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Belief Elicitation in Experiments: Is there a Hedging Problem?

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Author Info
Blanco, Mariana () (Royal Holloway, University of London)
Engelmann, Dirk () (Royal Holloway, University of London)
Koch, Alexander K. () (University of Aarhus)
Normann, Hans-Theo () (Royal Holloway, University of London)

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Abstract

Belief elicitation in economics experiments usually relies on paying subjects according to the accuracy of stated beliefs in addition to payments for other decisions. Such incentives, however, allow risk-averse subjects to hedge with their stated beliefs against adverse outcomes of other decisions in the experiment. This raises two questions: (i) can we trust the existing belief elicitation results, (ii) can we avoid potential hedging confounds? Our results instill confidence regarding both issues. We propose an experimental design that eliminates hedging opportunities, and use this to test for the empirical relevance of hedging effects in the lab. We find no evidence for hedging, comparing the standard “hedging-prone” belief elicitation treatment to a “hedging-proof” design in a sequential prisoners’ dilemma game. Our findings are strengthened by the absence of hedging even in an additional non-belief elicitation treatment using a financial investment frame, where hedging arguably would be most natural.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3517.

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Length: 32 pages
Date of creation: May 2008
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Handle: RePEc:iza:izadps:dp3517

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Related research
Keywords: belief elicitation; hedging; methods; experimental economics;

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alexander K. Koch & Albrecht Morgenstern & Philippe Raab, 2009. "Career concerns incentives: An experimental test," Economics Working Papers 2009-01, School of Economics and Management, University of Aarhus. [Downloadable!]
  2. Simon Gaechter & Daniele Nosenzo & Elke Renner & Martin Sefton, 2009. "Who Makes a Good Leader? Social Preferences and Leading-by-Example," Levine's Working Paper Archive 814577000000000099, David K. Levine. [Downloadable!]
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