The Bonn Workshop 1997—Theories of Bounded Rationality, (May 6-10, 1997) was an international meeting of researchers interested in behavioral theories in economics. It was held in honor of Reinhard Selten. One goal of the workshop was to provide a platform for the introduction of new theories improving the understanding for the boundedly rational behavior of economic agents. Another goal was to support the search for links between existing theories of bounded rationality. We restricted the focus to the following topics:

1. (1) Individual Decision Making;

2. (2) Learning and Coordination;

3. (3) Bargaining and Reciprocity;

4. (4) Markets and Economic Institutions.

In order to generate a common basis for discussion, we invited four researchers to give state- of-the-art presentations on each of the four topics. The presentations were general overviews of the corresponding experimental, empirical, and theoretical literature. Each presentation also confronted conflicting approaches and provided an insight into the problems of theory formation. The state of the art contributions were the fulcrum of vigorous discussions and had a major impact on the proceeding of the workshop. We are convinced that these contributions will be of great interest to the broader audience that they can reach through publication.

International economic theory suggests that people should embrace economic integration because it promises large gains. But policy reversals such as Brexit indicate a desire for economic disintegration. Here we report results of an experiment of how size and cross-country distribution of gains from integration influence individuals’ inclination to cooperate to reap its intended benefits and to embrace or reject integration. The design considers an indefinitely repeated helping game with multiple equilibria and strategic uncertainty. The data reveal that inequality of potential gains neither affected behavior nor reduced support for economic integration. However, integration may lead to disappointing, unequally distributed welfare gains, undermining support for the policy. This suggests that to better assess integration policies, we should account for the spillover effects of integration on behavior. Miscalculating this behavioral aspect may undermine the intended development goals and motivate calls for dramatic policy-reversals.

The highly popular belief that rent-control leads to an increase in the amount of affordable housing is in contradiction with ample empirical evidence and congruent theoretical explanations. It can therefore be qualified as a misconception. We present the results of a preregistered on-line experiment in which we study how to dispel this misconception using a refutational approach in two different formats, a video and a text. We find that the refutational video has a significantly higher positive impact on revising the misconception than a refutational text. This effect is driven by individuals who initially agreed with it and depart from it after the treatment. The refutational text, in turn, does not have a significant impact relative to a non-refutational text. Higher cognitive reflective ability is positively associated with revising beliefs in all interventions. Our research shows that visual communication effectively reduces the gap between scientific economic knowledge and the views of citizens.

Overbidding in sealed-bid second-price auctions (SPAs) has been shown to be persistent and associated with cognitive ability. We study experimentally to what extent cross-game learning can reduce overbidding in SPAs, taking into account cognitive skills. Employing an order-balanced design, we use first-price auctions (FPAs) to expose participants to an auction format in which losses from high bids are more salient than in SPAs. Experience in FPAs causes substantial cross-game learning for cognitively less able participants but does not affect overbidding for the cognitively more able. Vice versa, experiencing SPAs before bidding in an FPA does not substantially affect bidding behavior by the cognitively less able but, somewhat surprisingly, reduces bid shading by cognitively more able participants, resulting in lower profits in FPAs. Thus, ‘cross-game learning’ may rather be understood as ‘cross-game transfer’, as it has the potential to benefit bidders with lower cognitive ability whereas it has little or even adverse effects for higher-ability bidders.

An inequality game is an asymmetric 2 × 2 coordination game in which player 1 earns a substantially higher payoff than player 2 except in the inefficient Nash equilibrium (NE). The two players may have either common or conflicting interests over the two NE. This paper studies a redistribution scheme which allows the players to voluntarily transfer their payoffs after the play of an inequality game. We find that the redistribution scheme induces positive transfer from player 1 to player 2 in both common- and conflicting- interest games, and is particularly effective in increasing efficient coordination and reducing coordination failures in conflicting-interest games. We explain these findings by considering reciprocity by player 1 in response to the sacrifice made by player 2 in achieving efficient coordination in conflicting-interest games.

