Lehrstuhl für Organisationstheorie

Managing Behavior: Psychology, Economics, and Experiments - Part 1: Guiding Behavior at the Workplace (semester 4/5)

In this course you will learn important insights about the behavior of others, but also how you act – in business situations as well as in everyday life:

On a theoretical level, the course provides an economic-psychological approach for understanding individual decision making by integrating important contributions from economics, psychology, and sociology. We focus on current research in behavioral economics and discuss the limitations of actual behavior to rational decision making due to cognitive and motivational distortions. We illustrate these theoretical insights with several case studies from different areas.

On a practical level, the course focuses on current research in experimental economics and psychology. Here, we use the experimental results from the literature in this field to illuminate the validity of our theoretical predictions. Moreover, you will use classroom experiments to test and experience your own behavior as well as that of your classmates.

Managing Behavior: Psychology, Economics, and Experiments - Part 2: Coordinating Behavior in the Organization (semester 4/5)

In this course you will learn important insights about how to coordinate the interactions between members of an organization in such a way that their individual activities serve the common organizational goal and that their cooperation runs as smoothly as possible.

On a theoretical level, the course provides a comprehensive unified approach for understanding interdependent decision making by integrating important contributions from different fields of economics. We focus on current research in organizational economics and discuss the organizational design as a function of the characteristics of the underlying interactions. We illustrate these theoretical insights with several case studies from different areas. 

On a practical level, the course focuses on current research in experimental economics and psychology. Here, we use the experimental results from the literature in this field to illuminate the validity of our theoretical predictions. Moreover, you will use classroom experiments to test and experience your interdependent behavior in the interaction with your classmates.

Seminar: Thinking Strategically: Psychology, Economics, and Experiments (semester 6)

This course will teach you how to think strategically in situations in which you interact with others. Strategic thinking, however, is not only important in playing tennis; it is prevalent in daily life at work and at home. Managers and corporations must use competitive strategies to survive in the market. Parents and kids bargain for pocket money or the assignment of house work. In all these situations it is better to be a good strategist than a bad one. This course aims to help you to improve your skills at discovering and using effective strategies. Good strategic thinking is an art and the science of strategic thinking is called Game Theory:

• On a theoretical level, the course provides an introduction into the basics of Game Theory. In particular, we focus on the basics principles of strategic thinking and apply these principles to different interdependent decision making situations. We illustrate these theoretical insights with movies, case studies and applications from different areas: Movies we will see and interpret during this course are, for example, ′Indiana Jones and the last Crusade′, ′Memento′, ′Princess Bride′, Stanley Kubrik’s ′Dr. Strangelove′, Woody Allen’s ′Manhattan Murder Mystery′, or ′A Rebel without Cause′; case studies come from sport, culture, philosophy, and history such as Lance Armstrong and doping in professional sport, Galileo Galilei and the interrogation by the inquisition, Tosca and the bargain with Scarpia, Pascal’s wager and the existence of God, the Invasion of Normandy, Sherlock Holmes and his final problem, the Monday Demonstrations in Leipzig, or Hernán Cortés’ burning bridges; and applications to which we apply our insights are, for example, moral courage and the problem of helping, the parable and dilemma of the Good Samaritan, drug dealers and patrols on the beat, couples and their relationships, the war of attrition and the timing of capitulation, or civil unrest and the coordination for revolution.

• On a practical level, the course focuses on current research in experimental economics. Here, we use the experimental results from the literature in this field to illuminate the validity of our theoretical predictions. Moreover, you will use classroom experiments to test and experience your interdependent behaviour in the interaction with your classmates. The topics of these experiments range from the sound of silence over tolerating laziness to why gambling the night away.

Ethics: Ethical Decision Making and Behavior (semester 6)

In this course on "Ethical Decision Making and Behavior", you will learn important insights about the ethical behavior of others, but also how you morally act – in business situations as well as in everyday life:

• On a theoretical level, the course provides an economic-psychological approach to understanding ethical decision making by integrating important contributions from economics, psychology and sociology. In particular, we focus on several determinants of ethical behavior and discuss the limitations of actual ethical behavior due to cognitive, motivational and institutional distortions.

• On a practical level, the course focuses on current research in Behavioral Ethics. Using the determinants of ethical behavior as topics for your seminar papers, it will be your task to summarize the relevant literature in experimental economics in this area and to write a literature overview on your topic. As starting point for your literature survey, we distribute seminal readings up-front. Moreover, you will test and experience your own ethical behavior as well as that of your classmates by a classroom experiment.

