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Belief elicitation in experiments: is there a hedging problem?

Published online by Cambridge University Press:  14 March 2025

Mariana Blanco ,
Dirk Engelmann ,
Alexander K. Koch  and
Hans-Theo Normann
Mariana Blanco*
Affiliation:
Economics Department, Universidad del Rosario, Calle 14 No. 4-80, Bogotá, Colombia
Dirk Engelmann*
Affiliation:
Department of Economics, University of Mannheim, L7, 3-5, 68131 Mannheim, Germany Centre for Experimental Economics, University of Copenhagen, Copenhagen, Denmark Economics Institute of the Academy of Sciences of the Czech Republic, Prague, Czech Republic
Alexander K. Koch*
Affiliation:
School of Economics and Management, Aarhus University, Building 1322, 8000 Aarhus C, Denmark
Hans-Theo Normann*
Affiliation:
Düsseldorf Institute for Competition Economics (DICE), Düsseldorf University, 40225 Düsseldorf, Germany Max-Planck Institute for Research on Collective Goods, Bonn, Germany
*
e-mail: mariana.blanco@urosario.edu.co
e-mail: dirk.engelmann@uni-mannheim.de
e-mail: akoch@econ.au.dk
e-mail: normann@dice.uni-duesseldorf.de
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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.

Keywords

Belief elicitationHedgingExperimental economicsExperimental methodology

JEL classification

C90: General C72: Noncooperative Games

Information

Type
Research Article
Information
Experimental Economics , Volume 13 , Issue 4 , December 2010 , pp. 412 - 438
Copyright
Copyright © Economic Science Association 2010

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Footnotes

Electronic supplementary material The online version of this article (doi: 10.1007/s10683-010-9249-1) contains supplementary material, which is available to authorized users.

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