AbstractThis chapter portrays how research topics arise and develop in the creative environment of the research group Information & Market Engineering of the Institute of Information Systems and Marketing at the Karlsruhe Institute of Technology. It is somewhat long-winded in the beginning but identifies then a clear goal. In the following, it strays around several lines of research; touches on the question of why something like forecasting markets, the actual research topic, works at all – without answering it; and finally reaches a result that has little to do with the original objective. Along the way, the chapter provides some insights into the economic theory of double auctions.

We experimentally study the effect of auction format (sealed-bid vs. closed clock vs. open clock) and auction sequence (simultaneous vs. sequential) on bidding behaviour and auction outcomes in auctions of multiple related multi-unit items. Prominent field applications are the sale of emission permits, fishing rights, and electricity. We find that, when auctioning simultaneously, clock auctions outperform sealed-bid auctions in terms of efficiency and revenues. This advantage disappears when the items are auctioned sequentially. In addition, auctioning sequentially has positive effects on total revenues across all auction formats, resulting from fiercer competition on the item auctioned first.

Research on emotions suggests that auction outcomes may elicit an aversive "frustration of losing" as well as a rewarding "joy of winning" response. However, little is known about the intensity of these emotional reactions and how they relate to other factors in the auction process. In this article, we present an experiment in which subjects participated in a sequence of first-price sealed-bid auctions. The psychophysiological measures skin conductance response (SCR) and heart rate (HR) were recorded as proxies for both the intensity and the valence of emotions. Our results show that the deceleratory responses in HR when losing an auction are stronger than when winning an auction. The drop in BR itself can be interpreted as a reaction to stimuli with negative emotional valence. Moreover, we found that winning an auction induces a stronger SCR compared with losing an auction. Interestingly, this effect even holds for different value classes and different amounts of payoffs. Moreover, we show that bidders' SCR amplitude increases in the relation to the amount of money at stake. However, we cannot make a definite determination as to whether the valuation or the potential nominal payoff triggers this effect. We conclude that psychophysiological methodologies are appropriate for the measurement of rewarding, as well as immediate aversive emotions in market decision making, and even allow identifying fined-grained emotional characteristics.

Recent research strengthens the conjecture that human decision-making stems from a complex interaction of rational judgment and emotional processes. A prominent example of the impact of emotions in economic decision-making is the effect of regret-related information feedback on bidding behaviour in first-price sealed-bid auctions. Revealing the information "missed opportunity to win" upon losing an auction, results in higher bids. Revealing the information "money left on the table" upon winning an auction, results in lower bids. The common explanation for this pattern is winner and loser regret. However, this explanation is still hypothetical and little is known about the actual emotional processes that underlie this phenomenon. This paper investigates actual emotional processes in auctions with varying feedback information. Thereby, we provide an approach that combines an auction experiment with psychophysiological measures which indicate emotional involvement. Our economic results are in line with those of previous studies. Moreover, we can show that loser regret results in a stronger emotional response than winner regret. Remarkably, loser regret is strong for high values of "missed opportunity." However, the pattern for different amounts of "money left on the table" is diametric to what winner regret theory suggests.

Auction fever is a multifaceted phenomenon that is frequently observed in both traditional and Internet auctions. In order to gain a better understanding of its causes, we develop a conceptual framework to analyze emotions in auctions, which is based on an exhaustive literature review. The framework integrates rational calculus with emotional aspects and suggests that emotional processing is triggered at three different stages of an auction: First, the economic environment can affect a bidder’s level of perceived competition and thus influence the bidding strategy prior to the auction. Second, auction events may have ramifications on the bidder’s emotional state during the auction due to previous investments or perceived ownership. Third, past auction outcomes may impact future bidding behavior through emotions such as the joy of winning or loser regret. Auction fever, eventually, is a phenomenon that results from the interplay of these emotional processes and causes a bidder to deviate from an initially chosen bidding strategy.

Zusammenfassung In einer Pilotstudie an der Universität Karlsruhe wurden Wiki-Systeme in die Hochschullehre integriert, mit dem Ziel die Studierenden schon während des Semesters zu einer aktiven Auseinandersetzung mit dem Lehrstoff zu animieren. In dieser Arbeit werden die wesentlichen Erkenntnisse der Studie vorgestellt, insbesondere im Hinblick auf die Auswirkungen verschiedener Nutzungsanreize auf die studentische Beteiligung in vorlesungsbegleitenden Wikis. In der Pilotstudie mit drei unterschiedlichen Lehrveranstaltungen lassen sich beachtliche Unterschiede hinsichtlich des studentischen Engagements aufgrund unterschiedlicher Anreizstrukturen beobachten. Es wird ebenso diskutiert, inwieweit sich die Erkenntnisse der Studie auf andere Lehrveranstaltungen übertragen lassen und welche Potenziale für die Hochschullehre damit verbunden sind.

