin Schmalz
2022. Working Paper.

Keywords: Diversification, common ownership, agency, executive compensation, experimental corporate governance.

Abstract: We study in a highly abstract laboratory setting whether and how subjects in the role of shareholders use the stock market to monopolize product markets. We find that shareholders holding stakes in product market rivals choose compensation packages for subjects in the role of managers that reward the latter to reduce production. Many managers act in accordance with their incentives, thus raising prices and firm profits. Although the experimental environment features no risk, most shareholders actively choose to diversify their portfolio across competitors, which gives them subsequent incentives to incentivize rival firms' managers to act as part of a monopoly.

Marktdesign für die Gasmangellage

Axel Ockenfels
2022. Wirtschaftsdienst. 102(11), 855-857.

Abstract: Bisher ist unklar, wer wie viel Gas zu welchem Preis in einer Mangellage in Deutschland bekommt, wenn der Regulierer rationieren muss. Dies droht die Anreize in und im Vorfeld einer Mangellage zu verwässern. In diesem Beitrag wird die potenziell hilfreiche Rolle eines Zertifi katsmarktes für die Allokation und Bepreisung in der Mangellage in den Blick genommen.

A simple proposal to skim electricity firm’s windfall profits

Axel Ockenfels
2022. Euractiv (Policy Brief).

Abstract: Many policymakers seem determined to intervene in the design of wholesale electricity markets to skim the windfall profits of energy firms. Axel Ockenfels puts forward a proposal, he says will not compromise market price signals.

Optionen und Herausforderungen für ein neues Strommarktdesign in der Krise

Axel Ockenfels
2022. Wirtschaftsdienst, 102(10), 766-769.

Abstract: Die Politik scheint entschlossen, in die Gestaltung des Stromgroßhandelsmarktes einzugreifen, um Krisengewinne und -belastungen umzuverteilen. Einige Vorschläge in diese Richtung würden die Probleme jedoch verschärfen. Es werden Handlungsoptionen für ein neues Strommarktdesign aufgezeigt und die damit verbundenen Herausforderungen bei der Implementierung diskutiert.

Three Ways Europe could Limit Russian Oil and Gas Revenues

Axel Ockenfels, Simone Tagliapietra and Guntram Wolff
2022. Nature (Correspondence), 604, 246.

Developing a framework for real-time trading in a laboratory financial market

Mark Marner-Hausen
2022. ECONtribute Discussion Paper No. 172.

Keywords: Financial Market Design, High-Frequency Trading, Frequent Batch Auction, Experimental Economics, Artificial Financial Markets.

Abstract: One of the challenges that economic experiments that use artificial financial markets to explore high-frequency trading face, is the development of a sufficiently sophisticated software. Moreover, it is not trivial to adequately communicate the complex financial market rules to non-experts. The present paper is part of an ongoing project with Peter Cramton, Daniel Friedman, Kristian Lopez Vargas, and Axel Ockenfels in which a novel framework enabling algorithmic real-time trading at millisecond speeds is being developed. This novel framework provides a more accurate laboratory replication of the financial market mechanisms relevant to high-frequency trading than has been achieved up to this point. This will provide a basis for comparing the current financial market design with new, exciting market design approaches, both under normal and stressful market conditions. The ongoing project includes the development of the theoretical foundations, as well as the experimental design and the analysis of the corresponding data. The contribution of the present study consists of deriving parameters for the replication of short-lived financial market crashes that can be adopted by the new framework for real-time trading; to provide means for an adequate communication of complex financial market rules to non-experts; and to provide solutions to technical and conceptual difficulties encountered in the preparation for the realization of the experiment. In addition, a thorough review of the literature most relevant to the new framework for real-time trading is provided.

Governance and competition

Felix Kölle
2022. European Economic Review: 104199.

Keywords: Conflict, competition,organizational style, voting, groups, experiment.

Abstract: When groups compete against each other in contests or tournaments they typically differ with regard to the way they are organized and how decisions within groups are determined. In this paper, I experimentally investigate the impact of a group’s organizational structure on inter-group contests. My results show that letting group members decide autonomously leads to significantly lower levels of competition compared to when groups are organized democratically or autocratically. Contrary to my theoretical predictions, I observe no differences between democratically and autocratically organized groups. One reason for this finding is that many individuals in the role of autocratic decision-makers do not use their power to fully exploit their subordinates. Despite this, I find that when giving group members the choice, most individuals prefer the democratic regime, which guarantees them participation in the decision-making process and protects them from exploitation.

Social norms and repugnance

Kyril Khalmetski and Axel Ockenfels
2022. Working Paper.

How to Weaken Russian Oil and Gas Strength

Ricardo Hausmann, Agata Łoskot-Strachota, Axel Ockenfels, Ulrich Schetter, Simone Tagliapietra, Guntram Wolff, Georg Zachmann
2022. Science, 376(6592), 469 (Letter Section).

