Estimating Subjective Probabilities
AbstractSubjective probabilities play a role in many economic decisions. There is a large theoretical literature on the elicitation of subjective probabilities, and an equally large empirical literature. However, there is a gulf between the two. The theoretical literature proposes a range of procedures that can be used to recover subjective probabilities, but stresses the need to make strong auxiliary assumptions or “calibrating adjustments” to elicited reports in order to recover the latent probability. With some notable exceptions, the empirical literature seems intent on either making those strong assumptions or ignoring the need for calibration. We illustrate how one can jointly estimate risk attitudes and subjective probabilities using structural maximum likelihood methods. This allows the observer to make inferences about the latent subjective probability, calibrating for virtually any well-specified model of choice under uncertainty. We demonstrate our procedures with experiments in which we elicit subjective probabilities. We calibrate the estimates of subjective beliefs assuming that choices are made consistently with expected utility theory or rank-dependent utility theory. Inferred subjective probabilities are significantly different when calibrated according to either theory.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Copenhagen Business School, Department of Economics in its series Working Papers with number 05-2009.
Length: 68 pages
Date of creation: 01 May 2009
Date of revision:
Contact details of provider:
Postal: Department of Economics, Copenhagen Business School, Solbjerg Plads 3 C, 5. sal, DK-2000 Frederiksberg, Denmark
Phone: 38 15 25 75
Fax: 38 15 26 65
Web page: http://www.cbs.dk/departments/econ/
More information through EDIRC
probability; beliefs; utility theory;
Other versions of this item:
- Steffen Andersen & John Fountain & Glenn W. Harrison & E. Elisabet RutstrÃ¶m, 2010. "Estimating Subjective Probabilities," Experimental Economics Center Working Paper Series 2010-08, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
- C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Rutström, E. Elisabet & Wilcox, Nathaniel T., 2009. "Stated beliefs versus inferred beliefs: A methodological inquiry and experimental test," Games and Economic Behavior, Elsevier, vol. 67(2), pages 616-632, November.
- Cerroni, Simone & Notaro, Sandra & Shaw, W. Douglass, 2012.
"Do monetary incentives and chained questions affect the validity of risk estimates elicited via the Exchangeability Method? An experimental investigation,"
2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil
125468, International Association of Agricultural Economists.
- Simone Cerroni & Sandra Notaro & W. Douglass Shaw, 2011. "Do Monetary Incentives and Chained Questions Affect the Validity of Risk Estimates Elicited via the Exchangeability Method? An Experimental Investigation," Department of Economics Working Papers 1110, Department of Economics, University of Trento, Italia.
- Florian Artinger & Filippos Exadaktylos & Hannes Koppel & Lauri Sääksvuori, 2010.
"Applying Quadratic Scoring Rule transparently in multiple choice settings: A note,"
Jena Economic Research Papers
2010-021, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
- Florian Artinger & Filippos Exadaktylos & Hannes Koppel & Lauri Sääksvuori, 2010. "Applying Quadratic Scoring Rule transparently in multiple choice settings: A note," ThE Papers 10/01, Department of Economic Theory and Economic History of the University of Granada..
- Armantier, Olivier & Treich, Nicolas, 2010.
"Eliciting Beliefs: Proper Scoring Rules, Incentives, Stakes and Hedging,"
IDEI Working Papers
643, Institut d'Économie Industrielle (IDEI), Toulouse.
- Armantier, Olivier & Treich, Nicolas, 2010. "Eliciting Beliefs: Proper Scoring Rules, Incentives, Stakes and Hedging," LERNA Working Papers 10.26.332, LERNA, University of Toulouse.
- Armantier, Olivier & Treich, Nicolas, 2010. "Eliciting Beliefs: Proper Scoring Rules, Incentives, Stakes and Hedging," TSE Working Papers 10-213, Toulouse School of Economics (TSE).
- Armantier, Olivier & Treich, Nicolas, 2010. "Eliciting Beliefs: Proper Scoring Rules, Incentives, Stakes and Hedging," TSE Working Papers 10-156, Toulouse School of Economics (TSE).
- Cerroni, Simone & Notaro, Sandra & Shaw, W. Douglass, 2012. "The validity of risk estimates elicited via the Exchangeability Method: An experimental investigation of consumers’ perceived health risks," Congress Papers 124100, Italian Association of Agricultural and Applied Economics (AIEAA).
- Li Hao & Daniel Houser, 2011. "Honest Lies," Working Papers 1021, George Mason University, Interdisciplinary Center for Economic Science.
- Li Hao & Daniel Houser, 2012. "Belief elicitation in the presence of naïve respondents: An experimental study," Journal of Risk and Uncertainty, Springer, vol. 44(2), pages 161-180, April.
- Cerroni, Simone & Notaro, Sandra & Shaw, W. Douglass, 2011. "Real Monetary Incentives and Chained Questions: An Experimental Study Investigating the Validity of Risk Estimates Elicited via Exchangeability Method," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114313, European Association of Agricultural Economists.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lars Nondal).
If references are entirely missing, you can add them using this form.