CeDEx workshop - Peter Wakker (Erasmus University, Rotterdam)

This talk is joint with Senior Academic Seminar Series

Prince: An Improved Method for Implementing Real Incentives

Abstract. We introduce the prior incentive system (Prince), a new system for implementing real incentives in choice experiments.  Mainly by making the Becker-DeGroot-Marschak mechanism transparent, Prince reconciles choice with matching, combining the validity of the former with the efficiency of the latter and resolving the classical preference reversals.  In general, Prince allows to separate (a) preference anomalies due to fallible measurements (such as preference reversals) and (b) genuine deviations (such as the endowment effect) from classical economic theories.  Prince reduces and resolves a number of problems of current incentive systems: (a) The income effect; (b) the reliance on isolation; (c) strategic behavior for adaptive experiments.  We demonstrate the general implementability of Prince by applying it to standard preference measurements.  Not only do we avoid any deception of subjects, but, moreover, every subject could verify so during the experiment.