I am very happy of course to join Professor Werner Güth‘s Strategic Interaction research group, but I will really miss working at GSBC as well. I was very happy to work there and I am particularly thankful to Professor Uwe Cantner, director of the GSBC, and to Dr. Kristina von Rhein, who was the research coordinator at GSBC for most of my stay there. They both took very good care of me and I have been very happy working with them!
During my stay at GSBC, I got 3 papers and one book chapter published (here, here, here and here). I also worked with Caterina Giannetti, Paolo Crosetto and Gerhard Riener on a total of three research papers, two of which are now under submission (here and here).
I went to a number of international conferences (EEA 2009, EARIE 2011 and Econometric Society 2011), workshops (ACLE 2012, Crem-Economix 2010), participated in two excellent summer schools (at the MPI of Economics here in 2009 and at the MPI for Human Development in Berlin in 2011), organized a workshop on the economics of open source software in 2010 (with Kristina von Rhein and Sebastian von Engelhardt), and had great fun organizing a hand-on introduction to experimental economics with Paolo Crosetto at last year’s Night of Science in Jena (people played our experiment, introduced with a poster here).
The PhD programme at GSBC is certainly a program I would rank highly in terms of the quality of the research environment being provided there. There is a summer schools every year (in a castle, no less!), where PhD students present their work and train their techniques (link for two years ago). There are seminars every week with presentations by external presenters, and a school day every year on a specific topic (this year about migration). There are also research assistants available (I was in charge of that along with Kristina), money for going to conferences, and last but not least, advanced courses in a variety of specialized fields (see here for current list). I was particularly impressed by the very good courses in econometrics and experimental methods being led by Professor Oliver Kirchkamp, but there were also courses in a variety of other topics. Econometrics is certainly something I started to more or less understand only since I came here.
The crowd of PhD students in floors 1 and 3 of the building at Bachstrasse 18k, where the GSBC resides, is also quite impressive. There are not only PhD students from the GSBC, but also from the EIC, which specializes on the economics of innovation, and from the IMPRS, which focuses on decisions under uncertainty. Students come from the Czech Republic, Poland, Italy, Chile, Brazil, Nigeria, China, India, Pakistan, Iran, United States, Russia, Netherland, Ghana, Belarus, etc… There are even some Germans there! Each of those schools has its own research presentations, seminars, summer schools, courses… which means that there is always something new going on, always interesting seminars to attend, and many opportunities to socialize as well!
So anyway, I am remaining in Jena and will keep on benefiting from its very good research environment, especially given the excellent interplay between the Max Planck Institute and the University. For my work at the MPI, I plan to collect a new, more detailed panel dataset on the activity of bloggers to keep on refining my work with Caterina Giannetti. I also am working on two ideas for experiments, one following on my paper with Paolo Crosetto, the other dealing with the perception of fairness (details still secret!). This should keep me busy for a while!
Part of the workshop took place at De Industrieele Groote Club, a very luxurious environment with wide comfortable chairs for wide, comfortable industrialists!
The theme this year was Behavioral Competition and Regulation, and I presented my paper with Paolo Crosetto on whether consumers prefer offers that are easy to compare (link).
A number of interesting papers were presented (see list here). Botond Köszegi looked at markets where some consumers are vulnerable to firms’ deceptive strategies (link) and showed that the use of deceptive strategies is particularly likely to survive in socially wasteful industries. Maurice E. Stucke discussed how to integrate insights from behavioral economics into competition policy (link), and underlined how following the rule of reason could weaken the rule of law when dealing with competition cases.
There were a number of interesting experimental papers as well. Among those, Giancarlo Spagnolo investigated whether collusion is helped or hindered by the speed with which one can react to deviations from the collusive agreement (link) and Jona Linde discussed how nudges can lull consumers into not paying sufficient attention to the choice tasks at hand (link, paper joint with Thomas de Haan, who now works here at the EIC).
In most of my conversations there, I tried to push the idea that we should also get rid of the assumption that firms are behaving honestly vis-à-vis consumers. That is, we generally assume that a contract, once signed, will be respected, and that there is an inherent “true”, correct way to interpret a contract. This may hold in well-regulated societies, but does not apply well much further.
I am therefore interested in work on ambiguous contracts, how their interpretation will depend on the relative strength of the contracting parties, and how far they can divert from short-term self-interest.
The English version of the poster is here, and was prepared for the Summer Institute on Bounded Rationality at the Max Planck Institute for Human Development in Berlin this summer.
Paolo Crosetto and I just released a new working paper: “Do consumers prefer offers that are easy to compare? An experimental investigation”. It is available at SSRN at the following address: http://ssrn.com/abstract=1943603.
We deal in this paper with the problem of how to handle firms that deliberately make their offerings too complex so as to make consumers’ choice more difficult. Paternalistic regulation would deal with this by either assisting consumers in their choices or limiting what firms can do.
We test an idea in Gaudeul and Sugden (2011)* according to which the problem can be solved if at least some consumers recognize that offers that are easy to compare with others are usually better deals.
If at least some consumers limit their choices to those offers that are easily comparable, firms will adopt common ways to present their offers and will have to compete based on the really important characteristics of their products.
Since we wished to test if consumers indeed behave as we predicted, we designed an original experiment whereby we invited people from the subject pool of the Max Planck Institute in Jena and asked them to buy paint. Each offer was represented by the surface the paint can cover for a given price.
The difficulty is that each surface area was presented in different shapes of different sizes. That made the offers’ unit prices per area covered difficult to assess. However, offers that were of the same shape and area were easy to compare. If we were correct, our participants would prefer those offers.
Here is an example below:
In the case above, the offer on the right is better than the one in the middle (it is the same size and shape and is cheaper). But it is difficult to compare with the one to the left. We show in the paper that a consumer that is not too good at comparing shapes and calculating unit prices should just ignore the offer on the left and go for the offer on the right. Some indeed did so, but others followed different choice rules.
We found that subjects were indeed bad at making accurate choices and that when some offers within a menu were expressed in terms of the same shape and the same area (i.e. they adhered to a common standard), then they tended, overall, to prefer the common standard offer that had the lowest price. Those who did so were better off than others, i.e. they spent less money on average.
Our results are interesting in so far as they are also not completely one-sided in favor of our hypotheses. For example, while participants did tend to prefer offers that were comparable with others, they still tended to be confused when the menu included too many offers (we had cases where there were 6 offers in a menu rather than the three in the graph above). So firms may just keep on confusing consumers by simply presenting more alternatives.
Our paper is a really good entry point into the debate over consumer protection and exploitative practices by firms. It makes use of insights from a number of areas of research in economics (behavioral economics, industrial organization, experimental economics, political economy).
Feedback and discussion from our presentations at different workshops and conferences has been really encouraging so far, so we will keep on exploring the issue from the firm’s side as well.
In our experiment, firms that made offers in terms of a common standard AND were low priced made higher profits than other firms, meaning that firms ought to have an incentive to present their products so they are comparable with others. Whether they would indeed do so is something we want to test in the laboratory.
See also Paolo Crosetto’s excellent blog post about our paper here.