|By:||Christoph Engel (MPI for Research on Collective Goods, Bonn)
Oliver Kirchkamp (School of Economics and Business Administration, Friedrich-Schiller-University Jena)
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|