Research Areas

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Research Area

Behavioral Foundations

This area combines research from economics and psychology to provide a better understanding of fundamental drivers of economic decision-making and social interaction, such as economic preferences, dispositions (in particular, self-control abilities), values, and beliefs. Research in this area provides a behavioral foundation for the development of economic models and informs the design of policies targeting societal challenges.

It is investigated how different preferences affect economic outcomes and how these preferences interact with dispositions and beliefs. An important focus is on the role of the socioeconomic environment for the formation of preferences.

This research area yields a firm empirical basis for various other research areas in the Cluster and will provide insights on elements to be incorporated into the design of market or policy interventions that are based upon a better understanding of human nature. An overarching goal of our research is to utilize the insights on the fundamental drivers of human behavior to advance policy design.

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Research Area

Theoretical Foundations

Research in this area is motivated by the increasing complexity of many market environments. One source of complexity is related to the digital transformation of the economy, which allows for increasingly individualized service provision.

For example, Uber, the new competitor of the traditional taxi business, is a player on a personalized matching market, aiming to balance demand and supply in real time at the local micro-level. Important aspects of this market cannot be captured by the conventional economists’ ideal of markets as an anonymous exchange at commonly observed, uniform prices.

The Theoretical Foundations research area provides the theoretical methods that are needed for a systematic analysis of markets and public policy in complex environments. Specifically, it is planned to advance economic theory in the fields of mechanism design, matching, and decentralized markets.

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Research Area

Markets & Values

This research area combines expertise from economics, psychology, and business ethics to explore the possibilities and limitations of moral value orientation in market environments. Recent years have seen a vivid debate on whether and under which circumstances markets erode morals. Research in this area advances the understanding of how different market environments and market designs interact with moral awareness and moral concerns of market participants. This will provide the basis for understanding when policy interventions would be required if the main objective was to meet individual or societal moral concerns.

Moral values orientation is also a pressing topic for environmental protection. Environmentally responsible individuals and societies call for institutions, markets, and ultimately public policy interventions that efficiently foster sustainable resource consumption. This research area explores behavioral interventions that sharpen the awareness of resource consumption.
All research projects in this area share an interest in exploring the effectiveness of behavioral interventions, such as nudging or micro-targeting.

Researchers in this area do not only ask how nudges and micro-targeting shape behavior but also how such interventions are perceived morally, and explore the determinants of acceptance as well as unintended counter-effects.

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Research Area

Organizational Design & Behavior

This research area is concerned with the design of management practices and motivation. In detail, scientists in this area deal with questions on incomplete contracts, firm boundaries and public procurement, new forms of work organizations as well as corporate culture and social norms in organizations.

To conduct excellent research, members of the research area collaborate closely with firms and public organizations. They access detailed personnel data that are then analyzed with microeconomic methods. Projects also include field experiments, e.g., in IT, bakery, chemicals, travel, and retail, on the evaluation of incentive schemes and other management practices.

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Research Area

Market Design & Behavior

The goal of this research area is to develop and test innovative market mechanisms that are based on modern computer and information technologies. Recent advances in computer and communication technology make new kinds of economic interaction and transactions feasible, and thus allow radical innovation in how markets are designed.

Research in this area not only contributes to the emerging scientific literature on behavioral
economic engineering but also provides solutions to some of the most pressing economic
challenges of modern economies and societies. In doing so, the scientists benefit from the close cooperation with governments, firms, and various other organizations. In smaller subprojects the research area is engaged with the design of electronic markets, engineering trust, and repugnance as a constraint of market design.

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Research Area

Consumer Protection

Consumer protection is a key instrument of public policy to safeguard consumer welfare. A central premise of the research area is the observation that many consumer products are complex in the sense that it is difficult to understand and compare them because this requires a basic level of expertise (e.g., financial, legal, scientific, or technical), or because sellers have superior information about their products.

Important examples are financial services, expert advice, food, consumer electronics such as computers, but also firms’ privacy provisions that accompany data-sensitive products and transactions.

In this research area, scientists investigate consumer protection policies in markets for complex products from both a traditional perspective, emphasizing externalities caused by asymmetric information or market power, and from a behavioral economics perspective, which seeks to improve the choices of boundedly rational consumers, using both empirical and game theoretical approaches.

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Research Area

Financial Stability

The global financial crisis of 2007–2009 has not only caused deep economic disruptions in many countries but also displayed a lack of understanding of the financial system both by policy makers and by the economics profession. While it has been acknowledged that financial regulation should take a more “macroprudential” approach – focusing on the stability of the financial system as a whole instead of only looking at individual financial institutions – the notion of systemic risk and its implications for financial regulation are still poorly understood.

A particular challenge is the low interest rate environment, which may give rise to asset price bubbles, including the recent boom in the bitcoin market. Finally, the increasing complexity of the financial system, including new financial products, institutions, and risk management strategies, poses new challenges. This research area aims to contribute to a better understanding of the underlying conceptual issues and to provide new empirical evidence.

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Research Area

Distribution

The distribution of income, wealth, and opportunities is central to the well-being of individuals and the functioning of market economies. In many industrialized economies, indicators have been highlighting a substantial increase in economic inequality in recent decades. Rising inequality and increased societal segregation raise important challenges for public policy, both at the individual and aggregate level. Persistent inequality, in particular, may point to a lack of social mobility, calling for new approaches in public policy that address the origins of economic inequality.

Research in this area takes a comprehensive perspective on economic inequality. It emphasizes
educational choice as a source of inequality, the tax and transfers system as an attempt to mitigate
the consequences of inequality, and macroeconomic policies that interact with inequality.
Towards this end, scientists will employ a variety of research strategies. These include innovative
data collection methods, targeted intervention studies, and computational heterogeneous agent
models to analyze the interplay of macroeconomic stabilization policies on the one
hand and wealth and income inequality on the other.

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Research Area

Political Economy

Research in this area focuses on the conditions under which the political process yields desirable outcomes, and on the way in which extreme market outcomes, such as financial crises, distort that political process. It relates performance measures from welfare economics to the analysis of political institutions, and investigates whether an improved design of political institutions or of specific policies is called for. Specifically, one strand of the research focuses on the conditions under which policy measures find sufficient support in the political process.

It develops a notion of political implementability that complements the traditional analysis of public policy that aims at a correction of market failures. For instance, it seeks to clarify the conditions under which a welfare-improving tax reform is likely to be supported by a majority of taxpayers.

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