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Noise and bias in eliciting preferences

  • John Hey

    ()

  • Andrea Morone
  • Ulrich Schmidt

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 magnitudes of these two effects. We examine four different elicitation mechanisms (pairwise choice, willingness-to-pay, willingness-to-accept, and certainty equivalents) and estimate both effects. 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 the bias in better-known and more widely-used techniques.

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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
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100299

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