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Über dieses Buch

Reinhard Selten, to date the only German Nobel Prize laureate in economics, celebrates his 80th birthday in 2010. While his contributions to game theory are well-known, the behavioral side of his scientific work has received less public exposure, even though he has been committed to experimental research during his entire career, publishing more experimental than theoretical papers in top-tier journals. This Festschrift is dedicated to Reinhard Selten’s exceptional influence on behavioral and experimental economics. In this collection of academic highlight papers, a number of his students are joined by leading scholars in experimental research to document the historical role of the “Meister” in the development of the research methodology and of several sub-fields of behavioral economics. Next to the academic insight in these highly active fields of experimental research, the papers also provide a glance at Reinhard Selten’s academic and personal interaction with his students and peers.

Inhaltsverzeichnis

Frontmatter

Exceptional Academic Behavior

Frontmatter

Chapter 1. Reinhard Selten a Wanderer

When I first met Reinhard Selten, I was a sleepless young student, double-degreeing in economics and computer science (which, studying in Bonn, basically meant that I was spending my days and nights studying applied mathematics). I knew Herbert Simon’s work well (but not Reinhard Selten’s) and I had planned to shake-up economic research by introducing macroeconomic models based on boundedly rational decision-makers.1 That was why I had to study computer science. I needed to learn how to write simulation software for my virtual economies. Things were going OK. The university had just received about 40 first generation IBM PCs and – being a second year computer science student – I was privileged to have courses learning to program in Pascal, Modula, ProLog, and other cool languages that I cannot recall. Then, looking for an interesting course in economics, I came across a seminar given by Reinhard Selten on “experimental industrial organization.” Frankly, I had absolutely no idea what this seminar would be like, but I was pleased by the announcement that “warned” participants that in this seminar they would have to “program a strategy” to run on a PC. The seminar started with a 2-week crash course to teach the participants how to program a duopoly strategy in Turbo Pascal. Clearly, there was no course in economics that was closer than this one to programming the boundedly rational agent simulations that I was so interested in. It was immediately clear to me that I must sign-up for this course.

Abdolkarim Sadrieh

Chapter 2. Encounters with Reinhard Selten: An Office Mate’s Report

In winter term 1960/1961 about 100 students applied for the economic seminar held by Professor Heinz Sauermann. As an economics student at the University of Frankfurt, I took part in that seminar. Among the students it had the reputation of being the most challenging course in the field of economic theory.

Otwin Becker

Chapter 3. Reinhard Selten’s Frankfurt Years from the Perspective of a Co-player

The international reputation of Reinhard Selten is based on three pillars of his research activities that – similarly as in his “Three-Level-Theory” R. Selten (1978), The chain store paradox, Theory and Decision 9, pp. 127–159. – form an interplay. Those are namely: first Game Theory working with the assumption of strict rationality; second Experimental Economics studying real behavior in laboratory situations and third the theory of bounded rationality bridging the resulting contrast. He already laid the foundation for these three directions in his time in Frankfurt while studying mathematics, economics and psychology.

Reinhard Tietz

Chapter 4. Reinhard Selten and the Scientific Climate in Frankfurt During the Fifties

It is worthwhile to consider the scientific climate at the Economic Faculty of the Johann-Wolfgang-Goethe-University in Frankfurt/Main during the 1950s of the twentieth century. I will do this admittedly from a subjective point of view as I see the situation today after 50 years have gone. My personal valuation has been changing already during the fifties, and even more during the decades afterwards.

Horst Todt

Chapter 5. Reinhard Selten Labs, Bounded Rationality and China

Oct. 5th is Doktorvater’s 80th birthday. As one of his disciples, the best way to congratulate is a paper. As a scholar, he has won world-wide respect by his pioneering work in game theory, experimental economics and bounded rationality. His articles on evolutionary biology, psychology and political science have been widely cited. The esteem of his peers is vividly reflected in a well-circulated article recently. Professor Vernon Smith (2005) said that Professor Selten should be awarded the Nobel Memorial Prize in Economic Science for the second time. Therefore I decided, after e-mail communications with Professor Karim Sadrieh, to write an article from another perspective, in a more personal way. I will write about what I know about Professor Selten, and his influence on me, and his academic impact in a fast-developing country, my home country, China.

