Experimental elicitation of ambiguity attitude using the random incentive system

Aurélien Baillon*, Yoram Halevy, Chen Li

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

6 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 languageAmerican English
Pages (from-to)1002-1023
Number of pages22
JournalExperimental Economics
Volume25
Issue number3
DOIs
StatePublished - 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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