Behavioral economic engineering

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.

[1]  P. Cramton,et al.  International Climate Games: From Caps to Cooperation , 2010 .

[2]  Ernst Fehr,et al.  Do High Stakes and Competition Undermine Fairness? Evidence from Russia , 2002 .

[3]  D. Wise.  Developments in the Economics of Aging , 2009 .

[4]  A. Roth,et al.  The Redesign of the Matching Market for American Physicians: Some Engineering Aspects of Economic Design , 1999, The American economic review.

[5]  Charles R. Plott,et al.  Laboratory Experimental Testbeds: Application to the PCS Auction , 1997 .

[6]  Axel Ockenfels,et al.  Market Design : a Selective Review , 2006 .

[7]  Gary E. Bolton,et al.  Does Laboratory Trading Mirror Behavior in Real World Markets? Fair Bargaining and Competitive Bidding on Ebay , 2008, SSRN Electronic Journal.

[8]  Axel Ockenfels,et al.  An Evolutionary Analysis of Buyer Insurance and Seller Reputation in Online Markets , 2007 .

[9]  Klaus M. Schmidt,et al.  A Theory of Fairness, Competition, and Cooperation , 1999 .

[10]  Zvika Neeman,et al.  Behaviorally Optimal Auction Design: Examples and Observations , 2009 .

[11]  Kenneth J. Reynolds,et al.  The efficiency of incomplete contracts: an empirical analysis of air force engine procurement , 1993 .

[12]  José M. Vidal,et al.  Agents on the Web: Online Auctions , 1999, IEEE Internet Comput..

[13]  Yan Chen,et al.  mechanism design experiments , 2010 .

[14]  Scott E. Masten,et al.  A Legal Basis for the Firm , 1988 .

[15]  Colin Camerer.  Behavioral Game Theory: Experiments in Strategic Interaction , 2003 .

[16]  Robert B. Wilson.  Game-Theoretic Analysis of Trading Processes. , 1985 .

[17]  A. Roth,et al.  Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet , 2002 .

[18]  D. Bergemann,et al.  Robust Mechanism Design , 2003 .

[19]  J. Kagel,et al.  Other Regarding Preferences: A Selective Survey of Experimental Results , 2012 .

[20]  Denise M. Rousseau,et al.  Is there Such a thing as “Evidence-Based Management”? , 2006 .

[21]  Chrysanthos Dellarocas,et al.  The Sound of Silence in Online Feedback: Estimating Trading Risks in the Presence of Reporting Bias , 2006, Manag. Sci..

[22]  Axel Ockenfels,et al.  Impulse balance equilibrium and feedback in first price auctions , 2002, Games Econ. Behav..

[23]  Alvin E. Roth,et al.  Sorority Rush as a Two-Sided Matching Mechanism , 1991 .

[24]  Michihiro Kandori.  Social Norms and Community Enforcement , 1992 .

[25]  Robert W. Drewes.  The Air Force and the Great Engine War , 2013 .

[26]  Gary E. Bolton,et al.  Testing and Modeling Fairness Motives , 2009 .

[27]  Alvin E. Roth,et al.  Late and Multiple Bidding in Second Price Internet Auctions: Theory and Evidence Concerning Different Rules for Ending an Auction , 2003, Games Econ. Behav..

[28]  Robert E. Kraut,et al.  Motivating participation by displaying the value of contribution , 2006, CHI.

[29]  Paul Klemperer,et al.  Auctions: Theory and Practice , 2004 .

[30]  Gary E. Bolton,et al.  ERC: A Theory of Equity, Reciprocity, and Competition , 2000 .

[31]  Axel Ockenfels,et al.  Wage transparency and performance: A real-effort experiment , 2011 .

[32]  Paul Resnick,et al.  Trust among strangers in internet transactions: Empirical analysis of eBay' s reputation system , 2002, The Economics of the Internet and E-commerce.

[33]  R. Thaler,et al.  Nudge: Improving Decisions About Health, Wealth, and Happiness , 2008 .

[34]  Peter Cramton,et al.  Forward reliability markets: Less risk, less market power, more efficiency , 2008 .

[35]  Manoj Kumar,et al.  Internet Auctions , 1998, USENIX Workshop on Electronic Commerce.

[36]  M. Bazerman.  Conducting Influential Research: The Need for Prescriptive Implications , 2005 .

[37]  Martin Strobel,et al.  Inequality Aversion, Efficiency, and Maximin Preferences in Simple Distribution Experiments , 2002 .

[38]  H. Sonnenschein.  Frontiers of Research in Economic Theory: The Economics of Incentives: An Introductory Account (1983) , 1998 .

[39]  Ulrich Wilhelm Thonemann,et al.  Managers and Students as Newsvendors , 2012, Manag. Sci..

[40]  Alvin E. Roth,et al.  Pairwise Kidney Exchange , 2004, J. Econ. Theory.

[41]  R. Engelbrecht-Wiggans,et al.  A Comparison of Buyer-Determined and Price-Based Multiattribute Mechanisms , 2007 .

[42]  J. Kagel,et al.  Handbook of Experimental Economics , 1997 .

[43]  A. Roth,et al.  Jumping the Gun: Imperfections and Institutions Related to the Timing of Market Transactions , 1994 .

[44]  Jean-Robert Tyran,et al.  Journal of Economic Perspectives—Volume 19, Number 4—Fall 2005—Pages 43–66 Individual Irrationality and Aggregate Outcomes , 2022 .

