Axel Ockenfels

Bio: Axel Ockenfels is an academic researcher from University of Cologne. The author has contributed to research in topics: Reputation & Common value auction. The author has an hindex of 48, co-authored 200 publications receiving 15035 citations. Previous affiliations of Axel Ockenfels include Max Planck Society & Center for Economic Studies.

ERC: A Theory of Equity, Reciprocity, and Competition

Abstract: We demonstrate that a simple model, constructed on the premise that people are motivated by both their pecuniary payoff and their relative payoff standing, organizes a large and seemingly disparate set of laboratory observations as one consistent pattern The model is incomplete information but nevertheless posed entirely in terms of directly observable variables The model explains observations from games where equity is thought to be a factor, such as ultimatum and dictator, games where reciprocity is thought to play a role, such as the prisoner's dilemma and gift exchange, and games where competitive behavior is observed, such as Bertrand markets (JEL C78, C90, D63, D64, H41)

Last-Minute Bidding and the Rules for Ending Second-Price Auctions: Evidence from eBay and Amazon Auctions on the Internet

Abstract: Auctions on the Internet provide a new source of data on how bidding is in uenced by the detailed rules of the auction. Here we study the second-price auctions run by eBay and Amazon, in which a bidder submits a reservation price and has this (maximum) price used to bid for him by proxy. That is, a bidder can submit his reservation price (called a proxy bid) early in the auction and have the resulting bid register as the minimum increment above the previous high bid. As subsequent reservation prices are submitted, the bid rises by the minimum increment until the second-highest submitted reservation price is exceeded. Hence, an early bid with a reservation price higher than any other submitted during the auction will win the auction and pay only the minimum increment above the second-highest submitted reservation price. eBay and Amazon use different rules for ending an auction. Auctions on eBay have a Ž xed end time (a “hard close”), while auctions on Amazon, which operate under otherwise similar rules, are automatically extended if necessary past the scheduled end time until ten minutes have passed without a bid. These different rules give bidders more reason to bid late on eBay than on Amazon.We Ž nd that this is re ected in the auction data: the fraction of bids submitted in the closing seconds of the auction is substantially larger in eBay than in Amazon, and more experience causes bidders to bid later on eBay, but earlier on Amazon. Last-minute bidding, a practice called “sniping,” arises despite advice from both auctioneers and sellers in eBay that bidders should simply submit their maximum willingness to pay, once, early in the auction. For example, eBay instructs bidders on the simple economics of second-price auctions, using an example of a winning early bid. They discuss last-minute bids on a page explaining that they will not accept complaints about sniping, as follows:

How Effective Are Electronic Reputation Mechanisms? An Experimental Investigation

Abstract: Electronic reputation or "feedback" mechanisms aim to mitigate the moral hazard problems associated with exchange among strangers by providing the type of information available in more traditional close-knit groups, where members are frequently involved in one another's dealings. In this paper, we compare trading in a market with online feedback (as implemented by many Internet markets) to a market without feedback, as well as to a market in which the same people interact with one another repeatedly (partners market). We find that while the feedback mechanism induces quite a substantial improvement in transaction efficiency, it also exhibits a kind of public goods problem in that, unlike in the partners market, the benefits of trust and trustworthy behavior go to the whole community and are not completely internalized. We discuss the implications of this perspective for improving feedback systems.

How Effective are Online Reputation Mechanisms? An Experimental Study

Abstract: Electronic reputation or feedback mechanisms aim to mitigate the moral hazard problems associated with exchange among strangers by providing the type of information available in more traditional close-knit groups, where members are frequently involved in one another's dealings. In this paper, we compare trading in a market with online feedback (as implemented by many Internet markets) to a market without feedback, as well as to a market in which the same people interact with one another repeatedly (partners market). We find that while the feedback mechanism induces quite a substantial improvement in transaction efficiency, it also exhibits a kind of public goods problem in that, unlike in the partners market, the benefits of trust and trustworthy behavior go to the whole community and are not completely internalized. We discuss the implications of this perspective for improving feedback systems.

An experimental solidarity game

Abstract: 120 subjects played a three-person-game in which each player could win DM 10,00 with probability 2/3. Before the independent random decisions were made, the players had to decide under double blind conditions how much they were willing to give to one loser or each of two losers in the case of their winning. The great majority of subjects were willing to make substantial conditional gifts. The most common type of gift behavior does not lend itself to a straightforward interpretation as the result of altruistic utility maximization. We found an education effect, a gender effect, and a false consensus effect.

A theory of fairness, competition and cooperation

Abstract: There is strong evidence that people exploit their bargaining power in competitivemarkets butnot inbilateral bargainingsituations. Thereisalsostrong evidence that people exploit free-riding opportunities in voluntary cooperation games. Yet, when they are given the opportunity to punish free riders, stable cooperation is maintained, although punishment is costly for those who punish. This paper asks whether there is a simple common principle that can explain this puzzling evidence. We show that if some people care about equity the puzzles can be resolved. It turns out that the economic environment determines whether the fair types or the selesh types dominate equilibrium behavior.

A Theory of Fairness, Competition and Cooperation

Abstract: There is strong evidence that people exploit their bargaining power in competitive markets but not in bilateral bargaining situations. There is also strong evidence that people exploit free-riding opportunities in voluntary cooperation games. Yet, when they are given the opportunity to punish free riders, stable cooperation is maintained although punishment is costly for those who punish. This paper asks whether there is a simple common principle that can explain this puzzling evidence. We show that if a fraction of the people exhibits inequality aversion the puzzles can be resolved.

ERC: A Theory of Equity, Reciprocity, and Competition

Abstract: We demonstrate that a simple model, constructed on the premise that people are motivated by both their pecuniary payoff and their relative payoff standing, organizes a large and seemingly disparate set of laboratory observations as one consistent pattern The model is incomplete information but nevertheless posed entirely in terms of directly observable variables The model explains observations from games where equity is thought to be a factor, such as ultimatum and dictator, games where reciprocity is thought to play a role, such as the prisoner's dilemma and gift exchange, and games where competitive behavior is observed, such as Bertrand markets (JEL C78, C90, D63, D64, H41)

Gender Differences in Preferences

Abstract: This paper reviews the literature on gender differences in economic experiments. In the three main sections, we identify robust differences in risk preferences, social (other-regarding) preferences, and competitive preferences. We also speculate on the source of these differences, as well as on their implications. Our hope is that this article will serve as a resource for those seeking to understand gender differences and to use as a starting point to illuminate the debate on gender-specific outcomes in the labor and goods markets.

Thinking fast and slow.

Abstract: In 1974 an article appeared in Science magazine with the dry-sounding title “Judgment Under Uncertainty: Heuristics and Biases” by a pair of psychologists who were not well known outside their discipline of decision theory. In it Amos Tversky and Daniel Kahneman introduced the world to Prospect Theory, which mapped out how humans actually behave when faced with decisions about gains and losses, in contrast to how economists assumed that people behave. Prospect Theory turned Economics on its head by demonstrating through a series of ingenious experiments that people are much more concerned with losses than they are with gains, and that framing a choice from one perspective or the other will result in decisions that are exactly the opposite of each other, even if the outcomes are monetarily the same. Prospect Theory led cognitive psychology in a new direction that began to uncover other human biases in thinking that are probably not learned but are part of our brain’s wiring.