Einsatz verhaltensökonomischer Interventionen zur Verbesserung ärztlicher Entscheidungen

Michael Hallek, Axel Ockenfels and Daniel Wiesen
2022. Deutsches Ärzteblatt, 119: 633-639.


Hintergrund: In der Medizin existiert eine große Lücke zwischen dem, was nach dem Stand der medizinischen Forschung im Bezug auf die Versorgung von Patientinnen und Patienten machbar wäre, und dem, was tatsächlich erreicht wird. Wichtige Gründe dafür sind Verhaltensverzerrungen und Verhaltensfehler.

Methode: Anhand einer selektiven Literaturrecherche zeigt dieser Beitrag exemplarisch auf, inwiefern verhaltensökonomisch fundierte Interventionen Ärztinnen und Ärzten helfen können, bessere Entscheidungen zu treffen, und somit den Behand- lungserfolg zu verbessern.

Ergebnisse: Eine Reihe von verhaltensökonomischen Interventionen, die beispielsweise Standardeinstellungen, aktive Ent- scheidungsregelungen, soziale Normen und Selbstverpflichtungen verwenden, können zu einer Verbesserung klinischer Ent- scheidungen von Ärztinnen und Ärzten führen. Eine Evidenz zur Nachhaltigkeit der Effekte liegt bisher allerdings kaum vor.

Schlussfolgerung: Trotz des aufgezeigten Potenzials stehen die Untersuchung und die Anwendung verhaltensökonomischer Prinzipien zur Verbesserung ärztlicher Entscheidungen, insbesondere in Deutschland, noch am Anfang.

Paternalism in Data Sharing

Max Grossmann and Axel Ockenfels
2022. Working Paper.

Without Cooperation, Europe is in Danger of Collapsing from the Energy Crisis: A Proposal

Ottmar Edenhofer, Matthias Kalkuhl, Axel Ockenfels and Georg Zachmann
2022. Working Paper.

Fostering resiliency with good market design: lessons from Texas

Peter Cramton
2022. ECONtribute Discussion Paper No. 145.

Abstract: In February 2021, winter storm Uri brought extreme cold to Texas for many days. The cold caused a spike in electricity and natural gas demand and simultaneously a sharp drop in supply. The electricity shortage caused 4.5 million Texans to lose power for multiple days. Many lost water service too. Storm damage was extensive, including many deaths. This paper examines what happened and offers solutions to improve the reliability and resilience of critical infrastructures. Improved communication before and during the storm would limit the damage. Natural gas market reforms would enhance the reliability of the gas supply, enabling more generators to produce power. Improved energy efficiency would limit the cold-induced demand spike. In addition to ongoing initiatives to integrate storage and distributed generation, the system operator should introduce a voluntary forward energy market that lets market participants better manage risk and plan resources to meet demand. Price-responsive demand should also be encouraged to limit demand surges in cold snaps.

Flow Trading

Eric Budish, Peter Cramton, Albert S. Kyle, Jeongmin Lee and David Malec
2022. ECONtribute Discussion Paper No. 146.

Keywords: Market design, financial exchanges, portfolios, computation.

Abstract: We propose a new market design for trading financial assets. The design com- bines three elements: (1) Orders are downward-sloping linear demand curves with quantities expressed as flows; (2) Markets clear in discrete time using uniform-price batch auctions; (3) Traders may submit orders for portfolios of assets, expressed as arbitrary linear combinations with positive and negative weights. Thus, relative to the status quo design: time is discrete instead of continuous, prices and quanti- ties are continuous instead of discrete, and traders can directly trade arbitrary port- folios. Clearing prices and quantities are shown to exist, with the latter unique, despite the wide variety of preferences that can be expressed via portfolio orders; calculating prices and quantities is shown to be computationally feasible; micro- foundations for portfolio orders are provided. The proposal addresses six concerns with the current market design: (1) sniping and the speed race; (2) the complexi- ties and inefficiencies caused by tick-size constraints; (3) the cost and complexity of trading large quantities over time, (4) of trading portfolios, and (5) of providing liquidity in correlated assets; (6) fairness and transparency of optimal execution.

Choosing norm information: what other people do or what they think is ought to be done

Kevin Breuer and Christoph Feldhaus
2022. Working Paper.


Large but Diminishing Effects of Climate Action Nudges under Rising Costs

Sebastian Berger, Andres Kilchenmann, Oliver Lenz, Axel Ockenfels, Francisco Schlöder and Annika M. Wyss
2022. Nature Human Behaviour, 6, 1381–1385.

