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The ABC mechanism: an incentive compatible payoff mechanism for elicitation of outcome and probability transformations
Experimental Economics ( IF 2.387 ) Pub Date : 2020-11-03 , DOI: 10.1007/s10683-020-09688-2
Yi Li

When it comes to experiments with multiple-round decisions under risk, the current payoff mechanisms are incentive compatible with either outcome weighting theories or probability weighting theories, but not both. In this paper, I introduce a new payoff mechanism, the Accumulative Best Choice (“ABC”) mechanism that is incentive compatible for all rational risk preferences. I also identify three necessary and sufficient conditions for a payoff mechanism to be incentive compatible for all models of decision under risk with complete and transitive preferences. I show that ABC is the unique incentive compatible mechanism for rational risk preferences in a multiple-task setting. In addition, I test empirical validity of the ABC mechanism in the lab. The results from both a choice pattern experiment and a preference (structural) estimation experiment show that individual choices under the ABC mechanism are statistically not different from those observed with the one-round task experimental design. The ABC mechanism supports unbiased elicitation of both outcome and probability transformations as well as testing alternative decision models that do or do not include the independence axiom.



中文翻译:

ABC机制:激励兼容的收益机制,用于引发结果和概率转换

当涉及在风险下进行多轮决策的实验时,当前的回报机制与结果加权理论或概率加权理论都具有激励性兼容,但不能与两者都兼容。在本文中,我介绍了一种新的回报机制,即“累积最佳选择”(“ ABC”)机制,可以对所有理性风险偏好进行激励兼容。我还为回报机制确定了三个必要条件和充分条件,以使其能够与具有完全和转移偏好的风险下的所有决策模型激励兼容。我证明了ABC是在多任务环境中针对理性风险偏好的独特激励兼容机制。另外,我在实验室中测试了ABC机制的经验有效性。选择模式实验和偏好(结构)估计实验的结果表明,在ABC机制下的个人选择与单轮任务实验设计所观察到的统计上没有差异。

更新日期:2020-12-23
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