We examine theoretically and experimentally how competitive contribution-based group formation affects incentives to free-ride. We introduce a new formal model of social production, called a “Group-based Meritocracy Mechanism” (GBM), which extends the single-group-level analysis of a Voluntary Contribution Mechanism (VCM) to multiple groups. In a GBM individuals are ranked according to their group contributions. Based on this ranking, participants are then partitioned into equal-sized groups. Members of each group share their collective output equally amongst themselves according to a VCM payoff function. The GBM has two pure-strategy Nash equilibria. One is non-contribution by all; this equilibrium thus coincides with the VCM's equilibrium. The second equilibrium is close to Pareto optimal. It is asymmetric and quite complex from the viewpoint of experimental subjects, yet subjects tacitly coordinate this equilibrium reliably and precisely. Extensions of the basic GBM model to incorporate various features of naturally occurring group formation are suggested in the conclusion.

The allocation of permits is an important design aspect of an emissions trading scheme. Traditionally, governments have favoured the free allocation of greenhouse gas permits based on individual historical emissions ('grandfathering') or industry benchmark data. Particularly in the European Union (EU), the free allocation of permits has proven complex and inefficient and the distributional implications are politically difficult to justify; auctioning emissions permits has therefore become more popular. The EU is now moving to auction more than 50 per cent of all permits in 2013, and in the US the Regional Greenhouse Gas Initiative (RGGI) has begun auctioning more than 90 per cent of total allowances. Another case in point is the Australian proposal for a Carbon Pollution Reduction Scheme (CPRS), which provides for auctioning a significant share of total permits. This paper discusses the proposed Australian CPRS's auction design. A major difference to other emissions trading schemes is that the CPRS plans to auction multiple vintages of emissions permits simultaneously.

Negotiations are omnipresent both in private and professional life, and many decisions are not made by individuals but result from the interaction of a group of agents.Depending on the context, negotiations can be driven by conflicting goals, incomplete information, misunderstandings, or simply by the desire to indentify the group's joint preferences.Accordingly, Group Decision and Negotiation research is a rich and varied field.It applies concepts and methods of diverse disciplines, including-but not limited to-information systems, computer science, game theory, and statistics.Moreover, many of the contributions to the field are themselves interdisciplinary.The yearly meetings of the INFORMS section on Group Decision and Negotiation and the EURO Working Group on Group Decision and Negotiation Support reflect the most recent trends and developments on a regular basis.The 2006 conference in Karlsruhe drew about 80 papers covering methodological advancements and empirical studies as well as software systems that support negotiating parties in identifying mutual agreement.This special issue comprises six papers selected from the contributions presented at the GDN 2006 meeting.The selection was based on an extensive review process following the conference.In particular, the papers also highlight the methodological and conceptual diversity of the field of Group Decision and Negotiation.The first paper by Ofir Turel is both methodological and didactic.Turel argues that the data from observing (pairs of) negotiators is not independent.He also claims that this interdependence is largely neglected in group decision and negotiation research.

We examine theoretically and experimentally how a society's grouping and stratification rules affect incentives and efficiency, and compare meritocratic and ascriptive grouping. We present a multi-level model of social production, and extend the usual single-group-level analysis of cooperation to a broadly defined system, in which individuals compete for inclusion in stratified groups based on the contributions they make. Group members share their collective output equally amongst themselves. The mechanism has two pure strategy Nash equilibria, one close to Pareto optimal. The latter equilibrium is asymmetric and rather complex for experimental subjects. Nonetheless, subjects tacitly coordinate this equilibrium very reliably, demonstrating equilibrium's predictive power and providing empirical support for payoff dominance. Our behavioral findings also point to a meritocracy's "naturalness" and effectiveness in eliciting high social contributions. The results make a theoretical and empirical case for why social organization should be based on contribution rather than privilege. They also indicate why societies are increasingly becoming performance-based meritocracies, and are relevant to many forms of contemporary social organization.