Abstract: Behavioural public policy has received broad research attention, particularly in the domain of motivating pro-environmental behaviours. We investigate how far the efficacy of arguably one the most popular behavioural policy tools (green ‘default change’ nudges) depends on the associated cost. On the basis of a field study involving carbon offsets for over 30,000 flights booked by more than 11,000 airline customers, we show that green defaults have a large effect on voluntary climate action, even when several hundreds of Euros are at stake. The effect fully vanishes only as costs approach approximately €800.

Who Opts In? Composition Effects and Disappointment from Participation Payments

Ambuehl Sandro, Axel Ockenfels and Colin Stewart
2022. The Review of Economics and Statistics, 1-45

Keywords: Rational inattention, incentives, composition effect, selection, screening, evaluability.

Abstract: Participation payments are used in many transactions about which people know little, but can learn more: incentives for medical trial participation, signing bonuses for job applicants, or price rebates on consumer durables. Who opts into the transaction when given such incentives? We theoretically and experimentally identify a composition effect whereby incentives disproportionately increase participation among those for whom learning is harder. Moreover, these individuals use less information to decide whether to participate, which makes disappointment more likely. The learning-based composition effect is stronger in settings in which information acquisition is more difficult.

Market Design, Human Behavior and Management

Yan Chen, Peter Cramton, John List and Axel Ockenfels
2021. Management Science, 67(9), 5301-5967.

Keywords: Market design, human behavior, management

Abstract: We review past research and discuss future directions on how the vibrant research areas of market design and behavioral economics have influenced and will continue to impact the science and practice of management in both the private and public sectors. Using examples from various auction markets, reputation and feedback systems in online markets, matching markets in education, and labor markets, we demonstrate that combining market design theory, behavioral insights, and experimental methods can lead to fruitful implementation of superior market designs in practice.

Focusing climate negotiations on a uniform common commitment can promote cooperation

Klaus M. Schmidt and Axel Ockenfels
2021. Proceedings of the National Academy of Sciences, 118 (11).

Keywords: Negotiation design, cooperation, common commitment, reciprocity, climate policy.

Abstract: International cooperation on the reduction of greenhouse gas emissions, disarmament, or free trade needs to be negotiated. The success of such negotiations depends on how they are designed. In the context of international climate change policy, it has been proposed [e.g., M. L. Weitzman J. Assoc. Environ. Resour. Econ. 1, 29–49 (2014)] that shifting the negotiation focus to a uniform common commitment (such as a uniform minimum carbon price) would lead to more ambitious cooperation. Yet, a proof-of-concept for this important claim is lacking. Based on game theoretical analyses, we present experimental evidence that strongly supports this conjecture. In our study, human subjects negotiate contributions to a public good. Subjects differ in their benefits and costs of cooperation. Participation in the negotiations and all commitments are voluntary. We consider treatments in which agreements are enforceable, and treatments in which they have to be self-enforcing. In both situations, negotiating a uniform common commitment is more successful in promoting cooperation than negotiating individual commitments (as in the Paris Agreement) and complex common commitments that tailor the commitment to the specific situation of each party (as attempted with the Kyoto Protocol). Furthermore, as suggested by our model, a uniform common commitment benefits most from being enforced.

The influence of empirical and normative expectations on cooperation

Felix Kölle and Simone Quercia
2021. Journal of  Economic Behavior & Organization, 190, 691-703.

Keywords: Social norms, expectations, public goods, experiment.

Abstract: In this paper, we investigate the importance of empirical and normative expectations for cooperative behavior. We conduct two experimental studies (n=243) in which we separately elicit (i) behavior in a public goods game and (ii) normative and empirical expectations of cooperation. In a situation where others’ contributions are known, we find a strong norm of conditional cooperation whereby people find it socially appropriate to match others contribution and believe others to comply with such rule of behavior. In contrast, when there is strategic uncertainty regarding others’ behavior, empirical and normative expectations diverge substantially. While individuals believe that contributing fully to the public good is the most appropriate action, they expect others to contribute only half of their resources. This renders normative expectations unpredictive for average behavior and underlines the importance of a close alignment of empirical and normative expectations for the influence of social norms on behavior.

Pandemiebereitschaft, internationale Kooperation und Marktdesign

Axel Ockenfels
2021. Wirtschaftsdienst, 101, 594-596.

Marktdesign für eine resiliente Impfstoffproduktion

Axel Ockenfels
2021. Perspektiven der Wirtschaftspolitik, 22(3), 259-269

Keywords: Marktdesign, Marktversagen, Impfstoffproduktion, COVID-19, Pandemie-Management, Kooperation

Abstract: Manche Märkte erlauben es auf sich alleine gestellt nicht, robuste Krisenvorsorge zu treffen. Der Markt für Impfstoffe gehört dazu. Der Preismechanismus versagt besonders in der Krise, wenn beide Marktseiten große Marktmacht besitzen. Daher muss interveniert werden, um die Impfstoffproduktion zuverlässiger zu machen. Axel Ockenfels entwickelt ein hybrides Marktdesign, das auf Kapazitätspreise und Leistungspreise setzt, um den systemischen Herausforderungen einer globalen Krisensituation mit ihren politischen, ökonomischen und sozialen Verwerfungen zu begegnen. Das hybride Modell erlaubt einen gleitenden Übergang von normalen Zeiten in den Krisenmodus – und wieder zurück.