Game Theory - Semester 1

This course will teach you how to think strategically in situations in which you interact with others. Strategic thinking, however, is not only important in the hamburger case; it is prevalent in daily life at work and at home. Take, for example, a situation where you as the manager of the only supermarket in town are facing potential entrants. To discourage entry you make your market look unattractive by pricing below marginal costs. The logic of such a predatory pricing strategy then is similar to your son’s reputation building strategy: If potential entrants are unsure about your profits in the market you can build up a reputation for being a tough incumbent by fighting entry through predatory pricing although you are a soft incumbent who loses with this strategy. This course aims to help you to improve your skills in discovering and using effective strategies. Good strategic thinking is an art and the science of strategic thinking is called Game Theory:

• On a theoretical level, the course provides an introduction into Game Theory. In particular, we focus on the different solution concepts that are useful to understand the strategic behaviour in a broad range of possible interdependent decision situations. We illustrate these theoretical insights with movies, case studies and applications from different areas: Movies we will see and interpret during this course are, for example, ′A Beautiful Mind′, ′The Dark Knight′, ′The Good, the Bad, and the Ugly′, ′Ransom′, Marx’s Brothers ′Go West′, ′Swingers′, or ′Pretty Woman′; case studies come from politics, science, and history such as the Extinction of the Woolly Mammoth; Operation Overlord and the D-Day, 6 June 1944; Trench Warfare in World War I; EU‘s Immigration Politics; or the Greek Crisis, 2015; and applications to which we apply our insights are, for example, the tragedy of the commons; exploiting first-mover advantages; selling ice cream on a beach; being first in tournaments; couples that mistake each other mutually; entrepreneurship and capital structure; or studying at WHU.

• On a practical level, the course focuses on the application of the different solution techniques to specific interdependent decision situations. Here, we use the solution concepts introduced in the theoretical parts to illustrate the predictive power of game theoretic reasoning in various examples. Moreover, you will use applications to test and experience your own strategic thinking together with other classmates. The topics of these applications range from the tragedy of the commons over being first in tournaments to entrepreneurship and capital structure.

Contract Theory - Semester 1

This course aims to help you to improve your skills in discovering the essential economic drivers not only for answering this question but also similar ones in a variety of different situations: How should government agencies set rules and regulations towards the purpose of reducing environmental pollution or avoiding tax evasion? What is the optimal design of contracts with suppliers to ensure high quality pre-products? How should parents incentivize their children to tidy up their room?

The common element of all these situations is that there are at least two actors involved, a principal and an agent. The principal has a project but no time, and the agent has time but no project. To generate the project's surplus they both cooperate and the principal delegates the project to the agent, who then acts on behalf of the principal. If the agent is motivated to act in his own best interest rather than that of the principal, the principal then has to design a "contract" that motivates the agent to act in her interest: 

• On a theoretical level, the course provides an introduction into Contract Theory. In particular, we focus on the different contractual solution concepts that are useful to understand optimal contracting in a broad range of possible principal-agent relationships. We illustrate these theoretical insights with case studies and applications from different areas of finance: Case studies on financial markets are, for example, the stickiness of credit card rates, competitive market making in a limited order market, or the pricing of initial public offerings; and applications in corporate finance to which we apply our insights are, for example, venture capital financing, credit rationing, or common stock repurchases.

• On a practical level, the course focuses on the application of the different solution techniques to specific contractual problems in corporate finance. Here, we use the solution concepts introduced in the theoretical parts to illustrate the predictive power of contract theoretic reasoning in various examples. Moreover, you will use applications to test and experience your own theoretical thinking together with other classmates. The topics of these applications range from the use of collaterals as screening device in loan contracts over optimal debt contracts and costly state verification to the use of equity stakes as a signal of creditworthiness.

Industrial Organization – Semester 1

The main goal of this course is to provide an introduction to the main concepts and analytical tools of the theory of industrial organization. Industrial organization is a field of microeconomics that studies how firms interact and compete with each other in markets. We will predominantly confront markets characterized by imperfect competition. In these markets, firms can exercise market power and hence need to make strategic decisions, i.e. decisions that have an identifiable impact on other market participants. Examples of such strategic choices are prices, product variety, or investments in advertising. The course aims to teach students to use simple game-theoretic models and reasoning, which will crucially improve their understanding of strategic decision-making by firms. We use this analysis to investigate questions such as: 

• Why do prices for the same product differ across different customer groups? 

• How does product differentiation and advertising affect the nature of competition? 

• Which market characteristics allow and encourage firms to maintain a price-fixing agreement?

• How does antitrust policy affect market competition?

At the end of the course, students should have developed an economic perspective to understand and suggest managerial policies and comment on existing competition laws aimed at improving market allocations.

