Experimental elicitation of ambiguity attitude using the random incentive system

Aurélien Baillon; Yoram Halevy; Chen Li

doi:10.1007/s10683-021-09739-2

Experimental elicitation of ambiguity attitude using the random incentive system

Aurélien Baillon^*, Yoram Halevy, Chen Li

^*Corresponding author for this work

Department of Economics

Research output: Contribution to journal › Article › peer-review

5 Scopus citations

Abstract

We demonstrate how the standard usage of the random incentive system in ambiguity experiments eliciting certainty and probability equivalents might not be incentive compatible if the decision-maker is ambiguity averse. We propose a slight modification of the procedure in which the randomization takes place before decisions are made and the state is realized, and prove that if subjects evaluate the experimental environment in that way (first-risk, second-uncertainty), incentive compatibility may be restored.

Original language	American English
Pages (from-to)	1002-1023
Number of pages	22
Journal	Experimental Economics
Volume	25
Issue number	3
Early online date	10 Jan 2022
DOIs	https://doi.org/10.1007/s10683-021-09739-2
State	Published - Jun 2022

Bibliographical note

Funding Information:
The research of Baillon and Li was made possible by a Vidi grant and a Veni grant of the Dutch Organization for Scientific Research (NWO). First version: May 2013.

Publisher Copyright:
© 2021, The Author(s), under exclusive licence to Economic Science Association.

Keywords

Ambiguity aversion
C91
D81
Incentive compatibility
Integration vs Isolation
Non-expected utility
Reduction of compound lotteries

Access to Document

10.1007/s10683-021-09739-2

Cite this

@article{67ecd13fc3054b41b6578971f58a4373,

title = "Experimental elicitation of ambiguity attitude using the random incentive system",

abstract = "We demonstrate how the standard usage of the random incentive system in ambiguity experiments eliciting certainty and probability equivalents might not be incentive compatible if the decision-maker is ambiguity averse. We propose a slight modification of the procedure in which the randomization takes place before decisions are made and the state is realized, and prove that if subjects evaluate the experimental environment in that way (first-risk, second-uncertainty), incentive compatibility may be restored.",

keywords = "Ambiguity aversion, C91, D81, Incentive compatibility, Integration vs Isolation, Non-expected utility, Reduction of compound lotteries",

author = "Aur{\'e}lien Baillon and Yoram Halevy and Chen Li",

note = "Funding Information: The research of Baillon and Li was made possible by a Vidi grant and a Veni grant of the Dutch Organization for Scientific Research (NWO). First version: May 2013. Publisher Copyright: {\textcopyright} 2021, The Author(s), under exclusive licence to Economic Science Association.",

year = "2022",

month = jun,

doi = "10.1007/s10683-021-09739-2",

language = "American English",

volume = "25",

pages = "1002--1023",

journal = "Experimental Economics",

issn = "1386-4157",

publisher = "Springer New York",

number = "3",

}

TY - JOUR

T1 - Experimental elicitation of ambiguity attitude using the random incentive system

AU - Baillon, Aurélien

AU - Halevy, Yoram

AU - Li, Chen

N1 - Funding Information: The research of Baillon and Li was made possible by a Vidi grant and a Veni grant of the Dutch Organization for Scientific Research (NWO). First version: May 2013. Publisher Copyright: © 2021, The Author(s), under exclusive licence to Economic Science Association.

PY - 2022/6

Y1 - 2022/6

N2 - We demonstrate how the standard usage of the random incentive system in ambiguity experiments eliciting certainty and probability equivalents might not be incentive compatible if the decision-maker is ambiguity averse. We propose a slight modification of the procedure in which the randomization takes place before decisions are made and the state is realized, and prove that if subjects evaluate the experimental environment in that way (first-risk, second-uncertainty), incentive compatibility may be restored.

AB - We demonstrate how the standard usage of the random incentive system in ambiguity experiments eliciting certainty and probability equivalents might not be incentive compatible if the decision-maker is ambiguity averse. We propose a slight modification of the procedure in which the randomization takes place before decisions are made and the state is realized, and prove that if subjects evaluate the experimental environment in that way (first-risk, second-uncertainty), incentive compatibility may be restored.

KW - Ambiguity aversion

KW - C91

KW - D81

KW - Incentive compatibility

KW - Integration vs Isolation

KW - Non-expected utility

KW - Reduction of compound lotteries

UR - http://www.scopus.com/inward/record.url?scp=85122698277&partnerID=8YFLogxK

U2 - 10.1007/s10683-021-09739-2

DO - 10.1007/s10683-021-09739-2

M3 - Article

AN - SCOPUS:85122698277

SN - 1386-4157

VL - 25

SP - 1002

EP - 1023

JO - Experimental Economics

JF - Experimental Economics

IS - 3

ER -

Experimental elicitation of ambiguity attitude using the random incentive system

Abstract

Bibliographical note

Keywords

Access to Document

Other files and links

Fingerprint

Cite this