Randomization Devices and the Elicitation of Ambiguity Averse Preferences
Economics
| Speaker: | Sophie Bade, Max Planck Institute for Collective Goods |
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| Date: | Friday 14 December 2012 |
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| Time: | 16.15 |
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| Location: | Matrix Lecture Theatre, Building One |
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Further details
Random Incentive (RI) mechanisms are widely used to obtain the responses of
experimental subjects from a large variety of choice sets. Subjects are paid only
according to one choice problem that is randomly selected after the subjects have
reported their choices for all problems. If subjects choices in the separate problems
are identical to their choices in the RI-mechanism at large, then the RI-mechanism
satis es isolation. When agents are expected utility maximizers, isolation holds if
and only if independent randomization devices select which problem leads to actual
payment. This paper investigates whether the RI-mechanisms that have been used
in the literature to elicit ambiguity averse preferences satisfy isolation and thereby
uncover true preferences. I show that subjects can use the randomization device of
an RI-mechanism as a hedging device, which will contaminate the data. Under suf-
ciently strong independence conditions RI-mechanisms will satisfy isolation. But
these conditions are so stringent that the randomization device can no longer be
mutually independent of the preexisting uncertainty facing the agent.
