Misconceptions and Game Form Recognition of the BDM Method :

This study reports a simple experiment using induced-value items to assess the accuracy of the Becker, DeGroot, Marschak (BDM) method (1964 Behavioral Science) for measuring preferences. Although the BDM mechanism is incentive compatible the data indicate that it can be empirically unreliable due to susceptibility to subject misconceptions about the game form. The resulting choices appear to reflect preferences constructed through a framing process, but further analysis reveals types of misconceptions through specific patterns of behavior. The data are more consistent with a hypothesis that the choices represent mistakes, such as a misconception that the BDM is a first-price auction mechanism. This highlights that preferences should be considered as distinct from choices unless misconceptions are eliminated. Neglecting misconceptions and related mistakes can lead the theory of framing and the theory of revealed preference to result in incorrect interpretations of data. JEL Classifications: C8, C9