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Working paper 711

Aurelien Baillon, Yoram Halevy, Chen Li, "Experimental elicitation of ambiguity attitude using the random incentive system", 2021-11-14
Main Text (application/pdf) (481,817 bytes)

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.

Keywords: incentive compatibility, certainty equivalent, probability equivalents, broad bracketing, Ellsberg, BDM, choice list, MPL

JEL Classification: C81, C91, D81