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Experimental elicitation of ambiguity attitude using the random incentive system

Published online by Cambridge University Press:  14 March 2025

Aurélien Baillon Open the ORCID record for Aurélien Baillon [Opens in a new window] ,
Yoram Halevy Open the ORCID record for Yoram Halevy [Opens in a new window]  and
Chen Li Open the ORCID record for Chen Li [Opens in a new window]
Aurélien Baillon*
Affiliation:
Erasmus School of Economics, Erasmus University Rotterdam, P.O. Box 1738, 3000DR Rotterdam, The Netherlands
Yoram Halevy*
Affiliation:
Department of Economics, University of Toronto. Max Gluskin House, University of Toronto, 150 St. George St., Toronto, Ontario M5S 3G7, Canada Department of Economics, Hebrew University of Jerusalem, Mt. Scopus, Jerusalem 9190501, Israel
Chen Li*
Affiliation:
Erasmus School of Economics, Erasmus University Rotterdam, P.O. Box 1738, 3000DR Rotterdam, The Netherlands
*
[email protected], url: http://aurelienbaillon.com
[email protected] https://uoft.me/yoramhalevy
[email protected] http://goo.gl/unzb6H
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Abstract

We demonstrate how the standard usage of the random incentive system in ambiguity experiments eliciting certainty and probability equivalents might not be incentive compatible if the decision-maker is ambiguity averse. We propose a slight modification of the procedure in which the randomization takes place before decisions are made and the state is realized, and prove that if subjects evaluate the experimental environment in that way (first-risk, second-uncertainty), incentive compatibility may be restored.

Keywords

Incentive compatibilityIntegration vs IsolationAmbiguity aversionNon-expected utilityReduction of compound lotteriesC91D81
Type
Original Paper
Information
Experimental Economics , Volume 25 , Issue 3 , June 2022 , pp. 1002 - 1023
Copyright
Copyright © The Author(s), under exclusive licence to Economic Science Association 2021

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Footnotes

Electronic supplementary material The online version of this article (https://doi.org/10.1007/s10683-021-09739-2) contains supplementary material, which is available to authorized users.

The research of Baillon and Li was made possible by a Vidi grant and a Veni grant of the Dutch Organization for Scientific Research (NWO). First version: May 2013.

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