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Strategic behavior in regressions: an experimental study

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  • Javier Perote
  • Juan Perote-Peña
  • Marc Vorsatz

Abstract

We study experimentally in the laboratory the situation when individuals have to report their private information about a (dependent) variable to a public authority that then makes inference about the true values given a known (independent) variable using a regression technique. It is assumed that individuals prefer this predicted value to be as close as possible to their true value (single-peaked preferences). Consistent with the theoretical literature, we show that subjects misrepresent their private information more when an ordinary least squares (OLS) regression is implemented than when the so-called resistant line (RL) estimator is employed. The latter extends the median voter theorem to the two-dimensional setting and belongs to the family of robust estimation techniques. In fact, we find that OLS involves serious biases but the RL estimation is empirically unbiased. Furthermore, subjects never earn less when the RL is applied. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Javier Perote & Juan Perote-Peña & Marc Vorsatz, 2015. "Strategic behavior in regressions: an experimental study," Theory and Decision, Springer, vol. 79(3), pages 517-546, November.
    • Handle: RePEc:kap:theord:v:79:y:2015:i:3:p:517-546
    DOI: 10.1007/s11238-014-9473-9
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    References listed on IDEAS

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    2. Nadezhda Gribkova & Ričardas Zitikis, 2018. "A User-Friendly Algorithm for Detecting the Influence of Background Risks on a Model," Risks, MDPI, vol. 6(3), pages 1-11, September.

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    More about this item

    Keywords

    Linear regression; Robust estimation; Laboratory experiment; Resistant line; Strategy-proofness; C10; C91; D70;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General

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