Inferring Beliefs as Subjectively Uncertain Probabilities
AbstractWe propose a method for estimating subjective beliefs, viewed as a subjective probability distribution. The key insight is to characterize beliefs as a parameter to be estimated from observed choices in a well-defined experimental task, and to estimate that parameter as a random coefficient. The experimental task consists of a series of standard lottery choices in which the subject is assumed to use conventional risk attitudes to select one lottery or the other, and then a series of betting choices in which the subject is presented with a range of bookies offering odds on the outcome of some event that the subject has a belief over. Knowledge of the risk attitudes of subjects conditions the inferences about subjective beliefs. Maximum simulated likelihood methods are used to estimate a structural model in which subjects employ subjective beliefs to make bets. We present evidence that some subjective probabilities are indeed best characterized as probability distributions with non-zero variance.
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Bibliographic InfoPaper provided by Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University in its series Experimental Economics Center Working Paper Series with number 2010-14.
Date of creation: Sep 2010
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-09-25 (All new papers)
- NEP-CBE-2010-09-25 (Cognitive & Behavioural Economics)
- NEP-ECM-2010-09-25 (Econometrics)
- NEP-EXP-2010-09-25 (Experimental Economics)
- NEP-UPT-2010-09-25 (Utility Models & Prospect Theory)
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- Melkonyan, Tigran A., 2011. "The Effect of Communicating Ambiguous Risk Information on Choice," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 36(2), August.
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