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

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

Bibliographical note

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

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10.1007/s10683-021-09739-2

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Experimental elicitation of ambiguity attitude using the random incentive system

Abstract

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Keywords

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