Video abstracts on the open access journal "Latest Thinking"

The model presented in this video combines a game theoretic approach with mechanism design to examine the influence of competition on welfare maximization by politicians. It is shown that in “pure” competition between two politicians only the allocation of favors to the electorate helps winning elections, while welfare-maximizing tools of redistribution do not improve a politician’s vote-share. As FELIX BIERBRAUER points out, one might follow that when trying to create welfare-maximizing outcomes, politics fail the same way markets do; and if the goal is to have efficient outcomes, political competition is as good or bad as a market. more

Even in the absence of absolute property rights, ex-post bargaining may lead to efficient distribution of goods, CHRISTOPH ENGEL explains in this video. The findings of this research thus extend the domain of the Coase theorem. In the experiment, with a society of two individuals and a single commodity, a good ends up with the individual who values it most even if only relative property rights – i.e., rights only against other parties to a contract – are provided. more

To maintain confidence in scientific findings, the project presented in this video by SUSANN FIEDLER examines the reproducibility rate of empirical results in psychology: Studies published in three major psychological journals in 2008 are replicated by other researchers in collaboration with the original authors. The results of original and replicated studies are compared to determine the general reproducibility rate in psychological science as well as the factors that predict it. more

In the eye-tracking experiment presented in this video it was observed how people make choices in different environments. The results show that people adapt their decision behavior only gradually to different situations and do not switch between different strategies, as often hypothesized. As ANDREAS GLÖCKNER explains this new single-strategy model fits reality better and thus is apt to produce insights for public policy. It leads to better answers on how to make better choices, how to avoid decision traps, and which information people need to make good decisions. more

The experiment presented in this video explores the interaction of reward schemes and production functions on team effort. SEBASTIAN J. GOERG explains that unequal rewards seem to yield higher efficiency for complementary production functions (i.e., if each worker’s effort counts); but that symmetric reward schemes induce higher efforts if workers’ efforts are substitutes. He concludes that inequality may have a positive effect on efficiency and that both production function and reward scheme are potent tools to raise average effort. more

The ultimatum game is one of the most famous experiments in economics. It involves two players, one of them receives a sum of money which he has to share with a second player. The first player, the “proposer”, can decide how much he offers the second player, called “responder”, who can either accept or reject the offer. If the responder rejects, neither of the players receives any money. Mathematically, the first intuition is to offer the opponent the smallest amount possible. However, during the game players routinely reject even high offers if they deem the split unfair. In this video, WERNER GÜTH explains how he came to develop the ultimatum game and how modifications of the game produce different outcomes. more

The model presented in this video is designed to compare different options for the relation between banks and the public sector and different types of subsidies regarding their effects on social welfare. Comparing five options for interlinkage shows that the best choice often are development banks, if they are not allowed to compete with the private banking sector. In this case firms that would not get money from private banks are granted state aid, HENDRIK HAKENES explains, and the private banking sector is not endangered. more

The research presented in this video exposes the inner mechanisms at work in political discourse. By first modelling verbal interaction between political actors with an agent-based model, and then analyzing the interaction with network analysis PHILIP LEIFELD detects four basic mechanisms: innovative and path-dependent mechanisms, as well as constructivist mechanisms (based on learning and interaction between people) and rational-choice mechanisms (based on external ideology). A combination of those four leads to a discourse looking like a “real-world debate”. more

The experiment presented in this video constructs a heterogeneous duopoly of firms – on the one hand a firm with an internal structure leading to low prices, and on the other hand a firm acting collusively in price-setting. MICHAEL KURSCHILGEN explains that transparency about the competitor’s internal structure hampers tacit collusion: If the collusive firm is aware of the other firm’s internal structure, the firms will compete on prices and prices will decline; otherwise, both firms will collude on price-setting and prices will rise. more

The research presented in this video analyzes the relationship between law and morality, and asks what role morality plays in social interactions. Using empirical findings from social psychology, behavioral law and economics, it is deduced what people generally perceive as just or fair. The findings show that moral rules enable cooperation and how moral intuitions impact rule following behavior. As STEFAN MAGEN explains, the findings suggest the need for the law to create shared standards to make moral intuitions viable for society. more

Firms, be it coffee shops or airlines, often try to bind customers with exclusivity rebates rewarding loyalty. The lab experiment presented in this video reveals that these programs are “sticky”: customers stay in those programs longer than would be “rational”. As ALEXANDER MORELL explains, customers often don’t switch to alternatives even if reaching the rebate becomes improbable. Contrary to common behavioral assumptions, the duration of rebate programs or the size of rebates did not affect the stickiness of the rebate. more

In an empirical analysis of the German and the South African constitutional courts and the Canadian Supreme Court, the study presented in this video examines the use of the concept of balancing. Contrary to the common understanding, NIELS PETERSEN shows that courts do not use balancing to engange in judicial activism. Instead, they restrain themselves and employ proportionality as an instrument of rationality review, i.e. a means for compensating political market failures. more

By means of a panel data analysis presented in this interview, NIELS PETERSEN explores the relation between anti-trust institutions, the level of democracy, and economic development. Panel data from 154 states dating from 1960 to 2005 cannot substantiate a positive relation between the existence of anti-trust law and democratic development; the empirical findings even suggest that there is only a weak link between anti-trust law and economic growth. more

In the banking model of maturity transformation presented in this video, the features of the shadow banking sector and its influences on financial stability are analyzed. As PAUL SCHEMPP explains, the model shows that banks and shadow banks can co-exist without harm to the financial sector as long as the shadow banking sector is small. However, liquidity guarantees from banks to shadow banks and a growing shadow banking sector increase the risk of bank runs. more

In the large-scale natural field experiment presented in this video different treatments to induce compliance with the law were tested: Potential evaders of TV license fees in Austria received different mailings – one presenting the prospects of financial and legal consequences, one appealing to morals and one communicating high compliance rates. CHRISTIAN TRAXLER explains that only the threat of consequences had a significant deterrent effect whereas neither of the two other mailings significantly affected compliance rates. more

In the research presented in this interview, the idea of adaptive preferences is applied to the co-evolution of democracy and market economy. CARL CHRISTIAN VON WEIZSÄCKER explains that the ideal of democracy and market economy though somehow antithetic are inter-dependent in a normative sense: While democracy provides freedom and stability, progress is only ensured by a market economy that allows for innovation. more

Departing from the standard model of economics with the assumption that humans have fixed preferences, or tastes, more recent behavioral insights show that preferences are influenced by past consumption in a way that the status quo is often valued higher than alternatives. CARL CHRISTIAN VON WEIZSÄCKER adds this “adaptiveness” to the standard model of preferences and shows that this still allows performing standard welfare analysis. In showing that improvement paths are always non-circular, the altered model even delivers a foundation to do behavioral welfare economics. more