Behavioral Economics and Business Ethics

This research unit investigates the influence of institutions such as values, standards, rules and laws on the state, society, business and individuals.

Its work is a response to the fact that psychological and institutional influences are still neglected by many economists, with a consequent weakening of the explanatory power of economic models. The IW scientists point to the basis of economic policy in political structures and link their work to behavioural economics, thus taking account of psychological and sociological factors. Additionally, the researchers make use of the insights of modern institutional economics, which focuses on the costs of contract negotiations and processes (transaction costs) and the importance of incentives for human behaviour. On the basis of these interdisciplinary theoretical approaches, our economists then develop analyses and practical policy recommendations relating particularly to the ethical dilemmas of companies and commerce.

Sections of the Research Unit

  • Behavioral Economics: The researchers integrate psychological insights into economic theory and provide a better understanding of real human behaviour. Thus, behavioural anomalies are identified based on which suggestions for better decision making of individuals, corporations and politics are provided.
  • Business Ethics: The researchers address conflicts of interest, especially between economic and moral/economic/societal aims. Reasons and accelerators for immoral behaviour are identified and organizational as well as political structures suggested to dissolve the conflicts in favour of a more integral view of profit, people and planet.

Findings and Positions

  • "Bounded Rationality": Neoclassical theory – and hence much of contemporary research and policies – is based on the assumption of humans being fully rational. This assumption is increasingly challenged by concepts of “Bounded Rationality” which have important implications for human behaviour. The heuristics and biases people experience in their decisions (also ethical ones) need to be respected in the design of political measures.
  • Behavioral Engineering – "Nudging": Political measures aim to drive peoples’ behaviour in a way that increases society’s welfare (e.g. private savings). Integrating psychological insights into the design of these measures increases their effectivity and efficiency. It is one recommendable way to reach “Better Regulation” instead of more regulation. However, a profound democratic debate and position about its legitimacy is still missing.
  • Corporate Responsibility: Corporations do have a responsibility for all their stakeholders. However, corporate responsibility should be voluntarily. Regulations can undermine this engagement and lead to Green Washing. Corporations are well advised to engage in long-term strategies to secure their licence to operate.
  • Life Satisfaction and Happiness: Economic welfare is only one factor that makes up for peoples’ well-being. Additional factors such as working conditions, social capital, health or political freedom influence the perceived quality of life. The interest in happiness-enhancing factors is increasing and new indicators for societal well-being are suggested ("Beyond GDP"). They need to be included into political and corporate agendas in order to increase overall welfare.
  • Regulatory Policy: Economic freedom within a set of strong governance rules enhances economic and societal welfare. Institutional quality is essential for shaping economic and societal development. Transparency and efficiency are to be strived for. With regard to government intervention into economic processes, the ordoliberal principles should be respected to secure an appropriate amount of freedom while avoiding power concentration and an unacceptable degree of inequality.
  • Trust: Social capital is the basis for economic interaction and social cohesion. An increasing anonymity challenges interpersonal trust and the trust in companies and politics. Politics need to design the interface of institutions and citizens in a trust creating way (linking) and enhance the integration of homogenous groups (bridging). Companies urgently need to invest in reputation.

 

    Cooperative Partners

    • Technische Köln – Schmalenbach Institut für Wirtschaftswissenschaften
    • Universität zu Köln – Institut für Wirtschafts- und Sozialpsychologie
    • Universität Wien – Institut für Arbeits-, Organisations- und Wirtschaftspsychologie
    • Universität Linz – Institut für Volkswirtschaftslehre
    • Die Zukunft der Arbeit – Roman Herzog Institut
    • Max-Planck-Institut für Gesellschaftsforschung
    • Katholische Akademie in Berlin
    • Evangelische Akademie zu Berlin
    • Bund Katholischer Unternehmer
    • Arbeitskreis Evangelischer Unternehmer in Deutschland
    • Deutsches Netzwerk Wirtschaftsethik

    Contact

    Dominik H. Enste

    Dominik H. Enste

    Head of the Research Unit Behavioral Economics and Business Ethics

    Tel+49 221 4981-730

    Mailenste@iwkoeln.de

    @DominikEnste

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    Mara Grunewald

    Economist for Institutional and Behavioural Economics

    Tel+49 221 4981-761

    Mailgrunewald@iwkoeln.de

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    Anja Katrin Orth

    Economist

    Tel+49 221 4981-240

    MailOrth@iwkoeln.de

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