This paper studies the effects of social status—a socially recognized ranking of individuals—on prosocial behavior. We use a laboratory experiment and propose a theory to address this issue. In a one-shot game, two players, whose social status is either earned or randomly assigned, jointly make effort contributions to a project. Player 1 first suggests an effort level for each player to player 2 who then determines the actual effort levels. Deviation from the proposal is costly. We find causal evidence that high-status players are less selfish than their low-status counterparts. In particular, high-status players 2 provide relatively more effort, ceteris paribus, than those with low status. The experimental results and theoretical framework suggest that a high social ranking yields more social behavior and that this can be attributed to the sense of responsibility that it gives.

We experimentally test a model of public good bargaining due to Bowen et al. (Am Econ Rev 104:2941–2974, 2014) and compare two institutions governing bargaining over public good allocations. The setup involves two parties negotiating the distribution of a fixed endowment between a public good and each party’s individual account. Parties attach either high or low weight to the public good and the difference in these weights reflects the degree of polarization. Under discretionary bargaining rules, the status quo default allocation to the group account (in the event of disagreement) is zero while under the mandatory bargaining rule it is equal to the level last agreed upon. The mandatory rule thus creates a dynamic relationship between current decisions and future payoffs, and our experiment tests the theoretical prediction that the efficient level of public good is provided under the mandatory rule while the level of public good funding is at a sub-optimal level under the discretionary rule. Consistent with the theory, we find that proposers (particularly those attaching high weight to the public good) propose significantly greater allocations to the public good under mandatory rules than under discretionary rules and this result is strengthened with an increase in polarization. Still, public good allocations under mandatory rules fall short of steady state predictions, primarily due to fairness concerns that prevent proposers from exercising full proposer power.

We study the distributional preferences of Americans during 2013–2016, a period of social and economic upheaval. We decompose preferences into two qualitatively different tradeoffs—fair-mindedness versus self-interest, and equality versus efficiency—and measure both at the individual level in a large and diverse sample. Although Americans are heterogeneous in terms of both fair-mindedness and equality-efficiency orientation, we find that the individual-level preferences in 2013 are highly predictive of those in 2016. Subjects that experienced an increase in household income became more self-interested, and those who voted for Democratic presidential candidates in both 2012 and 2016 became more equality-oriented.

The present study transforms subjective conflict perceptions into formally defined games, tests the reliability of the transformation, and explores the properties of several conflict scenarios. To this end we: (i) develop an illustration-based method that transforms implicit perceptions of expected outcomes and experiences into sets of structured numerical values, termed subjective game structures; (ii) develop a reliability index that compares the properties of two subjective games, allowing to test the consistency of repeatedly elicited games; (iii) empirically test game perceptions across eight conflict scenarios; and (iv) interpret the results in terms of two game taxonomies. The results reveal the capacity of the applied methods to transform vague social scenarios into reliable formal games, point to natural solutions, and show the distribution of games that characterizes each conflict scenario. The newly developed model and tools provide a potent instrument for studying a diverse array of social interactions, ranging from interpersonal relations to trade, political conflicts, and war. They represent invaluable resources for conducting polls, examining implicit attitudes, and assisting in the formulation of political, commercial, and social policies.

Despite public health efforts, uptake of preventive health technologies remains low in many settings. In this paper, we develop a formal model of prevention and test it through a laboratory experiment. In the model, rational agents decide whether to take up health technologies that reduce, but do not eliminate the risk of adverse health events. As long as agents are sufficiently risk averse and priors are diffuse, we show that initial uptake of effective technologies will be limited. Over time, the model predicts that take-up will decline as users with negative experiences revise their effectiveness priors towards zero. In our laboratory experiments, we find initial uptake rates between 65 and 80% for effective technologies with substantial declines over time, consistent with the model’s predictions. We also find evidence of decision-making not consistent with our model: subjects respond most strongly to the most recent health outcomes, and react to negative health outcomes by increasing their willingness to invest in prevention, even when health risks without prevention are known by all subjects. Our findings suggest that high uptake of preventive technologies should only be expected if the risk of adverse health outcomes without prevention is high, or if preventive technologies are so effective that the risk of adverse outcomes is negligible with prevention.

The presence of financial constraints changes traditional auction theory predictions. In the case of multiple items, such constraints may affect revenue equivalence and efficiency of different auction formats. We consider a simple complete information setting with three financially constrained bidders and two items that have different values common to all the bidders. Using a laboratory experiment, we find that, as predicted by theory, it is more beneficial for the seller to sell the higher value item first. We then show that the first-price sealed-bid auction yields higher revenue than the English auction, with significant differences in learning of equilibrium strategies.

