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Noise and bias in eliciting preferences

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  • John Hey

    ()

  • Andrea Morone
  • Ulrich Schmidt

Abstract

In the context of eliciting preferences for decision making under risk, we ask the question: "which might be the 'best' method for eliciting such preferences?". It is well known that different methods differ in terms of the bias in the elicitation; it is rather less well-known that different methods differ in terms of their noisiness. The optimal trade-off depends upon the relative magnitutdes of these two effects. We examine four different elicitation mechanisms (pairwise choice, willingness-to-pay, willingness-to-accept, and certainty equivalents) and estimate both effect. Our results suggest that economists might be better advised to use what appears to be a relatively inefficient elicitation technique (i.e. pairwise choice) in order to avoid trhe bias in better-known and more widely-used techniques.

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Bibliographic Info

Article provided by Springer in its journal Journal of Risk and Uncertainty.

Volume (Year): 39 (2009)
Issue (Month): 3 (December)
Pages: 213-235

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Handle: RePEc:kap:jrisku:v:39:y:2009:i:3:p:213-235

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Web page: http://www.springerlink.com/link.asp?id=100299

Related research

Keywords: Pairwise choice; Willingness-to-pay; Willingness-to-accept; BDM mechanism; Errors; Noise; Biases; JEL classifications ; C91; C81;

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References

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Citations

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Cited by:
  1. Kimberly Rollins & Mimako Kobayashi, 2010. "Embedding a Field Experiment in Contingent Valuation to Measure Context-Dependent Risk Preferences: Does Prospect Theory Explain Individual Responses for Wildfire Risk?," Working Papers 10-003, University of Nevada, Reno, Department of Economics & University of Nevada, Reno , Department of Resource Economics.
  2. W. Viscusi & Owen Phillips & Stephan Kroll, 2011. "Risky investment decisions: How are individuals influenced by their groups?," Journal of Risk and Uncertainty, Springer, vol. 43(2), pages 81-106, October.
  3. Lisa Anderson & Jennifer Mellor, 2009. "Are risk preferences stable? Comparing an experimental measure with a validated survey-based measure," Journal of Risk and Uncertainty, Springer, vol. 39(2), pages 137-160, October.
  4. Morone, Andrea & Morone, Piergiuseppe, 2012. "Are small groups expected utility?," MPRA Paper 38198, University Library of Munich, Germany.
  5. Francisco Galarza, 2009. "Choices under risk in rural peru," Artefactual Field Experiments 00047, The Field Experiments Website.
  6. Miller, Nolan & Wagner, Alexander F. & Zeckhauser, Richard J., 2012. "Solomonic Separation: Risk Decisions as Productivity Indicators," Working Paper Series rwp12-057, Harvard University, John F. Kennedy School of Government.
  7. Kontek, Krzysztof, 2010. "Classifying Behaviors in Risky Choices," MPRA Paper 23845, University Library of Munich, Germany.
  8. Kontek, Krzysztof, 2010. "Multi-Outcome Lotteries: Prospect Theory vs. Relative Utility," MPRA Paper 22947, University Library of Munich, Germany.
  9. Morone, Andrea & Ozdemir, Ozlem, 2012. "Black swan protection: an experimental investigation," MPRA Paper 38842, University Library of Munich, Germany.
  10. Uwe Dulleck & Jacob Fell & Jonas Fooken, 2011. "Within-subject Intra- and Inter-method consistency of two experimental risk attitude elicitation," NCER Working Paper Series 74, National Centre for Econometric Research.
  11. Annamaria Fiore & M. Vittoria Levati & Andrea Morone, 2006. "Voluntary contributions with imperfect information: An experimental study," Papers on Strategic Interaction 2006-30, Max Planck Institute of Economics, Strategic Interaction Group.
  12. Attema, Arthur & Brouwer, Werner, 2012. "Deriving time discounting correction factors for TTO tariffs," MPRA Paper 37002, University Library of Munich, Germany.
  13. Meroz, Yael & Morone, Andrea & Morone, Piergiuseppe, 2009. "Eliciting environmental preferences of Ghanaians in the laboratory: An incentive-compatible experiment," MPRA Paper 17107, University Library of Munich, Germany.
  14. Rollins, Kimberly S. & Kobayashi, Mimako, 2010. "Embedding a Field Experiment in Contingent Valuation to Measure Context-Dependent Risk Preferences: An Application to Wildfire Risk," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61870, Agricultural and Applied Economics Association.

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