Belief elicitation when more than money matters

Benoît, Jean-Pierre and Dubra, Juan and Romagnoli, Giorgia (2019): Belief elicitation when more than money matters.

Abstract

Incentive compatible mechanisms for eliciting beliefs typically presume that money is the only argument in people's utility functions. However, subjects may also have non-monetary objectives that confound the mechanisms. In particular, psychologists have argued that people favour bets where their skill is involved over equivalent random bets -- a so-called preference for control. We propose a new belief elicitation method which mitigates the control preference. With the help of this method, we find that under the ostensibly incentive compatible probability matching mechanism (Grether (1981) and Karni (2009)), subjects report beliefs 7% higher than their true beliefs in order to increase their control. Non-monetary objectives account for at least 27% of what would normally be measured as overconfidence. Our paper also contributes to a refined understanding of control.

• Item Type: MPRA Paper
• Language: English
• Keywords: Elicitation, Overconfidence, Control. Experimental Methods
• Subjects: D - Microeconomics > D0 - General; D - Microeconomics > D0 - General > D01 - Microeconomic Behavior: Underlying Principles; D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles

References

Andreoni, J. and A. Sanchez (2014), "Do Beliefs Justify Actions or Do Actions Justify Beliefs? An Experiment on Stated Beliefs, Revealed Beliefs, and Social-Image Motivation" mimeo.

Barber, B. and T. Odean (2001), "Boys will be Boys: Gender, Overconfidence, and Common Stock Investment," Quarterly Journal of Economics, 116(1), 261-92.

Baumeister, R.F. (1982), "A self-presentational view of social phenomena," Psychological Bulletin 91:3--26.

Benoît, J-P. and J. Dubra (2011), "Apparent Overconfidence" Econometrica 79(5), 1591-1625.

Benoît, J.-P., Dubra, J. and Moore, D. A. (2015), Does the Better-than-average Effect show that People are Overconfident?: Two Experiments. Journal of the European Economic Association, 13: 293â€"329.

Burks, Stephen, Jeffrey Carpenter, Lorenz Goette and Aldo Rustichini (2013), "Overconfidence and Social Signalling," Review of Economic Studies, 80(3), 949-83.

Camerer, C., and Lovallo, D. (1999), Overconfidence and Excess Entry: An Experimental Approach. The American Economic Review 89.1 : 306â€"318.

Chen, D. L., Schonger, M. and Wickens, C. (2016), oTreeâ€"An open-source platform for laboratory, online, and field experiments. J. Behav. Exp. Finance 9, 88â€"97.

Clark, Jeremy and Lana Friesen (2009), "Overconfidence in Forecasts of Own Performance: An Experimental Study," Economic Journal, 119(1), 229-51.

Ehrlinger, J., K. Johnson, M. Banner, D. Dunning and J. Kruger (2008), "Why the Unskilled Are Unaware: Further Explorations of (Absent) Self-Insight Among the Incompetent," Organizational Behavior and Human Decision Processes 105(1): 98--121.

Eil, David and Justin Rao (2011), "The Good News-Bad News Effect: Asymmetric Processing of Objective Information about Yourself," American Economic J: Microeconomics, 3, 114-38.

Ewers, M. and F. Zimmermann (2015), "Image and Misreporting," Journal of the European Economic Association, 13(2), 363--80.

Goodie, A. S. (2003) The effects of control on betting: paradoxical betting on items of high confidence with low value. J Exp Psychol Learn Mem Cogn: 29, 598-610.

Goodie, Adam and Diana Young (2007), "The skill element in decision making under uncertainty: Control or competence?," Judgment and Decision Making, 2(3), pp. 189-203.

Grether, D. M. (1981) "Financial Incentive Effects and Individual Decision Making," Social Sciences working paper 401, Cal. Tech.

Grether, D. M. (1992) "Testing Bayes Rule and the Representativeness Heuristic: Some Experimental Evidence." Journal of Economic Behavior and Organization 17, 31--57.

Grieco, D. and R. Hogarth (2009) "Overconfidence in absolute and relative performance: The regression hypothesis and Bayesian updating," Journal of Economic Psychology 3, 756-71.

Gul, R and W. Pesendorfer (2015) "Hurwicz Expected Utility and Multiple Sources," Journal of Economic Theory.

Heath, Chip and Amos Tversky, (1991) "Preference and Belief: Ambiguity and Competence in Choice under Uncertainty," Journal of Risk and Uncertainty, 4, 5-28.

Hoelzl, E. and A. Rustichini, (2005), "Overconfident: do you put your money on it?" the Economic Journal, 115, pp. 305-18.

Hollard, G., Massoni, S., & Vergnaud, J.-C. (2016), "In Search of Good Probability Assessors: An Experimental Comparison of Elicitation Rules for Confidence Judgments," Theory and Decision. 80(3): 363-387.

Hossain, T. and R. Okui (2013), "The Binarized Scoring Rule," Review of Economic Studies 80, 984-1001.

Karni, E. (2009), "A Mechanism for Eliciting Probabilities," Econometrica, 77(2), 603--6.

Klein, WMP, J.L. Cerully and M.M. Monin (2010), "Ability, chance, and ambiguity aversion: Revisiting the competence hypothesis," Judgment and Decision Making, Vol. 5, No. 3, 192--9.

Kruger, Justin and David Dunning (1999), "Unskilled and unaware of it: How difficulties in recognizing one's own incompetence lead to inflated self-assessments," Journal of Personality and Social Psychology, 77, 1121--34.

Kunda, Z. (1990), "The case for motivated reasoning," Psychological Bulletin, 108(3), 480-498.

Merkle, Christoph and Martin Weber (2011), "True Overconfidence: The Inability of Rational Information Processing to Account for Apparent Overconfidence," Organizational Behavior and Human Decision Processes, 116(2), 262-71.

Möbius, M., M. Niederle, P. Niehaus, and T. Rosenblat (2014), "Managing self-confidence: Theory and experimental evidence," Working Papers, No. 11-14, Federal Reserve Bank of Boston.

Moore, Don and Paul. J. Healy (2008), "The trouble with overconfidence," Psychological Review, 115(2), 502-517.

Niederle, M. and L. Vesterlund (2007), "Do Women Shy Away from Competition? Do Men Compete Too Much?" Qarterly Journal of Economics, 122(3), 1067-1101.

Owens, D., Z. Grossman and R. Fackler (2014), "The Control Premium: A Preference for Payoff Autonomy," American Economic Journal: Microeconomics, 6(4), 138-61.

Ryan, R. M., V. Mims and R. Koestner (1983), "Relation of reward contingency and interpersonal context to intrinsic motivation: A review and test using cognitive evaluation theory," Journal of Personality and Social Psychology, 45(4), 736.

Schlag, K., J. Tremewanz, J. van der Weele (2015), "A penny for your thoughts: A survey of methods for eliciting beliefs," Experimental Economics, 2015, 18:3, 457-490.

Schlag, K. H. and J. van der Weele (2009), "Eliciting Probabilities, Means, Medians, Variances and Covariances without Assuming risk-neutrality", (Working Paper, Universitat Pompeu Fabra, Barcelona).

Schotter, A. and I. Trevino (2014), "Belief elicitation in the laboratory," Annual Review of Economics (6), 103-128.

Tversky, A. and P. Wakker (1995), "Risk Attitudes and Decision Weights, " Econometrica 63(6), 1255-80.