Periodic Reporting for period 4 - EEC (Economic Engineering of Cooperation in Modern Markets)
Período documentado: 2022-09-01 hasta 2023-02-28
Economic engineering is the science of designing real-world institutions and mechanisms that align individual incentives and behavior with the underlying goals. Cooperation represents one such goal and is essential for the functioning of societies, economies and organizations. Yet, people often fail to contribute to the greater good. With inadequate institutions and without mechanisms to promote cooperation, the outcome can be bleak or even catastrophic (Ostrom, Elinor. 1990. “Governing the Commons: The Evolution of Institutions for Collective Action.” Cambridge University Press.). This project generates important knowledge to improve the functioning of modern markets and organizations, and at the same time opens new horizons in the sciences of cooperation and “behavioral economic engineering”.
One work package studies the design of mechanisms to address cooperation problems that are inherent in specific markets. For example, mechanisms to promote cooperation in addressing the climate crisis, traffic congestion, energy scarcity and to avoid a wasteful arms race for speed in financial markets. We develop and study economic designs of markets and choice architectures that mitigate or solve such challenges.
The other work package studies the descriptive nature of ethical and related constraints to market and organizational design as imposed by human decision makers. For instance, people sometimes have a distaste for certain types of transactions, such as organ exchanges and the purchase of pollution rights in climate markets. We build models that capture such behaviors and make use of incentivized laboratory and field experiments to examine the underlying motivational and cognitive mechanisms empirically. Furthermore, we investigate the design features in markets and organizations that alleviate such constraints.
One work package studies the design of mechanisms to address cooperation problems that are inherent in specific markets. For example, mechanisms to promote cooperation in addressing the climate crisis, traffic congestion, energy scarcity and to avoid a wasteful arms race for speed in financial markets. We develop and study economic designs of markets and choice architectures that mitigate or solve such challenges.
The other work package studies the descriptive nature of ethical and related constraints to market and organizational design as imposed by human decision makers. For instance, people sometimes have a distaste for certain types of transactions, such as organ exchanges and the purchase of pollution rights in climate markets. We build models that capture such behaviors and make use of incentivized laboratory and field experiments to examine the underlying motivational and cognitive mechanisms empirically. Furthermore, we investigate the design features in markets and organizations that alleviate such constraints.
We have made significant progress in understanding market design in the crisis, to promote cooperation. Examples include market design to secure vaccine supply, to mitigate and prepare for an energy crisis, to incentivize climate action and to build more robust financial markets. For the latter, we have developed and piloted a financial market experiment based on new theoretical insights and empirical testing, with software for laboratory economic experiments that is among the most sophisticated in our field of research.
We also provide new and exciting descriptive evidence on the nature of ethical and related constraints on market and organizational design. Among several other phenomena, we show that a distaste for certain types of economic transactions can be best explained by a “projective paternalism” motive; we find robustly in theory and in controlled experiments that higher monetary incentives induce less informed subjects to engage in risky transactions and thus leads to more ex post regret (which highlights a conflict between incentive payments and the principles of informed consent); our experiments suggest that monetary incentives can be perceived as a threat to autonomy; and individual climate action and cooperation can be promoted if the underlying mechanisms are well-designed, even if they impose substantial costs on decision makers.
We also provide new and exciting descriptive evidence on the nature of ethical and related constraints on market and organizational design. Among several other phenomena, we show that a distaste for certain types of economic transactions can be best explained by a “projective paternalism” motive; we find robustly in theory and in controlled experiments that higher monetary incentives induce less informed subjects to engage in risky transactions and thus leads to more ex post regret (which highlights a conflict between incentive payments and the principles of informed consent); our experiments suggest that monetary incentives can be perceived as a threat to autonomy; and individual climate action and cooperation can be promoted if the underlying mechanisms are well-designed, even if they impose substantial costs on decision makers.
Behavioral economic engineering is a research field that is constantly evolving in response to new challenges and exciting opportunities in research and society. In this regard, the recent years have seen unusually pressing and important societal challenges in Europe that have led us to further develop and refine our hypotheses. In particular, we have applied our results and insights on engineering cooperation to address the scarcity of medical equipment and vaccines caused by the Covid-19 pandemic; to mitigate traffic congestion through transportation markets, prompted by the fact that cities and the environment increasingly suffer from a lack of cooperation in making transportation decisions; to contribute to the emergence of new and more robust financial market design approaches; to engineer cooperation in the context of the climate crisis as well as in in organizations; and to address market failures related to extreme energy shortages caused by Putin's invasion of Ukraine and the resulting use of energy supply as an economic weapon. Although not all those challenges were foreseeable at the outset of this project, they provided a unique and important opportunity to use the expertise we have gained through this grant and beyond to promote cooperation and thus contribute to the effectiveness of crisis management. Our efforts in economic engineering also contribute to an emerging scientific literature on market and incentive architecture design for crises, and we anticipate that they will continue to contribute to solving important cooperation challenges of modern societies.
Building on our successes related to the study of ethical and related constraints on market design, which seems in part already driving a new wave of studies in the literature on paternalism and repugnance, we have expanded this line of research in accordance with our agenda. In particular, we have broadened our work on paternalism, data sharing, as well as developed a deeper understanding of the factors underlying cooperation.
Building on our successes related to the study of ethical and related constraints on market design, which seems in part already driving a new wave of studies in the literature on paternalism and repugnance, we have expanded this line of research in accordance with our agenda. In particular, we have broadened our work on paternalism, data sharing, as well as developed a deeper understanding of the factors underlying cooperation.