Ruud, Paul A.; Schunk, Daniel; Winter, Joachim
Uncertainty Causes Rounding: An Experimental Study.
In: Experimental Economics, Vol. 17, No. 3: 391 - 413
Full text not available from 'Open Access LMU'.
Rounding is a common phenomenon when subjects provide an answer to an open-ended question, both in experimental tasks and in survey responses. From a statistical perspective, rounding implies that the measured variable is a coarsened version of the underlying continuous target variable. Since the coarsening process is non-random, inference from rounded data is generally biased. Despite the potentially severe consequences of rounding, little is known about its causes. In this paper, we focus on subjects' uncertainty about the target variable as one potential cause for rounding behavior. We present a novel experimental method that induces uncertainty in a controlled way, thus providing causal evidence for the effect of subjects' uncertainty on the extent of rounding. Then, we specify and estimate a mixture model that relates uncertainty and rounding. The results suggest that an increase in the exogenous level of uncertainty translates into higher variance of the subjects' beliefs, which in turn results in more rounding.