Can Incentives Cause Harm? Tests of Undue Inducement

Sandro Ambuehl
2021. Working Paper.

Keywords: Incentives, Repugnant Transactions, Information Acquisition, Rational Inattention, Experiment, Individual Choice.

Abstract: Around the world, laws limit incentives for transactions such as human research participation, egg donation, or gestational surrogacy. A key reason is the notion of undue inducement—the conceptually vague and empirically largely untested idea that incentives cause harm by distorting individual decision making. Two experiments, including one based on a highly visceral transaction, show that incentives bias information search. Yet, such behavior is also consistent with Bayes-rational behavior. I develop a criterion that indicates whether choices admit welfare weights on benefit and harm that justify permitting the transaction but capping incentives. In my experimental data, no such weights exist.

What Motivates Paternalism? An Experimental Study

Sandro Ambuehl, B. Douglas Bernheim and Axel Ockenfels
2021. American Economic Review, 111(3), 787-830.

Keywords: Paternalism, libertarianism, welfare economics, experiment, false consensus bias.

Abstract: We study experimentally when, why, and how people intervene in others’ choices. Choice Architects (CAs) construct opportunity sets containing bundles of time-indexed payments for Choosers. CAs frequently prevent impatient choices despite opportunities to provide advice, believing Choosers benefit. They violate common behavioral welfare criteria by removing impatient options even when all payoffs are delayed. CAs intervene not by removing options they wish they could resist when choosing for themselves (mistakes-projective paternalism), but rather as if they seek to align others’ choices with their own aspirations (ideals-projective paternalism). Laboratory choices predict subjects’ support for actual paternalistic policies.


Do People Intervene to Make Others Behave Prosocially?

Viola Ackfeld and Axel Ockenfels
2021. Games and Ecoomic Behavior, 128, 58-72.

Keywords: Charity experiment, prosocial behavior, autonomy, bans, incentives.

Abstract: We experimentally investigate people's willingness to intervene in others' decision-making in order to promote a charitable donation. We find that only a minority of those subjects who would donate themselves enforce the donation by banning the selfish choice from the decision-maker's choice menu. Bans are more acceptable if they are implemented only after the decision-makers could choose between the selfish and the prosocial option themselves. Also, many subjects decide against offering decision-makers a monetary incentive to switch from the selfish to the prosocial choice. We discuss potential hypotheses about underlying motivations for the (non-)usage of interventions, with a special focus on the hypothesis that interventions to promote prosocial choice are more acceptable the more they respect the autonomy of others.



Increasing Personal Data Contributions: Field Experimental Evidence from an Online Education Platform

Viola Ackfeld, Tobias Rohloff and Sylvi Rzepka
2021. Behavioural Public Policy, 1-27

Keywords: field experiment; personal data; public good; privacy.

Abstract: Personal data increasingly serve as inputs to public goods. Like other types of contributions to public goods, personal data are likely to be underprovided. We investigate whether classical remedies to underprovision are also applicable to personal data and whether the privacy-sensitive nature of personal data must be additionally accounted for. In a randomized field experiment on a public online education platform, we prompt users to complete their profiles with personal information. Compared to a control message, we find that making public benefits salient increases the number of personal data contributions significantly. This effect is even stronger when additionally emphasizing privacy protection, especially for sensitive information. Our results further suggest that emphasis on both public benefits and privacy protection attracts personal data from a more diverse set of contributors.

Focusing climate negotations on a uniform common commitment can promote cooperation

Klaus M. Schmidt and Axel Ockenfels
2021. PNAS, 118(11).

Keywords: negotiation design, cooperation, common commitment, reciprocity, climate policy.

International cooperation on the reduction of greenhouse gas emissions, disarmament, or free trade needs to be negotiated. The success of such negotiations depends on how they are designed. In the context of international climate change policy, it has been proposed [e.g., M. L. Weitzman J. Assoc. Environ. Resour. Econ. 1, 29–49 (2014)] that shifting the negotiation focus to a uniform common commitment (such as a uniform minimum carbon price) would lead to more ambitious cooperation. Yet, a proof-of-concept for this important claim is lacking. Based on game theoretical analyses, we present experimental evidence that strongly supports this conjecture. In our study, human subjects negotiate contributions to a public good. Subjects differ in their benefits and costs of cooperation. Participation in the negotiations and all commitments are voluntary. We consider treatments in which agreements are enforceable, and treatments in which they have to be self-enforcing. In both situations, negotiating a uniform common commitment is more successful in promoting cooperation than negotiating individual commitments (as in the Paris Agreement) and complex common commitments that tailor the commitment to the specific situation of each party (as attempted with the Kyoto Protocol). Furthermore, as suggested by our model, a uniform common commitment benefits most from being enforced.