Do principals' distributive preferences affect the allocation of incentives within firms? We run a Principal-Agent lab experiment, framed as a firm setting. In the experiment, subjects are randomized in the principal or worker position. Principals must choose piece rate wage contracts for two workers that differ in terms of ability. Workers have to choose an effort level that is non-contractible. Principals are either paid in proportion to the output produced (Stakeholder treatment) or paid a fixed wage (Spectator treatment). We study how principals make trade-offs between incentive concerns (motivating workers to maximize output) and their own normative distributive preferences. We find that, despite the firm-frame and the moral hazard situation, principals do hold egalitarian concerns, as principals are on average willing to trade off their firm's performance (and so their own income) for more wage equality among their workers. The willingness to reduce inequality among workers is sensitive to both extensive and intensive margin incentives, which shows that principals' choices are shaped by incentives that they face themselves.

Pro-social individuals typically face a trade-off between their monetary incentives and their other-regarding preferences. When this is the case, they may be tempted to exploit the uncertainty in their decision environment to reconcile this trade-off. In this paper, we investigate whether individuals with belief-dependent preferences acquire information about others’ expectations in a self-serving way. We present a model of endogenous information acquisition and test our theoretical predictions in an online experiment based on a modified trust-game in which the trustee is uncertain about the trustor’s expectations. Our experimental design enables us to (1) identify participants with belief-based preferences and (2) investigate their information acquisition strategy. Consistent with our predictions for subjective belief-dependent preferences, we find that most individuals classified as belief-dependent strategically select their source of information to avoid the cost of their conscience.

We conduct a field experiment with Amazon Mechanical Turk (“AMT”) workers to causally assess the effect of introducing a control mechanism in an existing work relationship on workers’ performance on tasks of varying difficulty. We find that introducing control significantly reduces performance. This reduction occurs primarily on challenging tasks, while performance on simple tasks is unaffected. The negative effects are primarily driven by workers who exhibit non-pecuniary motivation in the absence of control. Our results show that there are adverse effects of control, and they suggest that these adverse effects are of particular concern to firms that rely on high performance on challenging tasks.

The experimental literature on individual choice has repeatedly documented how seemingly-irrelevant options systematically shift decision-makers’ choices. However, little is known about such effects in strategic interactions. We experimentally examine whether adding seemingly-irrelevant strategies, such as a dominated strategy or a duplicate of an existing strategy, affects players’ behavior in simultaneous games. In coordination games, we find that adding a dominated strategy increases the likelihood that players choose the strategy which dominates it, and duplicating a strategy increases its choice share; The players’ opponents seem to internalize this behavior and best respond to it. In single-equilibrium games, these effects disappear. Consequently, we suggest that irrelevant strategies affect behavior only when they serve a strategic purpose. We discuss different theoretical approaches that accommodate the effect of salience and may explain our findings.

When it comes to experiments with multiple-round decisions under risk, the current payoff mechanisms are incentive compatible with either outcome weighting theories or probability weighting theories, but not both. In this paper, I introduce a new payoff mechanism, the Accumulative Best Choice (“ABC”) mechanism that is incentive compatible for all rational risk preferences. I also identify three necessary and sufficient conditions for a payoff mechanism to be incentive compatible for all models of decision under risk with complete and transitive preferences. I show that ABC is the unique incentive compatible mechanism for rational risk preferences in a multiple-task setting. In addition, I test empirical validity of the ABC mechanism in the lab. The results from both a choice pattern experiment and a preference (structural) estimation experiment show that individual choices under the ABC mechanism are statistically not different from those observed with the one-round task experimental design. The ABC mechanism supports unbiased elicitation of both outcome and probability transformations as well as testing alternative decision models that do or do not include the independence axiom.

We design a laboratory experiment in which an interested third party endowed with private information sends a public message to two conflicting players, who then make their choices. We find that third-party communication is not strategic. Nevertheless, a hawkish message by a third party makes hawkish behavior more likely while a dovish message makes it less likely. Moreover, how subjects respond to the message is largely unaffected by the third party’s incentives. We argue that our results are consistent with a focal point interpretation in the spirit of Schelling.