Andreas Hefti, PhD
Andreas is Professor of Economics at the School of Management and Law, Zurich University of Applied Sciences, Senior Scientist at the Economics Department, University of Zurich, and a seasonal Guest Professor at the Economics Department, University of Basel.
His research centers on Microeconomics in general, with a particular focus on Behavioral Economics, Information Economics and Applied Game Theory.
The following provides an overview of some of my current and beloved research projects
Competitive Attention, Superstars and the Long Tail
We study a model of competitive attention building on two premises: People have limited information processing capacities, and consideration sets are formed in accordance with Steven's Law of Perception and competitive forces. The equilibrium predictions we obtain can help to understand, and connect, diverse empirical phenomena, such as the Paradox of Choices, the Power Law dispersions of key market data (such as online clicks, sales or profits), the relation between advertising expenditures and market shares, an increasing market dominance of ``Superstars'', or why a ``Long Tail effect'' may not occur.
It is not all about Agent Heterogeneity: On the Determinants of Market Inequality
Understanding the driving forces of market inequality is a core task. This paper seeks to study if and how changing market conditions influence equilibrium market inequality between ex ante heterogeneous agents that are engaged in some form of competition. By representing the model as a competition for market shares we derive a set of results that yield a tractable inequality analysis and help to identify structural connections between different competition models
that allow for a unified treatment.
We apply our results to competition theory, trade, consumption and income inequality, political economics and marketing, and connect some of the predicted inequality effects to empirical evidence.
Mental capabilities, heterogeneous trading patterns and performance in an experimental asset market
We develop a framework of mental capabilities and economic behavior, and apply it to an asset market setting. The model predicts heterogeneous trading behavior as a consequence of two distinct mental capabilities: analytical skills and mentalizing, where the former involves quantitative, objective aspects of a decision problem, and the latter an assessment of others' behavior and intentions. Individual differences in these capabilities induce specific trading patterns and performances, despite symmetric information of all decision-makers. The most successful traders are strong in both capabilities, while the general relation between success and mental capabilities is non-monotone, with the mentalizing capability being responsible for the highest gains and highest losses, respectively. The experimental data supports the theoretical predictions.
Igniting Deliberation to reduce Misperceptions: A Field Study
We conduct a large-scale randomized field experiment with 42,454 Chinese households in a rural area to study whether providing information about the relevant usage costs of expensive durable goods -- air-conditioners -- can improve the quality of the choices made. Besides providing information about the opportunity costs of less energy efficient products at nominal face value, we implement two additional treatments, where we either present the same information in terms of real opportunity costs, or by administering the information via a quiz to ignite deliberation. We find that providing cost information substantially affects the choices made, and reduces the decision mistakes, in particular in the two additional treatments.
Leading with the Successful? Performance Visibility and the Evolution of Risk Taking
"Leading with the Succesful" is a common peer stratgey implemented to improve the performance of team members by fostering (social) learning from the successful. But what if success actually is due sheer luck? We show with an experiment that people have a strong tendency to imitate the successful even in such circumstances, which induces individuals (and teams) to substantially increase their risk taking. Our study thus highlights a certain peril of such leadership strategies in risky environments.
Market Transparency and Competitiveness in a Multi-Unit Auction: An experimental Study
Does a more transparent market lead to more competitive outcomes? We study this question with an experimental seller-side multi-unit auction inspired by electricity markets. The experiment is designed to include the different forms of market power that can arise in multi-unit auctions, as well as a changing level of competition.
Our treatment variable is market transparency, where the information that is commonly available to sellers either about market demand or about other sellers' costs may change. We find that a fully transparent market does not induce a more competitive outcome. On the contrary, limited information about other sellers leads to strictly lower average prices without negatively affecting the allocative efficiency of the auction. We explain this and other findings with a behavioral variant of supply function competition, where individual sellers act as if competing against the average market situation
Preferences, Confusion and Competition
Existing literature has argued that firms benefit from confusing consumers of homogeneous goods by being deliberately vague about their product and thereby impeding comparisons. This paper shows that this insight generally breaks down with differentiated goods and heterogeneous preferences: With polarized taste distributions, firms fully educate consumers. In cases where firms nevertheless confuse consumers, the welfare consequences are worse than for homogeneous goods, as consumers choose dominated options. Similar insights obtain for political contests, in which candidates compete for voters with heterogeneous preferences: Parties choose ambiguous platforms only when preferences are ``indecisive'', featuring a concentration of indifferent voters.