The Aversion to Monetary Incentives for Behavioral Change

Viola Ackfeld

Keywords: Aversion to incentives, information, repugnance, charity experiment.

Abstract: In this paper, I study an aversion to monetary incentives to make other people change their behavior. Particularly, I provide evidence that monetary incentives are disliked because they are powerful in changing what people do but not why they do it besides for money. In an experiment, one group of participants decides about interventions which try to change others' behavior. Between treatments, I vary whether the intervention consists of convincing information or monetary incentives. I find that participants consider monetary incentives as more effective in changing behavior than informative interventions. Nonetheless, they are less willing to intervene by monetary incentives compared to informative interventions to foster their preferred outcome. A comprehensive set of elicited beliefs supports the idea that this aversion to incentives stems from incentives' lack of changing one's reason to act.


Das Klimaschutzprogramm der Bundesregierung: Eine Wende der deutschen Klimapolitik?

Ottmar Edenhofer, Matthias Kalkuhl und Axel Ockenfels
2020. Perspektiven der Wirtschaftspolitik. 

Keywords: Klimaschutzgesetz, CO2-Preis, Emissionshandel, internationale Kooperation, Klimawandel, Klimapolitik, EU, Deutschland.

Abstract: Das Klimaschutzgesetz hat einen Paradigmenwechsel eingeleitet: den Einstieg in eine CO2-Bepreisung als künftiges Leitinstrument der Klimapolitik. Auf den ersten Blick ist der CO2-Preis unter einer Fülle von Fördermaßnahmen und ordnungsrechtlichen Regelungen verschüttet, deren Wirksamkeit und Kosten höchst unsicher sind. Der CO2-Preis ist aber so angelegt, dass er langfristig das dominante Instrument einer europäisch harmonisierten Klimapolitik werden kann. Der angedeutete Paradigmenwechsel der deutschen Klimapolitik öffnet damit die Tür, die europäische und internationale Kooperation zu stärken. Dazu ist es aber notwendig, neben der europäischen auch die globale Klimapolitik neu auszurichten. Auch dort sollten sich die Verhandlungen statt auf nationale Mengenziele auf CO2-Preise konzentrieren. Die erforderliche Kooperation wird möglich, wenn die Regierungen Transferzahlungen strategisch und reziprok nutzen. So könnte die Effektivität der Klimapolitik erhöht werden und es ließen sich die entstehenden Verteilungskonflikte entschärfen.


Maverick: Experimentally Testing a Conjecture of the Antitrust Authorities

Christoph Engel and Axel Ockenfels
2020. In: Advances in the Sociology of Trust and Cooperation, Vincent Buskens, Rense Corten and Chris Snijders, 357-390, De Gruyter-Oldenbourg

Abstract: Antitrust authorities all over the world are keen on the presence of a partic-ularly aggressive competitor, a“maverick”. Yet there is a lack of theoretical justifica-tion. One plausible determinant of acting as a maverick is behavioral: the maverickderives utility from acting competitively. We test this conjecture in the lab. In a pre-test, we classify participants by their social value orientation. Individuals who are ri-valistic in an allocation task indeed bid more aggressively in a laboratory oligopolymarket. This disciplines incumbents. We conclude that the existence of rivalistic atti-tudes may justify antitrust policies that protect mavericks.

Understanding Cooperation in an Intertemporal Context

Felix Kölle and Thomas Lauer
2020. ECONtribute Discussion Paper No. 046.

Keywords: Cooperation; time preferences; incentives; social norms; experiment.

Abstract: In today’s highly complex economic environment, cooperation among individuals is crucial for organizational and societal success. Most of the situations in which coop- eration is required involve costly e↵orts whose consequences play out over time. Here, we provide a systematic and comprehensive analysis of cooperation in an intertemporal context. In a first study, we show that cooperation is substantially reduced when the benefits of cooperation are shifted towards the future, and increased when the costs are delayed. An analysis of the underlying behavioral mechanisms reveals that the change in cooperation can be explained by (i) a shift in the beliefs about others’ actions, (ii) a shift in the willingness to conditionally cooperate, and (iii) an individual’s degree of impatience. We further demonstrate that social norms are una↵ected by the timing of consequences, indicating that the shifts in conditional cooperation are due to a change in norm compliance rather than the norm itself. In a second study, we demonstrate that the amount of economic incentives needed to close the cooperation gap are substan- tial, thereby providing policy makers with a useful estimate for conducting cost-benefit analyses.

