Field Comparisons of Incentive-Compatible Preference Elicitation Techniques

Abstract

Knowledge of consumer demand is important for firms, policy-makers, and economists. One common tool for incentive-compatible demand elicitation, the Becker-DeGroot- Marschak (BDM) mechanism, has been widely used in laboratory settings but rarely evaluated for reliability at large scale in the field. In two field experiments (for a new agricultural information service and rainfall index insurance) we compare demand curves estimated from BDM implementations with demand curves estimated from choices at individually randomized fixed prices. In the test (for an agricultural information service) we obtain demand curves from BDM and fixed prices that align closely and are unable to reject equivalence of the demand curves. For the second test (of rainfall index insurance) the results are mixed, with the distributions lining up well at certain points of the demand curve and deviating at others. Overall, we find no evidence for systematic bias. Our evidence suggests that a ‘reframed’ version of BDM that uses discrete prices may minimize non-standard bidding behavior and is well suited to future experimental work in low-literacy environments.

Keywords: Incentive-compatible elicitation, experimental methods, weather insurance, rainfall insurance, agricultural extension.

JEL Classification: C81, C93, D12, D14