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 journalArticleAcademicpeer-review

1 Citation (Scopus)
10 Downloads (Pure)

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 languageEnglish
Pages (from-to)1002-1023
Number of pages22
JournalExperimental Economics
Volume25
Issue number3
Early online date10 Jan 2022
DOIs
Publication statusPublished - 10 Jan 2022

Bibliographical note

JEL codes: C91 · D81

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.

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