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Estimating subjective probabilities

Author

Listed:
  • Steffen Andersen
  • John Fountain
  • Glenn Harrison
  • E. Rutström

Abstract

Subjective probabilities play a central role in many economic decisions and act as an immediate confound of inferences about behavior, unless controlled for. Several procedures to recover subjective probabilities have been proposed, but in order to recover the correct latent probability one must either construct elicitation mechanisms that control for risk aversion, or construct elicitation mechanisms which undertake “calibrating adjustments” to elicited reports. We illustrate how the joint estimation of risk attitudes and subjective probabilities can provide the calibration adjustments that theory calls for. We illustrate this approach using data from a controlled experiment with real monetary consequences to the subjects. This allows the observer to make inferences about the latent subjective probability, under virtually any well-specified model of choice under subjective risk, while still employing relatively simple elicitation mechanisms. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Steffen Andersen & John Fountain & Glenn Harrison & E. Rutström, 2014. "Estimating subjective probabilities," Journal of Risk and Uncertainty, Springer, vol. 48(3), pages 207-229, June.
  • Handle: RePEc:kap:jrisku:v:48:y:2014:i:3:p:207-229
    DOI: 10.1007/s11166-014-9194-z
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    More about this item

    Keywords

    C9; C8; D84; Subjective probabilities; Scoring rules; Risk attitudes;
    All these keywords.

    JEL classification:

    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General

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