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Free keywords:
Risk, lab experiment, public good, errors in variables, Bayesian inference
JEL:
C91 - Laboratory, Individual Behavior
JEL:
D43 - Oligopoly and Other Forms of Market Imperfection
JEL:
L41 - Monopolization; Horizontal Anticompetitive Practices
Abstract:
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.