Bringing the efficiency of electricity market mechanisms to multimodal mobility across congested transportation systems

Arash Beheshtian, R.Richard Geddes, Omid M.Rouhani, Kara M. Kockelman, Axel Ockenfels, Peter Cramton and Wooseok Do
2020. Transportation Research Part A: Policy and Practice, 131, 58-69.

Keywords: Mobility as a service, market design, congestion pricing.

Abstract: A central challenge facing Mobility as a Service (MaaS) is mispricing of its a core input: the use of scarce road space. A transparent real-time market for road use is essential for MaaS to reach its full potential. We focus on how network-wide, real-time markets for road use support MaaS, and how such markets can be developed.
In our proposed network-management scheme, roadway tolls (for entire trips – from origin to destination) are determined in a two-stage market hosted by an independent system operator or “ISO”. Service providers purchase the product (the right to use a series of road segments at a reasonably specific time of day) in the day-ahead market. In real-time, the market becomes physical and operates under the principle of open access: road capacity cannot be withheld in real time and its use is determined by users’ decisions, guided by prices and suggested routings. Real-time road-use prices are computed using clearing prices that balance real-time supply and demand. Those with pre-paid slots can be paid to delay their travel, to create space for high bidders during periods of suddenly low capacity or unexpectedly high demand. Such policies and programs can avoid excessive congestion, provide reliable travel times, and keep traffic moving, especially as automation makes car and truck travel easier.
Such policies are critical in helping cities and regions avoid gridlock. They ensure that travelers internalize congestion externalities, while enabling MaaS and other transport providers to deliver higher-quality mobility service for all travelers. Thoughtful marriage of week-ahead, day-ahead and real-time road pricing for travelers on congested networks can deliver efficient transportation systems that save time and energy, while providing signals for optimal infrastructure investment.


Who Opts In?

Sandro Ambuehl, Axel Ockenfels and Colin Stewart
2020. Rotman School of Management Working Paper No. 3154197.

Keywords: Rational inattention, incentives, risk preferences, selection effects, cognitive ability.

Abstract: Payments and discounts incentivize participation in many transactions about which people know little, but can learn more — payments for medical trial participation, signing bonuses for job applicants, or price rebates on consumer durables. Who opts into the transaction when given such incentives? We show theoretically and experimentally that increasing participation payments disproportionately attracts individuals for whom learning about the transaction is harder. These participants decide based on worse information and are more likely to regret their decision ex post. The learning-based selection effect is stronger when information acquisition is more costly. Moreover, it outweighs selection on risk preferences in many of our treatments.


Cooperation, Free-Riding, and the Signaling Value of Incentives: An Experiment in a Company

Marvin Deversi
2020. Working Paper.

Keywords: cooperation, incentives, signaling, crowding out, field experiment.

Abstract: Economists and management scholars have argued that the scope of incentives to in- crease cooperation in organizations is limited as their use signals the prevalence of free-riding among employees. This paper tests this hypothesis experimentally, using a sample of managers and employees (N = 449) from a large software company. In the experiment, I exogenously vary whether managers are informed about prevailing cooperation levels among employees before they can set incentives to promote coop- eration. Comparing informed versus uninformed incentive choices, the data reveals strong positive effects of incentives that are unaffected by the hypothesized signal- ing effect. The absence of such effect seems related to the perception of managers’ intentions, a mitigating factor that has not been explored in the literature so far.

Norm Enforcement in Markets: Group Identity and the Volunteering of Feedback

Gary E. Bolton, Johannes Mans and Axel Ockenfels
2020. The Economic Jurnal, 130(629), 1248–1261.

Keywords: Laboratory, individual behavior, market structure, pricing and design.

Abstract: The provision of trader feedback is critical to the functioning of many markets. We examine the influence of group identity on the volunteering and informativeness of feedback. In a market experiment conducted simultaneously in Germany and the United States, we manipulate the interaction of traders based on natural social and induced home market identities. Traders are more likely to provide feedback information on a trader with whom they share a common group identity, and the effect is more pronounced for social identity than for home market identity. Both kinds of group identity promote rewarding good performance and punishing bad performance.


Borrow crisis tactics to get COVID-19 supplies to where they are needed

Peter Cramton, Axel Ockenfels, Alvin E. Roth and Robert B. Wilson
2020. Nature, 582, 334-336.

z-Tree unleashed: A novel client-integrating architecture for conducting z-Tree experiments over the Internet

Matthias L. Duch, Max R. P. Grossmann and Thomas Lauer
2020. Journal of Behavioral and Experimental Finance, 28(100400).

