Department of Economics and Business Economics

Belief elicitation in experiments: Is there a hedging problem?

Research output: Contribution to journal/Conference contribution in journal/Contribution to newspaperJournal articleResearchpeer-review

  • Mariana Blanco, El Rosario University, Colombia
  • Dirk Engelmann, Royal Holloway, University of London, United Kingdom
  • Alexander Koch
  • Hans-Theo Normann, Duesseldorf University, Germany
  • School of Economics and Management
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
JournalExperimental Economics
Volume13
Issue4
Pages (from-to)412–438
ISSN1386-4157
DOIs
Publication statusPublished - 2010

    Research areas

  • Belief Elicitation, Hedging, Experimental economics, Experimental methodology

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