Psychology-compatible Elicitation Mechanisms: the Uncertainty Effect as a Case Study

This paper introduces the notion of ‘psychology-compatible’ to refer to elicitation mechanisms that do not interfere with the psychological processes behind the phenomenon being studied. Its importance is demonstrated with one of the most commonly used mechanisms in experimental economics, the multiple-price-list, where subjects answer yes/no to their willingness to pay each of a set of prices. Four experiments that manipulate how valuations are elicited show that the Uncertainty Effect, which occurs when people value a risky prospect less that its worst outcome, reliably fails to be replicated with the multiple-price-list. This is proposed to occur because such elicitation (i) facilitates the identification of dominated alternatives and (ii) induces a more analytical processing of information. A modified elicitation method that should not have such consequences, where (the same) prices are presented sequentially rather than simultaneously, reliably does replicate the Uncertainty Effect, and so do open ended elicitations. * An earlier version of this manuscript circulated with the title “Elicitation mechanisms influence preferences: The Uncertainty Effect as a Case Study”