Kiel Working Papers, Kiel Institute for World Economics
No 1386:
Noise and Bias in Eliciting Preferences
John D. Hey, Andrea Morone and Ulrich Schmidt
Abstract: In the context of eliciting preferences for decision
making under risk, we ask the question: “which might be the ‘best’ method
for eliciting such preferences?”. It is well known that different methods
differ in terms of the bias in the elicitation; it is rather less
well-known that different methods differ in terms of their noisiness. The
optimal trade-off depends upon the relative magnitudes of these two
effects. We examine four different elicitation mechanisms (pairwise choice,
willingness-to-pay, willingness-to-accept, and certainty equivalents) and
estimate both effects. Our results suggest that economists might be better
advised to use what appears to be a relatively inefficient elicitation
technique (i.e. pairwise choice) in order to avoid the bias in better-known
and more widely-used techniques.
Keywords: pairwise choice, WTP, WTA, errors, noise, biases; (follow links to similar papers)
JEL-Codes: C91,; C81; (follow links to similar papers)
31 pages, November 2007
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