Belief elicitation in experiments: Is there a hedging problem?

Mariana Blanco, Dirk Engelmann, Alexander K. Koch, Hans Theo Normann

Research output: Contribution to journalArticlepeer-review

110 Scopus citations

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 unless hedging opportunities are very prominent. 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 and best respond to this.

Original languageEnglish (US)
Pages (from-to)412-438
Number of pages27
JournalExperimental Economics
Volume13
Issue number4
DOIs
StatePublished - Dec 2010

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance (miscellaneous)

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