Abstract: We present z-Tree unleashed, a novel approach and set of scripts to aid the implementation of computerized behavioral experiments outside the laboratory. z-Tree unleashed enables subjects to join the experiment using a web portal that requires no software apart from a web browser. Experimenters are likewise enabled to administer their experiments from anywhere in the world. Except for z-Tree itself, z-Tree unleashed is entirely based on free and open-source software. In this paper we give a high-level overview of z-Tree unleashed's features and benefits and its design. We also show how to set up the server and demonstrate the steps required for conducting an entire experiment. We subsequently explain how to leverage the security and routing features of a virtual private network with z-Tree unleashed, enabling servers to securely run behind routers.

Überkreuznierenspenden in Deutschland?

Dorothea Kübler und Axel Ockenfels
2020. Medizinrecht, 38, 89-94.

(Basiert auf Stellungnahme zum Antrag „Chancen von altruistischen Organlebendspenden nutzen – Spenden erleichtern“, Sachverständigengutachten für den Ausschuss für Gesundheit des Deutschen Bundestags.)

Abstract: Lebendspenden werden in Deutschland sehr viel seltener ermöglicht als in anderen Ländern. Das liegt auch daran, dass Überkreuzspenden nicht erlaubt sind. Spender und Empfänger müssen sich „in besonderer persönlicher Ver- bundenheit offenkundig nahestehen.“ Die Organe poten- zieller Nierenspender mit dem geforderten Näheverhältnis zum Empfänger sind allerdings aufgrund von Unverträg- lichkeiten in etwa 40 % der Fälle nicht kompatibel mit den jeweiligen Empfängern. Die Überkreuzspende bringt zwei Paare zusammen, bestehend aus jeweils einem Patienten und einem nahestehenden Spender, um eine Organspen- de ‚über Kreuz‘ zu ermöglichen. Aus der Praxis der Über- kreuzspende in anderen Ländern lassen sich Best Practices ableiten.

Multi-rater Performance Evaluations and Employee Performance

Axel Ockenfels, Dirk Sliwka and Peter Werner
2020. Working Paper

Games as frames

Axel Ockenfels and Uta Schier
2020. Journal of Economic Behavior and Organization, 172, 97-106.

Keywords: Framing, trust game, stag-hunt game, incentives, mindsets.

Abstract: We show that economic games per se can provide contextual cues and thereby impact behavior. In two laboratory experiments, we examine whether deliberating on trust games versus stag-hunt games without feedback changes cooperation behavior in a subsequent game. First, we find that subjects who play trust games without feedback hold more pessimistic beliefs about other players’ cooperation in a subsequent game than subjects who played stag-hunt games without feedback. We also observe that deliberation on trust games versus stag-hunt games accordingly affects behavior in a subsequent, unrelated game. While stag-hunt games align interests between players, trust games pose a conflict of interest between players. Such (mis-)alignments induced by the game potentially explain our findings, because they may offer cues that affect beliefs and behavior in subsequent games.

Trust in Everyday Life

Alexa Weiss, Corinna Michels, Pascal Burgmer, Thomas Mussweiler, Axel Ockenfels and Wilhelm Hofmann
2020. Journal of Personality and Social Psychology, Advance online publication.

Keywords: trust, distrust, experience sampling, cooperation, interdependence.

Abstract: Although trust plays a pivotal role in many aspects of life, very little is known about the manifestation of trust and distrust in everyday life. In this work, we integrated several prior approaches to trust and investigated the prevalence and key determinants of trust (vs. distrust) in people’s natural environments, using preregistered experience-sampling methodology. Across more than 4,500 social interactions from a heterogeneous sample of 427 participants, results showed high average levels of trust, but also considerable variability in trust across contexts. This variability was attributable to aspects of trustee perception, social distance, as well as 3 key dimensions of situational interdependence: conflict of interests, information (un)certainty, and power imbalance. At the dispositional level, average everyday trust was shaped by general trust, moral identity, and zero-sum beliefs. The social scope of most trust-related traits, however, was moderated by social distance: Whereas moral identity buffered against distrusting distant targets, high general distrust and low social value orientation amplified trust differences between close vs. distant others. Furthermore, a laboratory-based trust game predicted everyday trust only with regard to more distant but not close interaction partners. Finally, everyday trust was linked to self-disclosure and to cooperation, particularly in situations of high conflict between interaction partners’ interests. We conclude that trust can be conceptualized as a relational hub that interconnects the social perception of the trustee, the relational closeness between trustor and trustee, key structural features of situational interdependence, and behavioral response options such as self-disclosure.

Pricing externalities and moral behaviour

Axel Ockenfels, Peter Werner and Ottmar Edenhofer
2020. Nature Sustainability, 3, 872-877.

