Inferring Beliefs as Subjectively Uncertain Probabilities

Steffen Andersen, John Fountain, Glenn W. Harrison, Arne Hole and E. Elisabet Rutström
Authors registered in the RePEc Author Service: Elisabet Rutstrom

No 2010-14, Experimental Economics Center Working Paper Series from Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University

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.

Pages: 32
Date: 2010-09
New Economics Papers: this item is included in nep-cbe, nep-ecm, nep-exp and nep-upt
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Citations: View citations in EconPapers (2)

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