Managerial Economics – Semester 1

The main goal of this course is to provide an introduction to the main concepts and analytical tools of the theory of managerial economics. Managerial economics is a broad research stream that aims to provide a framework for managerial decision-making. It applies economic theories to help managers understand complex problems and make better decisions. In this course, we will predominantly confront managerial issues that involve strategic interactions between multiple organizational members or market participants, i.e. situations where a person’s action has an identifiable impact on another person and prompt them to react. Examples of strategic situations in a business realm abound and include, for example, hiring and incentivizing employees, sourcing inputs, designing, pricing, and distributing products, or investing in advertising. The course aims to teach students aspiring to manage businesses to use economic reasoning and simple economic models, which will crucially improve their understanding of managerial decision-making. We use this analysis to investigate questions such as: 

• Which personal and situational factors drive workplace behavior?

• Which incentive instruments can managers use to ensure employees’ motivation and their coordination?

• Should a firm produce a critical input itself or buy it on the market?

• Which pricing strategies can firms use to maximize profits?

At the end of the course, students should have developed an economic perspective that will be appropriate for understanding, suggesting, and evaluating managerial policies in a variety of industries.

Course - Game Theory: 

Game theory is the study of multi-person decision problems. Such problems arise frequently in your PhD-thesis being it in management or economics, for example, when you write in

• in finance, and your thesis is about how entrepreneurs seek funding of their projects
• in marketing, and your thesis is about the optimal degree of mass-customization for products
• in production, and your thesis is about the design of a joint platform strategy for products
• in accounting, and your thesis is about the differences between a single auditor or joint auditor system
• in strategy, and your thesis is about how to make sure that a firm’s competitive advantage is persistent over time
• in organization, and your thesis is about the structuring of a new service center
• in leadership, and your thesis is the benefits of promotion tournaments to motivate workers
• in sports, and your thesis is about the consequences of the three-point rule on the offensiveness of football teams
• … 

This course is designed to introduce game theory to those who will later think more rigorously about the game-theoretic implications underlying the topic of their PhD-thesis. We do so by emphasizing the exposition to management applications of the theory at least as much as the pure theory itself, for three reasons. First, the applications help teach the theory; formal arguments about abstract games also appear but play a lesser role. Second, the applications illustrate the process of model building — the process of translating an informal description of a multi-person decision situation into a formal, game-theoretic problem to be analyzed. Third, the variety of applications shows that similar issues arise in different areas of management, and that the same game-theoretic tools can be applied in each setting.  In the centre of our discussion in this course are multi-person decision making situations in which the outcomes depend on the actions taken by several actors. In Game Theory such a situation is called a game and the actors in such a game are called players, and a player has the move if he is called to act. To classify the variety of games it is useful to consider the following two basic criteria:
Given these two dimensions, we discuss the following four classes of games in our course: Simultaneous-move Games of Complete Information, Sequential-move Games of Complete Information, Simultaneous-move Games of Incomplete Information, and Sequential-move Games of Incomplete Information. 

• Timing of moves: According to the timing of the players' moves, games can either be simultaneous or sequential. In the first case, all players choose their actions without knowing how the others have acted or will act. Such games are called simultaneous-move games. In the second case, at least one of the players knows when acting what another has done before. Such a game is called a sequential-move game. 
• Degree of private information: Private information arises in those situations in which at least one player knows more about the decision making situation than another player. If this is the case, the game is one of incomplete information. Otherwise, the game is said to be of complete information. 

During this course you will learn several analytical tools relevant not only for this course but for your further PhD-studies. These are the Nash Equilibrium concept of Nobel laureate John Nash, the Sub-game Perfect Equilibrium concept of Nobel laureate Reinhard Selten, the Bayesian Nash Equilibrium concept of Nobel laureate John Harsanyi, and the Perfect Bayesian Nash Equilibrium concept of not-yet Nobel laureates David Kreps and Robert Wilson

Course - Contract Theory:

Contract theory is the study of hierarchal relationships between a principal and an agent. Such relationships arise frequently in your PhD-thesis being it in management or economics, for example, when you write in

• in finance, and your thesis is about how entrepreneurs seek funding of their projects
• in taxation, and your thesis is about how to avoid tax evasion
• in law & economics, and your thesis is about how to ensure law enforcement
• in accounting, and your thesis is about the system of performance measurement
• in production, and your thesis is about to contract in a supply chain with suppliers
• in organization, and your thesis is about allocate task between different organizational units
• in leadership, and your thesis is the motivation of workers
• in regulation, and your thesis is about how to avoid environmental pollution
• ...

