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Experimental Elicitation of Ambiguity Attitude using the Random Incentive System

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  • Baillon, Aurélien
  • Halevy, Yoram
  • Li, Chen

Abstract

We demonstrate how the standard usage of the random incentive system in ambiguity experiments is not 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.

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  • Baillon, Aurélien & Halevy, Yoram & Li, Chen, 2014. "Experimental Elicitation of Ambiguity Attitude using the Random Incentive System," Microeconomics.ca working papers yoram_halevy-2014-26, Vancouver School of Economics, revised 21 Jul 2015.
    • Handle: RePEc:ubc:pmicro:yoram_halevy-2014-26
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    File URL: http://faculty.arts.ubc.ca/yhalevy/RIS_Ambiguity.pdf
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    Keywords

    Uncertianty; Design of Experiments;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments

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