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Do monetary incentives and chained questions affect the validity of risk estimates elicited via the Exchangeability Method? An experimental investigation

  • Cerroni, Simone
  • Notaro, Sandra
  • Shaw, W. Douglass

Using a laboratory experiment, we investigate the validity of stated risks elicited via the Exchangeability Method (EM) using an evaluation method based on de Finetti’s notion of coherence, under which probability estimates are valid if and only if they obey all axioms of probability theory. The validity of risk estimates elicited through the EM has been theoretically questioned because the chained structure of the game is thought to potentially undermine the incentive compatibility of the elicitation mechanism even when real monetary incentives are provided. We investigate this by designing and implementing four experimental treatments. Respondents are divided in two initial treatment groups: in the first, they are provided with real monetary incentives, and in the second, subjects are not. Each group is further sub-divided in two treatment groups, in the first, the chained structure of the experimental design made quite clear to the subjects, while, in the second, the chained structure is hidden by resorting the elicitation questions. The superiority of real monetary incentives is not evident when people are presented with chained experimental design.

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File URL: http://purl.umn.edu/125468
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Paper provided by International Association of Agricultural Economists in its series 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil with number 125468.

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Date of creation: Jun 2012
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Handle: RePEc:ags:iaae12:125468
Contact details of provider: Web page: http://www.iaae-agecon.org/
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  1. Harrison, Glenn W., 1986. "An experimental test for risk aversion," Economics Letters, Elsevier, vol. 21(1), pages 7-11.
  2. Glenn W Harrison & John A List & Charles Towe, 2007. "Naturally Occurring Preferences and Exogenous Laboratory Experiments: A Case Study of Risk Aversion," Econometrica, Econometric Society, vol. 75(2), pages 433-458, 03.
  3. Glenn Harrison & John List, 2004. "Field experiments," Artefactual Field Experiments 00058, The Field Experiments Website.
  4. W. Douglass Shaw & Paul M. Jakus & Mary Riddel, 2012. "Perceived Arsenic-Related Mortality Risks For Smokers And Non-Smokers," Contemporary Economic Policy, Western Economic Association International, vol. 30(3), pages 417-429, 07.
  5. Jakus, Paul M. & Shaw, W. Douglass & Nguyen, To N. & Walker, Mark, 2009. "Risk Perceptions of Arsenic in Tap Water and Consumption of Bottled Water," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49221, Agricultural and Applied Economics Association.
  6. Theo Offerman & Joep Sonnemans & Gijs Van De Kuilen & Peter P. Wakker, 2009. "A Truth Serum for Non-Bayesians: Correcting Proper Scoring Rules for Risk Attitudes ," Review of Economic Studies, Oxford University Press, vol. 76(4), pages 1461-1489.
  7. Steffen Andersen & John Fountain & Glenn W. Harrison & E. Elisabet Rutström, 2010. "Estimating Subjective Probabilities," Experimental Economics Center Working Paper Series 2010-08, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
  8. Fiore, Stephen M. & Harrison, Glenn W. & Hughes, Charles E. & Rutstrm, E. Elisabet, 2009. "Virtual experiments and environmental policy," Journal of Environmental Economics and Management, Elsevier, vol. 57(1), pages 65-86, January.
  9. Justin Baker & W. Douglass Shaw & Mary Riddel & Richard T. Woodward, 2009. "Changes in subjective risks of hurricanes as time passes: analysis of a sample of Katrina evacuees," Journal of Risk Research, Taylor & Francis Journals, vol. 12(1), pages 59-74, January.
  10. Machina,Mark & Schmeidler,David, 1991. "A more robust definition of subjective probability," Discussion Paper Serie A 365, University of Bonn, Germany.
  11. Chew Soo Hong & Jacob S. Sagi, 2006. "Event Exchangeability: Probabilistic Sophistication Without Continuity or Monotonicity," Econometrica, Econometric Society, vol. 74(3), pages 771-786, 05.
  12. Riddel, Mary C. & Shaw, W. Douglass, 2006. "A Theoretically-Consistent Empirical Non-Expected Utility Model of Ambiguity: Nuclear Waste Mortality Risk and Yucca Mountain," Pre-Prints 23964, Texas A&M University, Department of Agricultural Economics.
  13. Mohammed Abdellaoui & Aurelien Baillon & Laetitia Placido & Peter P. Wakker, 2011. "The Rich Domain of Uncertainty: Source Functions and Their Experimental Implementation," American Economic Review, American Economic Association, vol. 101(2), pages 695-723, April.
  14. Andersen, Steffen & Fountain, John & Harrison, Glenn W. & Rutström, Elisabet E., 2009. "Estmating Aversion to Uncertainty," Working Papers 07-2009, Copenhagen Business School, Department of Economics.
  15. repec:feb:artefa:0090 is not listed on IDEAS
  16. Cerroni, Simone & Shaw, W. Douglass, 2012. "Does climate change information affect stated risks of pine beetle impacts on forests? An application of the exchangeability method," Forest Policy and Economics, Elsevier, vol. 22(C), pages 72-84.
  17. Viscusi, W Kip, 1990. "Do Smokers Underestimate Risks?," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1253-69, December.
  18. Carl S. Spetzler & Carl-Axel S. Staël Von Holstein, 1975. "Exceptional Paper--Probability Encoding in Decision Analysis," Management Science, INFORMS, vol. 22(3), pages 340-358, November.
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