Belief elicitation in experiments: Is there a hedging problem? Academic Article

abstract

  • Belief-elicitation experiments usually reward accuracy of stated beliefs in addition to payments for other decisions. But this allows risk-averse subjects to hedge with their stated beliefs against adverse outcomes of the other decisions. So can we trust the existing belief-elicitation results? And can we avoid potential hedging confounds? We propose an experimental design that theoretically eliminates hedging opportunities. Using this design, we test for the empirical relevance of hedging effects in the lab. Our results suggest that hedging confounds are not a major problem unless hedging opportunities are very prominent. If hedging opportunities are transparent, and incentives to hedge are strong, many subjects do spot hedging opportunities and respond to them. The bias can go beyond players actually hedging themselves, because some expect others to hedge and best respond to this. © 2010 Economic Science Association.

publication date

  • 2010/12/1

keywords

  • Experiment
  • Experimental design
  • Hedge
  • Hedging
  • Incentives
  • Payment
  • Reward
  • Risk-averse

International Standard Serial Number (ISSN)

  • 1386-4157

number of pages

  • 27

start page

  • 412

end page

  • 438