Prince: An Improved Method for Measuring Incentivized Preferences

43 Pages Posted: 4 Oct 2014 Last revised: 16 Apr 2015

Cathleen A. Johnson

University of Arizona, Philosophy, Politics, Economics and Law Program; Center for Interuniversity Research and Analysis on Organization (CIRANO)

Aurelien Baillon

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Han Bleichrodt

Erasmus University Rotterdam (EUR) - Institute of Health Policy and Management

Zhihua Li

University of Warwick - Warwick Business School

Dennie van Dolder

Nottingham School of Economics - University of Nottingham

Peter P. Wakker

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Date Written: April 16, 2015

Abstract

This paper introduces the Prince incentive system for measuring preferences. Prince clarifies consequences of decisions and incentive compatibility of experimental choice questions to subjects. It combines the efficiency and precision of matching with the improved clarity and validity of choice questions. It helps distinguish between (a) genuine deviations from classical economic theories (such as the endowment effect) and (b) preference anomalies due to fallible measurements (such as preference reversals). Prince avoids the opaqueness in Becker-DeGroot Marschak and strategic behavior in adaptive experiments. It helps reducing violations of isolation in the random incentive system. Using Prince we shed new light on willingness to accept and the major components of decision making under uncertainty: utilities, subjective beliefs, and ambiguity attitudes.

Keywords: incentive compatibility, random incentive system, BDM, choice list, matching

JEL Classification: C91, D81

Suggested Citation

Johnson, Cathleen A. and Baillon, Aurelien and Bleichrodt, Han and Li, Zhihua and van Dolder, Dennie and Wakker, Peter P., Prince: An Improved Method for Measuring Incentivized Preferences (April 16, 2015). Available at SSRN: https://ssrn.com/abstract=2504745 or http://dx.doi.org/10.2139/ssrn.2504745

Cathleen Amanda Johnson

University of Arizona, Philosophy, Politics, Economics and Law Program ( email )

Social and Behavioral Sciences
Tucson, AZ 85721-0108
United States

Center for Interuniversity Research and Analysis on Organization (CIRANO)

Montreal, Quebec H3C 3J7
Canada

Aurelien Baillon

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Han Bleichrodt

Erasmus University Rotterdam (EUR) - Institute of Health Policy and Management ( email )

Netherlands

Zhihua Li

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

Dennie Van Dolder

Nottingham School of Economics - University of Nottingham ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

Peter P. Wakker (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

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