[45]  A. Roth.  The Economist as Engineer: Game Theory, Experimentation, and Computation as Tools for Design Economics , 2002 .

[46]  P. Kotler,et al.  Principles of Marketing , 1983 .

[47]  A. Kahn,et al.  Applications of Economics to an Imperfect World , 1979 .

[48]  Paul Resnick,et al.  Eliciting Informative Feedback: The Peer-Prediction Method , 2005, Manag. Sci..

[49]  A. Roth,et al.  New physicians: a natural experiment in market organization , 1990, Science.

[50]  Gary E. Bolton,et al.  Does Competition Promote Trust and Trustworthiness in Online Trading? An Experimental Study , 2008, J. Manag. Inf. Syst..

[51]  John O. Ledyard,et al.  The Design of Coordination Mechanisms and Organizational Computing , 1993 .

[52]  F. Maxwell Harper,et al.  Social Comparisons and Contributions to Online Communities: A Field Experiment on MovieLens , 2010, Computational Social Systems and the Internet.

[53]  J. Kagel,et al.  The Dynamics of Reorganization in Matching Markets: A Laboratory Experiment Motivated by a Natural Experiment , 2000 .

[54]  S. Zamir,et al.  Bargaining and Market Behavior in Jerusalem, Ljubljana, Pittsburgh, and Tokyo: An Experimental Study , 1991 .

[55]  R. Hinde,et al.  Governing the Commons: The Evolution of Institutions for Governing the Commons: The Evolution of Institutions for Collective Action Collective Action , 2010 .

[56]  R. Nagel.  Unraveling in Guessing Games: An Experimental Study , 1995 .

[57]  Alvin E. Roth,et al.  An Experimental Analysis of Ending Rules in Internet Auctions , 2003 .

[58]  Paul Resnick,et al.  The value of reputation on eBay: A controlled experiment , 2002 .

[59]  R. Selten.  Features of experimentally observed bounded rationality , 1998 .

[60]  Gary E. Bolton,et al.  Information value and externalities in reputation building , 2011 .

[61]  Gabriele K. Lünser,et al.  Competition Fosters Trust , 2006 .

[62]  Gary E. Bolton,et al.  Engineering Trust - Reciprocity in the Production of Reputation Information , 2009, Manag. Sci..

[63]  Gary E. Bolton,et al.  Learning-by-Doing in the Newsvendor Problem: A Laboratory Investigation of the Role of Experience and Feedback , 2008, Manuf. Serv. Oper. Manag..

[64]  A. Roth.  What Have We Learned from Market Design? , 2008 .

[65]  Robert B. Wilson,et al.  Research Paper Series Graduate School of Business Stanford University Architecture of Power Markets Architecture of Power Markets 1 , 2022 .

[66]  Klaus M. Schmidt,et al.  Fairness and contract design , 2007 .

[67]  Axel Ockenfels,et al.  Strommarktdesign: Zur Ausgestaltung der Auktionsregeln an der EEX , 2008 .

[68]  Axel Ockenfels.  Empfehlungen für das Auktionsdesign für Emissionsberechtigungen , 2009 .

[69]  A. Roth.  A natural experiment in the organization of entry-level labor markets: regional markets for new physicians and surgeons in the United Kingdom. , 1991, The American economic review.

[70]  Jean-Robert Tyran,et al.  Limited Rationality and Strategic Interaction - the Impact of the Strategic Environment on Nominal Inertia , 2007 .

[71]  Ali Hortaçsu,et al.  Economic Insights from Internet Auctions , 2004 .

[72]  Claudia Keser,et al.  Experimental games for the design of reputation management systems , 2003, IBM Syst. J..

[73]  Robert B. Wilson,et al.  Game-theoretic models of bargaining: Reputations in games and markets , 1985 .

[74]  W. Raub,et al.  Rational und Fair , 2010 .

[75]  Yoav Shoham,et al.  Combinatorial Auctions , 2005, Encyclopedia of Wireless Networks.

[76]  Charles R. Plott,et al.  Market architectures, institutional landscapes and testbed experiments , 1994 .

[77]  E. Damme,et al.  The Dutch UMTS-auction in retrospect , 2001 .

[78]  Gary E. Bolton,et al.  Cooperation Among Strangers with Limited Information About Reputation , 2003 .

[79]  David M. Kreps,et al.  Reputation and imperfect information , 1982 .

[80]  O. Williamson.  Transaction-Cost Economics: The Governance of Contractual Relations , 1979, The Journal of Law and Economics.

[81]  Yan Chen,et al.  School Choice : An Experimental Study ∗ , 2004 .

[82]  Gérard P. Cachon,et al.  Decision Bias in the Newsvendor Problem with a Known Demand Distribution: Experimental Evidence.: Experimental Evidence. , 2000 .

[83]  Paul Milgrom,et al.  Putting Auction Theory to Work , 2004 .

[84]  Axel Ockenfels,et al.  Economics and design of balancing power markets in Germany , 2014 .

[85]  E. Friedman,et al.  The Social Cost of Cheap Pseudonyms , 2001 .

[86]  Axel Ockenfels.  Marktdesign und Experimentelle Wirtschaftsforschung , 2009 .

[87]  Gary E. Bolton,et al.  How Effective are Online Reputation Mechanisms? An Experimental Study , 2004, Manag. Sci..

[88]  Shaohua Chen,et al.  Are There Lasting Impacts of Aid to Poor Areas? Evidence from Rural China , 2006 .

[89]  Frans Stokman,et al.  Handbook of Rational Choice Social Research , 2013 .