CRC/TRR 190/1: Rationality and Competition: The Economic Performance of Individuals and Companies

The project “Rationality and Competition” combines methods and insights from “behavioural” and “neoclassical” economics to better understand important applied economic problems and to reach more robust economic policy conclusions. It addresses two sets of questions. 1. Questions about methods: How can we use the existing, often rather conceptual insights about behavioural deviations from standard theory and apply them to the traditional fields of economic analysis? Are the existing empirical or experimental demonstrations of behavioural biases – such as reference-dependent preferences, over-confidence, or social preferences – ready to use? Do they capture relevant aspects of economic behaviour in real world settings, in particular in competitive environments, where market forces punish irrational behaviour? 2. Questions about substance: In what areas of economic research is it necessary to engage with a richer model of decision making? In what areas are traditional concepts sufficient? Is the nature of the transmission mechanism the same in both analyses? Do the existing empirical demonstrations of behavioural biases have implications of large economic significance? In the first funding period, the CRC has made important contributions to this research agenda, documented in hundreds of publications and research papers in both basic and applied research. Our work program in the second funding period builds up on these results – with a few adjustments: First, we identified several highly promising fields that require more attention, including innovation, inequality and gender economics. Second, the CRC will also highlight several important new methodical questions, in particular the analysis and measurement of biased beliefs and how to operationalise the notion of “identity”.