Belief Elicitation in Experiments: Is there a Hedging Problem?

Mariana Blanco, Dirk Engelmann, Alexander Koch and Hans-Theo Normann

No 3517, IZA Discussion Papers from Institute of Labor Economics (IZA)

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: methods; hedging; belief elicitation; experimental economics (search for similar items in EconPapers)
JEL-codes: C72 C90 G11 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2008-05
New Economics Papers: this item is included in nep-exp and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42)

Published - published in: Experimental Economics , 2010, 13 (4), 412-438.

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