The Becker–DeGroot–Marschak method (BDM), named after Gordon M. Becker,

Morris H. DeGroot Morris Herman DeGroot (June 8, 1931 – November 2, 1989) was an American statistician. Biography Born in Scranton, Pennsylvania, DeGroot graduated from Roosevelt University and earned master's and doctor's degrees from the University of Chicago ...

and

Jacob Marschak Jacob Marschak (23 July 1898 – 27 July 1977) was an American economist. Life Born in a Jewish family of Kyiv, Jacob Marschak (until 1933 Jakob) was the son of a jeweler. During his studies he joined the social democratic Menshevik Party, ...

for the 1964 ''Behavioral Science'' paper, "Measuring Utility by a Single-Response Sequential Method" is an

incentive-compatible A mechanism is called incentive-compatible (IC) if every participant can achieve the best outcome to themselves just by acting according to their true preferences. There are several different degrees of incentive-compatibility: * The stronger ...

procedure used in

experimental economics Experimental economics is the application of experimental methods to study economic questions. Data collected in experiments are used to estimate effect size, test the validity of economic theories, and illuminate market mechanisms. Economic expe ...

to measure

willingness to pay In behavioral economics, willingness to pay (WTP) is the maximum price at or below which a consumer will definitely buy one unit of a product.Varian, Hal R. (1992), Microeconomic Analysis, Vol. 3. New York: W.W. Norton. This corresponds to the st ...

(WTP). Today there are several variations of the BDM methodology. In one common way, the subject formulates a bid. The bid is compared to a price determined by a random number generator. If the subject's bid is greater than the price, they pay the price and receives the item being auctioned. If the subject's bid is lower than the price, they pay nothing and receive nothing. In another common method, the subject is presented with a series of sequentially increasing or random-order monetary amounts. They must decide if they would prefer to have that amount of money or the item at hand. Then, one of these numbers is chosen either specifically by the experimenter or is randomly generated. If the chosen number is less than the amount of money at which the subject stated they would prefer the item, the subject must purchase the item. From the subject's perspective, the method is equivalent to a

Vickrey auction A Vickrey auction or sealed-bid second-price auction (SBSPA) is a type of sealed-bid auction. Bidders submit written bids without knowing the bid of the other people in the auction. The highest bidder wins but the price paid is the second-highest ...

against an unknown bidder. BDM's incentive compatibility is a well established theoretical result, and it relies on similar arguments to that of the Vickrey auction. When one considers uncertainty in WTP, the incentive-compatibility of BDM will no longer hold. The BDM method is most widely used in experimental economics, but has also been used in the domains of agriculture and marketing. An early attempt at a BDM-type method was by

Johann Wolfgang von Goethe Johann Wolfgang von Goethe (28 August 1749 – 22 March 1832) was a German poet, playwright, novelist, scientist, statesman, theatre director, and critic. His works include plays, poetry, literature, and aesthetic criticism, as well as trea ...

. In 1797 he asked a publisher how much he would be willing to pay for his new poem ''Hermann and Dorothea'' and revealed that he had sent a sealed letter to his lawyer with a reserve amount. If the publisher's stated amount was greater than the reserve, the publisher just paid the reserve amount. Otherwise, the publisher did not receive the poem. Unfortunately, Goethe's lawyer divulged the reserve amount to the publisher so that the publisher's true willingness to pay was not revealed.

References

{{DEFAULTSORT:Becker-DeGroot-Marschak method Experimental economics

See also

References