Abstract
We propose an experimental method, Strictly Concave Budget Restrictions, to determine preference parameters precisely with the lowest possible number of observed choices. Our approach extends a method that is commonplace in economics for estimating preference parameters: the analysis of choices that were made subject to linear budget restrictions. Compared to other elicitation methods, budget-based approaches allow for relatively precise estimation of the preference parameters that govern individuals’ choices. This is the case, however, only as long as individuals choose interior allocations. It has turned out across numerous experimental studies that the majority of choices from linear budgets are corner allocations. The main idea of Strictly Concave Budget Restrictions is to encourage interior choices by making corner allocations extremely unattractive. Just like with linear budgets, the estimation of preference parameters is based on rates of substitution, such that simple and transparent estimation strategies are available, and the method is applicable to various domains (e.g., risk, time, and social preferences). In a series of experiments, we investigate whether our method indeed drastically reduces the frequency of corner allocations and whether it improves, compared to linear budget restrictions, the ability to estimate parameters on the individual level and to characterize interindividual heterogeneity.