In many European countries, actual land use for residential and commercial developments or for transport infrastructure is much higher than what would be compatible with sustainable development. Therefore, current scientific and political discussions center on using economic policy instruments to limit urban sprawl and additional land use at the lowest possible costs. The challenge is to provide housing and business facilities without – or with very little – new land development, e. g. by converting areas within cities that are no longer in use. Besides a tax on new land use, economic instruments also include a trading system for land use certificates. In contrast to command-and-control type regulations, such a cap-and-trade system gives the municipalities - and possibly other administrative agencies carrying out development projects at supra-municipal levels – high flexibility when deciding on new land use. Ideally, land will be developed for new residential, commercial, and transport uses where it promises the highest net benefits, given the environmental and land use planning objectives of the decision makers. In addition to the flexibility and in contrast to a tax-based system, a total cap ensures that the overall target for land use is met. This is a crucial aspect, since land is a resource which generally cannot be augmented. Previous studies (e. g. Bizer 1998; Walz et al. 2006b; Walz et al. 2006a) focused on the crucial design parameters for a system of tradable land use certificates. Since these were primarily theoretical analyses, they could not determine which incentives such systems would actually generate in practice. In particular, it was unclear to what extent such systems would help to achieve the expected efficiency gains. To address these questions, the FONA project “SpielRaum” (www.spielraum.isi.fhg.de) simulates the trading of land use certificates between municipalities using various designs. In particular, strategies chosen by the participating municipalities are analyzed. As a new methodological approach, an internet based interactive trade is simulated with participants from 14 German municipalities. The presentation summarizes results from the two simulation rounds. We show the practical experiences and strategic decisions, which drove the players and discuss the market result achieved in relation to the theoretically optimal result. Strong motives for new land development are the provision of attractive housing for young families and the provision of industrial parks. The results of these analyses are expected to provide guidance for the design of a trading system for land use certificates. In this way, the research project may contribute to the further, concrete development of this policy instrument and give insights on how to meet long-term targets for sustainable land use.

According to theory a pure meritocracy is efficient because individual members are competitively rewarded according to their individual contributions to society. However, purely individually based meritocracies seldom occur. We introduce a new model of social production called “team-based meritocracy” (TBM) in which individual members are rewarded based on their team membership. We demonstrate that as long as such team membership is both mobile and competitively based on contributions, individuals are able to tacitly coordinate a complex and counterintuitive asymmetric equilibrium that is close to Pareto-optimal, possibly indicating that such a group-based meritocracy could be a social structure to which humans respond with particular ease. Our findings are relevant to many contemporary societies in which rewards are at least in part determined via membership in organizations such as for example firms, and organizational membership is increasingly determined by contribution rather than privilege.

Admitting banking in emissions trading systems reduces overall compliance costs by allowing for intertemporal flexibility: cost savings can be traded over time. However most, EU Member States prohibit the transfer of unused allowances from the period of 2005–2007 into the first commitment period under the Kyoto Protocol, i.e. 2008–2012. At the same time, allowances appear to be allocated fairly generously to the emissions trading sector. In this paper, we first explore the implications of such a ban on banking when initial emission targets are lenient. This analysis is based on a simulation which was recently carried out in Germany with companies and with a student control group. The findings suggest that an EU-wide ban on banking would lead to efficiency losses in addition to those losses which arise from the lack of intertemporal flexibility.

From an analysis of the available national allocation plans for the first period (2005-2007) of the EU emissions trading scheme (EU ETS), it can be inferred that (i) the total allocation to installations covered under the EU ETS is rather generous and (ii) most EU Member States ban the transfer of allowances (banking) into the second period (2008-2012). In this article, we explore the cost-efficiency issues associated with such a generous allocation of allowances to the trading sectors in combination with the ban on banking. It is argued that allocation to the trading sectors is higher than implied by a cost-minimization approach. Moreover, due to the reduced level of flexibility, a ban on banking increases overall compliance costs. In addition, the results of a simulation game conducted with real company participants and with a student control group suggest that a generous primary allocation in the first phase combined with a ban on banking also leads to a cost-inefficient choice of abatement measures within periods. The results of the simulations are also consistent with the conjecture that forward markets and auctioning off a part of the total quantity of allowances result in more reliable price signals and more cost-efficient Outcomes.

An analysis of the available National Allocation Plans for the first period (2005�2007) of the EU emissions trading scheme (EU ETS) implies (i) that the total allocation to installations covered under the EU ETS is fairly generous and (ii) that most, if not all EU Member States ban the transfer of allowances (banking) into the second period (2008�2012). In this paper, we explore efficiency issues associated with such a generous allocation of allowances to the trading sectors and the ban on banking. It is argued that allocation to the trading sectors is higher than implied by a cost-minimisation approach. Moreover, due to the reduced level of flexibility a ban on banking increases overall compliance costs. In addition, results of a simulation game conducted with real company participants and with a student control group suggest that a generous primary allocation in the first phase and a ban on banking also lead to an inefficient choice of abatement measures within periods. New results of additional simulations imply that auctioning off a part of the total quantity of allowances and allowing for forward markets may result in more reliable price signals and more efficient outcomes.