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Eliciting Beliefs in Continuous-Choice Games: A Double Auction Experiment

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  • Neri, Claudia

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Abstract

This paper proposes a methodology to implement probabilistic belief elicitation in continuous-choice games. Representing subjective probabilistic beliefs about a continuous variable as a continuous subjective probability distribution, the methodology involves eliciting partial information about the subjective distribution and fitting a parametric distribution on the elicited data. As an illustration, the methodology is applied to a double auction experiment, where traders' beliefs about the bidding choices of other market participants are elicited. Elicited subjective beliefs are found to differ from proxies such as Bayesian Nash Equilibrium (BNE) beliefs and empirical beliefs, both in terms of the forecasts of other traders' bidding choices and in terms of the best-response bidding choices prescribed by beliefs. Elicited subjective beliefs help explain observed bidding choices better than BNE beliefs and empirical beliefs. By extending probabilistic belief elicitation beyond discrete-choice games to continuous-choice games, the proposed methodology enables to investigate the role of beliefs in a wider range of applications.

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File URL: http://www1.vwa.unisg.ch/RePEc/usg/econwp/EWP-1207.pdf
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Bibliographic Info

Paper provided by University of St. Gallen, School of Economics and Political Science in its series Economics Working Paper Series with number 1207.

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Length: 46 pages
Date of creation: Mar 2012
Date of revision: Dec 2012
Handle: RePEc:usg:econwp:2012:07

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Keywords: Probabilistic beliefs; subjective expectations; private information; experiments; auctions;

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  1. Palfrey, Thomas R. & Wang, Stephanie W., 2009. "On eliciting beliefs in strategic games," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 98-109, August.
  2. Cars Hommes & Joep Sonnemans & Jan Tuinstra & Henk van de Velden, 2005. "Coordination of Expectations in Asset Pricing Experiments," Review of Financial Studies, Society for Financial Studies, vol. 18(3), pages 955-980.
  3. Jeff Dominitz & Charles F. Manski, 1994. "Using Expectations Data to Study Subjective Income Expectations," NBER Working Papers 4937, National Bureau of Economic Research, Inc.
  4. Rustichini, Aldo & Satterthwaite, Mark A & Williams, Steven R, 1994. "Convergence to Efficiency in a Simple Market with Incomplete Information," Econometrica, Econometric Society, vol. 62(5), pages 1041-63, September.
  5. Timothy N. Cason & Daniel Friedman, 1997. "Price Formation in Single Call Markets," Econometrica, Econometric Society, vol. 65(2), pages 311-346, March.
  6. Joseph Engelberg & Charles F. Manski & Jared Williams, 2006. "Comparing the Point Predictions and Subjective Probability Distributions of Professional Forecasters," NBER Working Papers 11978, National Bureau of Economic Research, Inc.
  7. Olivier Armantier & Nicolas Treich, 2009. "Subjective Probabilities In Games: An Application To The Overbidding Puzzle," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(4), pages 1079-1102, November.
  8. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  9. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, 09.
  10. Oliver Kirchkamp & J. Philipp Reiß, 2011. "Out‐Of‐Equilibrium Bids in First‐Price Auctions: Wrong Expectations or Wrong Bids," Economic Journal, Royal Economic Society, vol. 121(557), pages 1361-1397, December.
  11. Yaw Nyarko & Andrew Schotter, 2002. "An Experimental Study of Belief Learning Using Elicited Beliefs," Econometrica, Econometric Society, vol. 70(3), pages 971-1005, May.
  12. 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.
  13. Manski, Charles F., 2002. "Identification of decision rules in experiments on simple games of proposal and response," European Economic Review, Elsevier, vol. 46(4-5), pages 880-891, May.
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Cited by:
  1. Tibor Neugebauer & Sascha Fllbrunn, 2013. "Varying the number of bidders in the first-price sealed-bid auction: experimental evidence for the one-shot game," LSF Research Working Paper Series 13-10, Luxembourg School of Finance, University of Luxembourg.

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