Belief Elicitation in Experiments: Is There a Hedging Problem?

32 Pages Posted: 5 Jun 2008

See all articles by Mariana Blanco

Mariana Blanco

Universidad del Rosario

Dirk Engelmann

University of London - Royal Holloway - Department of Economics

Alexander K. Koch

University of Aarhus - Department of Economics and Business Economics; IZA Institute of Labor Economics

Hans-Theo Normann

Heinrich Heine University Dusseldorf - Department of Economics; Max Planck Institute for Research on Collective Goods

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Date Written: May 2008

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.

Keywords: belief elicitation, hedging, methods, experimental economics

JEL Classification: C72, C90, G11

Suggested Citation

Blanco, Mariana and Engelmann, Dirk and Koch, Alexander K. and Normann, Hans-Theo, Belief Elicitation in Experiments: Is There a Hedging Problem? (May 2008). IZA Discussion Paper No. 3517, Available at SSRN: https://ssrn.com/abstract=1139907 or http://dx.doi.org/10.1111/j.0042-7092.2007.00700.x

Mariana Blanco (Contact Author)

Universidad del Rosario ( email )

Bogota
Colombia

HOME PAGE: http://mbnet26.googlepages.com/home

Dirk Engelmann

University of London - Royal Holloway - Department of Economics ( email )

Egham, TW20 0EX
United Kingdom

Alexander K. Koch

University of Aarhus - Department of Economics and Business Economics ( email )

Fuglesangs Allé 4
Aarhus V, 8210
Denmark

HOME PAGE: http://https://sites.google.com/site/alexanderkkoch/Home

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Hans-Theo Normann

Heinrich Heine University Dusseldorf - Department of Economics ( email )

Duesseldorf
Germany

Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany

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