Fang-Fang Tang

Strategic Behavior

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Chapter 6. Drei Oligopolexperimente

Reinhard Selten’s work marks the beginning of the experimental analysis of oligopoly. Indeed, his research includes both one of the first experiments on quantity competition and the first one on price competition. In the aftermath a very rich literature has emerged, dealing both with theory-based issues linked to the many oligopoly models that appeared as the result of the application of game-theory to industrial organization and with more applied questions that came out of the economic analysis of regulation and anti-trust issues.

Klaus Abbink, Jordi Brandts

Chapter 7. Deviations from Equilibrium in an Experiment on Signaling Games: First Results

In this paper we provide a summary of results concerning two series of experiments we ran based on a modified signalling game, which was presented graphically to subjects on a screen. The game for the initial experiment was selected by Reinhard Selten in coordination with the first named author. It has the interesting property that the strategically stable outcome (Kohlberg and Mertens 1986) does not coincide with the outcome of the Harsanyi-Selten solution (Harsanyi and Selten 1988). However, it is a complex game insofar as standard refinement concepts like the intuitive criterion, or the never-a-weak-best-response criterion, do not help to refine among the equilibria. The second motive for the design was to analyse, how the change in the reward at a particular terminal node would affect behaviour.

Dieter Balkenborg, Saraswati Talloo

Chapter 8. Strategy Choice and Network Effects

Social networks play an important role in life. We interact with our friends, neighbors and business partners, who in turn also interact with people who are not part of the community we directly interact with. How people form and maintain networks and how networks impact their behaviors raises behavioral questions that have been addressed by sociologists, economists, physicists, computer scientists and anthropologists.

Siegfried K. Berninghaus, Claudia Keser, Bodo Vogt

Chapter 9. Walking with Reinhard Selten and the Guessing Game: From the Origin to the Brain

What could be the relationship between Reinhard Selten and the dinos’ story? An easy answer is that he was Nagel’s “Doktorvater” (PhD advisor) and the guessing game was one of the topics in her thesis. A more challenging connection is to Reinhard Selten’s constant fear to be trapped and blinded by the mathematical reasoning of game theory as a description of human behavior like the dinos seem to be trapped in YEP, WOO. Doesn’t the dinos’ story how to play the game sound appealing? Certainly it does for many game theorists. When they play it a large proportion chooses 0 while the winning number among them is between 10 and 15! Other theorists, on the other hand, found the game rather boring since not playing the theory didn’t seem a surprise and at the same time a clear structure of behavior was not at hand.

Giorgio Coricelli, Rosemarie Nagel

Pro-Social Behavior

Frontmatter

Chapter 10. Understanding Negotiations: A Video Approach in Experimental Gaming

Reinhard Selten since the beginning of his scientific career has been concerned with developing descriptive theories that take account of the boundedly rational behavior of human subjects. The concept of bounded rationality was introduced by Herbert Simon in the 1950s (Simon 1955, 1957), and Selten was immediately convinced by his arguments (Selten 1995). Together with a group of other researchers in Frankfurt around the economist Heinz Sauermann who shared the view that behavior of economic agents is not adequately modeled by “homo oeconomicus” theories Reinhard Selten started to run economic experiments and to develop a corresponding methodology already in the 1950s (see Sauermann and Selten 1967). In Selten’s own words: “We invented experimental economics”.

Heike Hennig-Schmidt, Ulrike Leopold-Wildburger, Axel Ostmann, Frans van Winden

Chapter 11. Institutions Fostering Public Goods Provision

“Never do an experiment on public good provision or the ultimatum game!” This advice was given by a senior colleague to a young mathematician (BR) joining the Selten group at the Bonn Laboratory in the late 1980s. A well-meant advice to someone entering the field of experimental economics, grounded in the colleague’s observation that simple games, like ultimatum, dictator or prisoners’ dilemma games have already been subject to numerous experimental studies and that more complicated settings are non-tractable. For hand-run experiments the degree of complexity seemed very restricted and computerized experiments faced serious technical limitations at that time. Today, more than 20 years later, we can look back to numerous intriguing new insights that have been gained through additional public-goods and ultimatum experiments. Some of them will be reviewed in this paper and some of them are co-authored by the formerly young mathematician who did not follow the advice of the senior colleague. Undisputable, technical progress has enriched our possibilities for handling richer and more complex games and experimental settings. This, however, is at best a necessary requirement.