Abstract: To measure how moral behaviour interacts with pricing regimes, we conduct highly controlled experiments in which trading creates pollution. We compare indirect pricing (here, a cap and trade mechanism) and direct pricing (a tax) in an otherwise equivalent setting in which ‘producers’ are incentivized to emit CO2. ‘Judges’ decide on central trading parameters that may restrict socially harmful activities. Profit maximization predicts the same producer behaviour in either setting in the absence of regulation, yet we find a substantial share of producers refraining from emitting CO2 at all. Although judges restrict behaviour in similar ways across mechanisms, direct pricing more effectively accommodates moral behaviour than the quantity policy.


Payment in challenge studies from an economics perspective

Sandro Ambuhl, Axel Ockenfels and Alvin E. Roth
2020. Journal of Medical Ethics (Commentary), 46: 831-832.

Experiments in high-frequency trading: comparing two market institutions

Eric M. Aldrich and Kristian López Vargas
2020. Experimental Economics, 23, 322-352.

Keywords: Market design, auctions, high-frequency trading, continuous double auction, frequent batch auction.

Abstract: We implement a laboratory financial market where traders can access costly technology that reduces communication latency with a remote exchange. In this environment, we conduct a market design study on high-frequency trading: we contrast the performance of the newly proposed frequent batch auction (FBA) against the continuous double auction (CDA), which organizes trades in most exchanges worldwide. Our evidence suggests that, relative to the CDA, the FBA exhibits (1) less predatory trading behavior, (2) lower investments in low-latency communication technology, (3) lower transaction costs, and (4) lower volatility in market spreads and liquidity. We also find that transitory shocks in the environment have substantially greater impact on market dynamics in the CDA than in the FBA.


An oTree-Based Flexible Architecture for Financial Market Experiments

Eric M. Aldrich, Hasan Ali Demirci and Kristian López Vargas
2019. Journal of Behavioral and Experimental Finance, 25(100205).

Keywords: Market design, experimental finance, algorithmic trading, laboratory experiments, economic software.

Abstract: This document presents an architecture for experiments in finance. The architecture builds on oTree, a modern platform for behavioral experiments, allowing for sophisticated economic environments, market institutions, and trader strategies. The system supports both continuous-and discrete-time markets, and allows for communication latencies at time resolutions of 10–20 ms. Such precise communication latencies facilitate the experimental study of high-frequency trading. The architecture also modularizes its main components, which makes the system flexible, portable, and scalable.


Die Mutter aller Kooperationsprobleme

Axel Ockenfels und Christoph M. Schmidt
2019. Zeitschrift für Wirtschaftspolitik, 68(2), 122-130.

Abstract: The discussion of climate policy received new impetus in the spring of 2019. Since then the topic has dominated the public discourse in Germany. The Fridays for Future movement continues to generate considerable pressure on policy makers. In addition, scientists emphasize in rare interdisciplinary unanimity both how urgent a radical renewal in climate policy would be, and that a uniform price for greenhouse gas emissions is the indispensable core element of the necessary reforms in Germany and Europe. One central aspect of climate policy is, however, often overlooked in all this: climate protection is essentially an international problem of cooperation. For climate change, it does not matter where greenhouse gases are emitted. The success of national climate policy must therefore be judged by whether it contributes to establishing international cooperation to reduce global greenhouse gas emissions.


Using Technology to Eliminate Traffic Congestion

Peter Cramton, R. Richard Geddes and Axel Ockenfels
2019. Journal of Institutional and Theoretical Economics (JITE), 175(1), 126-139.

Keywords: Congestion pricing, dynamic road pricing, transport market design.

Abstract: Traffic congestion is a pervasive worldwide problem. We explain how to harness existing technologies together with new methods in time-and-location markets to eradicate traffic congestion along with its attendant social harms. Our marketdesign for road use builds on congestion pricing and models of efficient pricing in the electricity sector. The market maximizes the value of a transport network through efficient scheduling, routing, and pricing of road use. Privacy and equity concerns are addressed. Transparent price information provides essential infor-mation for efficient long-term investment in transport.


Order Protection through Delayed Messaging

Eric M. Aldrich and Daniel Friedman
2019. Working Paper.

Keywords: Market design, high-frequency trading, continuous double auction, IEX, labexperiments.

Abstract: Several financial exchanges recently introduced messaging delays (e.g. IEX and NYSE American) to protect ordinary investors from high-frequency traders who exploit stale orders. To capture the impact of such delays, we propose a simple parametric model of the continuous double auction market format. The model shows how messaging delays can lower transactions costs but typically increase queuing costs. Recently available field data support two key predictions: the distribution of queued pegged orders is highly leptokurtotic (discrete Laplace), and opportunities to profit from dynamic choice of pegged vs market orders are small and fleeting.


Set road charges in real time to ease traffic

Peter Cramton, R. Richard Geddes and Axel Ockenfels
2018. Nature (Comment), 560, 23-25.

Abstract: Track vehicles to link tolls with demand and cut congestion, urge Peter Cramton, R. Richard Geddes and Axel Ockenfels.