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Inferring Beliefs as Subjectively Uncertain Probabilities

Author

Listed:
  • Steffen Andersen
  • John Fountain
  • Glenn W. Harrison
  • Arne Risa Hole
  • E. Elisabet Rutström

Abstract

We 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.

Suggested Citation

  • Steffen Andersen & John Fountain & Glenn W. Harrison & Arne Risa Hole & E. Elisabet Rutström, 2010. "Inferring Beliefs as Subjectively Uncertain Probabilities," Experimental Economics Center Working Paper Series 2010-14, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
  • Handle: RePEc:exc:wpaper:2010-14
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    File URL: http://excen.gsu.edu/workingpapers/GSU_EXCEN_WP_2010-14.pdf
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    Cited by:

    1. 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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