Eliciting and measuring betrayal aversion using the BDM mechanism

Abstract

Betrayal aversion has been operationalized as the evidence that subjects demand a higher risk premium to take social risks compared to natural risks. This evidence has been first shown by Bohnet and Zeckhauser (J Econ Behav 98:294–310, 2004) using an adaptation of the Becker–DeGroot–Marschak mechanism (BDM, Becker et al. Behav Sci 9:226–232, 1964). We compare their implementation of the BDM mechanism with a new version designed to facilitate subjects’ comprehension. We find that, although the two versions produce different distributions of values, the size of betrayal aversion, measured as an average treatment difference between social and natural risk settings, is not different across the two versions. We further show that our implementation is preferable to use in practice as it reduces substantially subjects’ mistakes and the likelihood of noisy valuations.