Risk and Punishment Revisited. Errors in Variables and in the Lab
21 Pages Posted: 13 Jul 2016
Date Written: July 2016
We provide an example for an errors in variables problem which might be often neglected but which is quite common in lab experimental practice: In one task, attitude towards risk is measured, in another task participants behave in a way that can possibly be explained by their risk attitude. How should we deal with inconsistent behaviour in the risk task? Ignoring these observations entails two biases: An errors in variables bias and a selection bias. We argue that inconsistent observations should be exploited to address the errors in variables problem, which can easily be done within a Bayesian framework.
Keywords: Risk, lab experiment, public good, errors in variables, Bayesian inference
JEL Classification: C91, D43, L41
Suggested Citation: Suggested Citation