Ernst Fehr, Simon Gächter, Manfred Milinski, Bettina Rockenbach

Chapter 12. Social Behavior in Economic Games

In 1993, I attended Reinhard Selten’s class on “bounded rationality”. The class polarized the students: some were immediately struck by his unorthodox view on economic behavior. Others were more skeptical for the same reason. I remember vividly, for example, when Selten explained to us how people buy a new house. He spent maybe 15 minutes illustrating in great detail how people form aspirations and how these aspirations get adjusted during the search process in non-compensatory ways. Then his lesson reached an unexpected climax: He explained how, after all these boundedly rational adaptations, the house searchers might come across a house of “outstanding attractiveness” and would then buy it – regardless of whether it fits their aspirations or not. Well, I must admit that, having studied the elegant theory of rational decision making in Bonn, I was not well-prepared for this perspective on economic behavior. However, over the years Selten taught me that, in his own words, it is not human behavior that is anomalous – rational behavior is the anomaly. Nonetheless, I concentrated my studies on rational choice and general equilibrium theory, and eventually began a diploma thesis in this field.

Gary E. Bolton, Werner Güth, Axel Ockenfels, Alvin E. Roth

Organizational Behavior

Frontmatter

Chapter 13. The Equity Principle in Employment Relationships

If you think of Reinhard Selten, you might first think of his outstanding contributions to game-theory which were honored with the Prize in Economic Sciences in Memory of Alfred Nobel in 1994. 1 At the same time, you might think of his devotion to the field of bounded rationality and his continual effort to promote the use of experiments in the Economic discipline (interestingly, his first journal publication in 1959 was not a theoretical, but an experimental paper featuring Cournot oligopoly models). 2 By jointly using theoretical and empirical methods, he wants “[...] to build up a descriptive branch of decision and game theory which takes the limited rationality of human behavior seriously.” 3 This aim is of utmost importance, because only then will we be able to develop worthwhile economic models that enable us to understand and predict how people behave in certain economic situations.

Sebastian J. Goerg, Sebastian Kube

Chapter 14. The Analysis of Incentives in Firms: An Experimental Approach

“Behaviour cannot be invented in the armchair. It has to be observed.” This statement by Reinhard Selten (1998, p. 414) is particularly true and relevant when designing organisations and incentive schemes with the aim to motivate employees and facilitate coordination and cooperation in firms. Experiments are a powerful tool to observe behaviour under controlled conditions and thereby to draw inferences about causal influences on behaviour.

Christine Harbring, Bernd Irlenbusch, Dirk Sliwka, Matthias Sutter

Risky-Choice Behavior

Frontmatter

Chapter 15. Georges-Louis Leclerc de Buffon’s ‘Essays on Moral Arithmetic’

We offer a translation into English of the original French version published in 1777 of Buffon’s Essai d’Arithmetique Morale. In this classic work, Buffon discusses degrees of certainty, probability, the moral value of money, the different evaluations of gains and of losses; moreover, he proposes repeated experiments to determine the moral value of a game. Our hope is that this remarkable work, which anticipates and relates to many aspects discussed in more recent literature, reaches a broader audience than the French original reaches today. Our belief is that we are first to translate this classic work completely. Remaining errors are ours.

John D. Hey, Tibor M. Neugebauer, Carmen M. Pasca

Chapter 16. Risky Choice and the Construction of Preferences

Imagine your doorbell rings. You open to find a young professional salesperson offering you a new type of electronic data loss insurance. You may wish to send him away immediately, but he talks so fast that you cannot help hearing the details of the deal. The contract will pay you a certain amount, if your electronic data storages are lost due to power blackouts or irregularities, due to fluid damages (water, coffee, soft drinks, etc.), or due to other unforeseen accidents or natural disasters. The insurance agent has a certified table listing the historic frequencies of all these events, i.e. you have reliable estimates of the event probabilities. The agent also quotes a price (or perhaps a number of prices for variants of the contract, insuring more or less of the data loss events). All you have to do now is to assess the value of your electronic data, match it up with your risk preferences, compare cost to benefit, relate the net benefit of the insurance contract to all other prospects that life offers, and you can immediately tell the friendly salesperson, whether the suggested insurance contract is a deal or is no deal. This should not be a big deal, right?

Abdolkarim Sadrieh
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