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Deutsch Intern
Chair for Economics, Contract Theory and Information Economics (VWL7)

Research

The research at the chair for contract theory and information economics is primarily in the fields of game theoretical modelling of both personnel decisions in companies and the decision of companies in the context of strategic interactions with other companies and costumers.
 
Regarding personnel decisions within companies, the focus of research is on the aspects of incentive and contract design. Particularly the consideration of psychological findings allows for many new insights e.g. regarding the design of incentive contracts with alternative risk preferences, the design of the working environment with time-inconsistent behaviour or the structuring of the performance appraisal process with cognitive limitations of perception.

Regarding the decisions of companies in the context of strategic interactions on markets the research at the chair for contract theory and information economics is primarily focused on questions regarding competition policy e.g. the effects of a ban of third degree price discrimination on the markets for intermediate goods on firms and consumers.

Joint project of Prof. Dr. Daniel Müller and Prof. Dr. Fabian Herweg (University of Bayreuth), financed by the Deutsche Forschungsgemeinschaft (DFG-project number: 440656074).

Project description:

Already in the 1980s, due to the popularity of regret theory at that time, economists came to embrace the idea of context-dependent preferences for choice under risk. When making her choices, a decision maker's evaluation of a particular risky choice option is determined not solely by that option's attributes, but also by the attributes of the distinct choice options in decision maker's opportunity set. The interest in context-dependent risk preferences largely abated in the late 1990s because two major challenges were not satisfactorily met. First, with context-dependent risk preferences allowing for intransitivity of pairwise choices, no consensus emerged how to extend these theories beyond pairwise choice. Second, experimental studies documented behavior to be strongly influenced by the format of problem presentation, which was hard to reconcile with any of these theories. The recent introduction of salience theory all of a sudden revived the interest in context-dependent risk-preferences – without, however, addressing these two challenges. This seems disconcerting as by now it is understood that for pairwise choice salience theory (despite a different psychological underpinning) is a special case of regret theory. Our project contributes to meeting the challenge of extending context-dependent theories for choice under risk beyond pairwise choice by (i) systematically exploring choice behavior for rich (i.e. non-binary) choice sets in controlled laboratory experiments, (ii) theoretically identifying the overlap (or lack thereof) of predictions for rich choice sets under different context-dependent theories; (iii) identifying the psychological channel that underlies context-dependent risk preferences in order to provide guidance for welfare analysis; (vi) drawing out the implications of context-dependent risk preferences for incentive provision and insurance decisions with rich choice sets.