This course is designed to introduce contract theory to those who will later think more rigorously about the contractual problems underlying the topic of their PhD-thesis. We do so by emphasizing the exposition to management applications of the theory at least as much as the pure theory itself, for three reasons. First, the applications help teach the theory; formal arguments about abstract principal-agent relationships also appear but play a lesser role. Second, the applications illustrate the process of model building — the process of translating an informal description of a principal-agent relationships into a formal, contract-theoretic problem to be analyzed. Third, the variety of applications shows that similar issues arise in different areas of management and economics, and that the same contract-theoretic principles can be applied in each setting.
Contract Theory would be boring, if both the principal and the agent had identical information about all relevant aspects in their relationship: The optimal contract design by the principal in this situation would be simple - "If you do the task as I would do, I pay you a reward, otherwise you get nothing" - and the principal would perfectly control the agent and induce his actions to be what she would like to do herself. So Contract Theory is only interesting, if the agent has some kind of private information. This private information can be of two types and, therefore, induce two different contractual problems:

• Adverse selection: In some situations, the agent is better informed than the principal about his personal characteristics, e.g. his abilities or valuations. These situations are called principal-agent relationships with hidden characteristics and the resulting problem for the principal is called adverse selection. Such a problem might occur, for example, in a situation in which an entrepreneur needs outside financing to undertake a new project. If lenders cannot directly tell whether the project is good or bad, an interest rate tailored to an average project quality tends to attract only an entrepreneur with a bad project because he is more likely to default on his loan and is therefore less affected by an entrepreneur of a good project. But this selection would be adverse to lenders’ interests.                                                                            
• Moral hazard: In other situations, the agent can take an action unobserved by the principal or he receives information during the project unknown to the principal. These situations are called principal-agent relationships with hidden action, respectively hidden knowledge, and the resulting problem for the principal is called moral hazard. In the example above, suppose the project’s success depends on whether the entrepreneur’s cash is invested in the project or used for consumption. If lenders cannot verify this decision, the entrepreneur might have an incentive to misbehave when the private benefits from consumption exceed the reduced success probability of the project. In this case, a lender will not grant such a loan and we again have credit rationing.

Given these two principle contractual problems, we discuss the following four classes of principal-agent relationships in our course: Adverse selection and Screening, where the uninformed principal offers a contract; Adverse Selection and Signaling, where the informed agent signals his private information before the principal offers the contract; Moral hazard and Single Agency, where the principal contracts with only one agent; and Moral hazard and Multi Agency, where the principal contracts with a group of interacting agents.
During this course you will learn several analytical tools relevant not only for this course but for your further studies in finance. Besides several concepts of incentive theory such as Moral Hazard, Adverse Selection, Risk Premium, or Information Rent, you learn drivers for the optimal use of incentive instruments such as piece rates, profit sharing, or performance measurement. In addition, you get familiar with several concepts of game theory, for example, the Nash Equilibrium concept, the Sub-game Perfect Equilibrium concept, or the Perfect Bayesian Nash equilibrium concept.

Course - Selected Topics in Economics, Management, and Organization:

The course objective is to introduce graduate and advanced undergraduate students into selected topics of economics, management, and organisation and to give them an overview of existing literature in these research fields.

Topics in recent years:

• Koordination durch Information (1998)
• Ökonomische Analyse sozialer Normen (1998)
• Evolutionary Game Theory (1999)
• Psychologische Spiele (1999)
• Beeinflussungsaktivitäten bei Reorganisation (2000)
• Unvollständige Verträge und die Theorie der Firma (2001)
• Netzwerkökonomie (2001)
• Strategisches Konfliktmanagement in Organisationen (2002)
• Konglomerate: Unternehmensstrategien, Unternehmensgrenzen und interne Kapitalmärkte (2002)
• Selbstkontrolle und Motivation: Neue theoretische Ansätze, Anwendungen und experimentelle Evidenz in der ökonomischen Psychologie (2003)
• Realoptionen und strategische Aspekte (2003)
• Strategische Aspekte von Beförderungen (2005)
• Fairness und andere Präferenzen (2005)
• The Economics of Advertising (2006)
• Risikomanagement und Versicherung (2006)
• Besteuerung, Steuerharmonisierung und Steuerwettbewerb (2007)
• Produktdifferenzierung (2008)
• Sports Economics (2010)
• Informationsasymmetrien in elektronischen Märkten (2011)
• Econometrics in Organizational Theory (2012)
• Online Advertising – Targeting, Auctions and Privacy (2013)
• International Management (2014
• Mass customization vs. mass production (2015)
• The economics of innovation (2016)
• Strategic risk-taking competition (2017)
• Spatial Competition in Multi-store Environments (2018)
• Mass Customization in Health Economics (2019)
• The Economics of Add-on Products (2020)
• The Economics of Religion (2021)
• Economics in times of COVID-19 (2022)
• Blockchain Economics (2023)
• Economics of Cyber Security (2024)