In his research, he deals with a broad spectrum of theoretical and applied microeconomic and behavioral questions. The focus of his analysis is on economic decision-making: How do people behave in interdependent situations (game theory)? How can this behaviour be influenced by contracts, incentive mechanisms and organizational structures (contract theory)? And how do bounded rationality and reference-dependent preferences affect behaviour (behavioural and experimental economics)?

The results of this research have implications for the understanding of markets and institutions and for economic policy. Klaus Schmidt has conducted research on competition policy, industrial policy, climate policy, the financing of young firms and the design of auctions and other incentive mechanisms.

Klaus Schmidt has been awarded the Gossen Prize of the Verein für Socialpolitik and the Research Prize of the Berlin-Brandenburg Academy of Sciences, he is a fellow of the Econometric Society and the European Economic Association, he received an honorary doctorate from the University of Fribourg, the Prize for Good Teaching of the Free State of Bavaria and the Cross of Merit First Class of the Federal Republic of Germany. He is a member of the Berlin-Brandenburg Academy of Sciences.