Belief Elicitation in Experiments: Is There a Hedging Problem?

36 Pages Posted: 23 Feb 2010

See all articles by Mariana Blanco

Mariana Blanco

Universidad del Rosario

Dirk Engelmann

University of London - Royal Holloway - Department of Economics

Hans-Theo Normann

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

Alexander K. Koch

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

Multiple version iconThere are 2 versions of this paper

Date Written: February 5, 2010

Abstract

Belief-elicitation experiments usually reward accuracy of stated beliefs in addition to payments for other decisions. But this allows risk-averse subjects to hedge with their stated beliefs against adverse outcomes of the other decisions. So can we trust the existing belief-elicitation results? And can we avoid potential hedging confounds? We propose an experimental design that theoretically eliminates hedging opportunities. Using this design we test for the empirical relevance of hedging effects in the lab. Our results suggest that hedging confounds are not a major problem if hedging opportunities are not very prominent. But if hedging opportunities are transparent, and incentives to hedge are strong, many subjects do spot hedging opportunities and respond to them. The bias can go beyond players actually hedging themselves, because some expect others to hedge best respond to this.

Keywords: Belief Elicitation, Hedging, Experimental Methodology, Experimental Economics

JEL Classification: C72, C90

Suggested Citation

Blanco, Mariana and Engelmann, Dirk and Normann, Hans-Theo and Koch, Alexander K., Belief Elicitation in Experiments: Is There a Hedging Problem? (February 5, 2010). Available at SSRN: https://ssrn.com/abstract=1557803 or http://dx.doi.org/10.2139/ssrn.1557803

Mariana Blanco

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

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

Alexander K. Koch (Contact Author)

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

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