Risk and punishment revisited Errors in variables and in the lab

Date: 2016-07-26
By: Christoph Engel (MPI for Research on Collective Goods, Bonn)
Oliver Kirchkamp (School of Economics and Business Administration, Friedrich-Schiller-University Jena)
URL: http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2016-015&r=net
We provide an example for an errors in variables problem which might be often neglected but which is quite common in lab experimental practice: In one task, attitude towards risk is measured, in another task participants behave in a way that can possibly be explained by their risk attitude. How should we deal with inconsistent behaviour in the risk task? Ignoring these observations entails two biases: An errors in variables bias and a selection bias. We argue that inconsistent observations should be exploited to address the errors in variables problem, which can easily be done within a Bayesian framework.
Keywords: Risk, lab experiment, public good, errors in variables, Bayesian inference
JEL: C91 D43 L41

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