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Noise and Bias in Eliciting Preferences

  • John D. 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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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1386.

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Length: 31 pages
Date of creation: Nov 2007
Date of revision:
Handle: RePEc:kie:kieliw:1386
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