Centre for Experimental Economics
Context Matters
Wenting Zhou and John Hey
Abstract
Eliciting the level of risk aversion of experimental subjects is a crucial concern to experimenters. In the literature there are a variety of methods used for such elicitation; the concern of the experiment reported in this paper is to compare them. The methods we investigate are the following: Holt-Laury price lists; pairwise choices, the Becker-DeGroot-Marschak method; allocation questions. Clearly their relative efficiency in measuring risk aversion depends upon the numbers of questions asked; but the method itself may well influence the elicited risk-aversion. Clearly it is impossible to determine a ‘best’ method (as the truth is unknown) but we can look at the differences between the different methods. We carried out an experiment in four parts, corresponding to the four different methods, with 96 subjects. In analysing the data our methodology involves fitting preference functionals; we use four, both Expected Utility and Rank-Dependent Expected Utility each combined with either a CRRA or a CARA utility function. Our results show that the inferred level of risk aversion is more sensitive to the elicitation method than to the assumed-true preference functional. Experimenters should worry most about context.
The problem sets
Problem Sets (MS Word 
, 101kb)
The econometric software
This contains the matlab programs that were used in the estimation.
The experimental software
Experimental Software (zip 
, 41kb)
The Instructions
Instructions (MS Word , 300kb)
Data from experiment
This is the data (zip , 100kb) from the experiment. It also contains a guide to how to read it.
Results
The full sets of Scatters (zip , 1,229kb) across preference functionals and elicitation methods.
Ambiguity: its impact on society; how people perceive and respond to it
Xueting Yang and John Hey
This study is designed to explore whether and how the perception of ambiguity plays a role in workers’ decision-making when they face a choice between two types of payment schemes: an uncertain income (which depends upon their work performance) and a fixed income, and whether such uncertain payment schemes influence workers’ performance. Unlike previous studies that have tested existing theories of decision-making under ambiguity, or have generated new experimental methods for eliciting ambiguity attitudes, our research focuses on the application of ambiguity in the labour market. We implemented a real-effort laboratory experiment consisting of two stages. In addition to applying allocation methods to elicit risk and ambiguity attitudes, subjects were invited to do real work. Before working, subjects need to decide the relative reward from uncertain income and the fixed income. Their payments were determined by their allocation choices and their work performance. The ambiguity was implemented through the uncertain difficulty of solving puzzles, and subjects may have felt ambiguity about the number of puzzles they can solve correctly. We applied the model to estimate the parameters of risk and ambiguity, and then inferred subjects’ assessment of the number of puzzles that they feel that they can solve correctly from their choices of payment schemes. This enables us to see how they perceive ambiguity.