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First- and Second-order Subjective Expectations in Strategic Decision-Making: Experimental Evidence

Claudia Neri and Charles Manski

No 1206, Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science

Abstract: We study first- and second-order subjective expectations (beliefs) in strategic decisionmaking.We propose a method to elicit probabilistically both first- and second-order beliefs and apply the method to a Hide-and-Seek experiment. We study the relationship between choice and beliefs in terms of whether observed choice coincides with the optimal action given elicited beliefs. We study the relationship between first- and second-order beliefs under a coherence criterion. Weak coherence requires that if an event is assigned, according to first-order beliefs, a probability higher/lower/equal to the one assigned to another event, then the same holds according to second-order beliefs. Strong coherence requires the probability assigned according to first- and second-order beliefs to coincide. Evidence of heterogeneity across participants is reported. Verbal comments collected at the end of the experiment shed light on how subjects think and decide in a complex environment that is strategic, dynamic and populated by potentially heterogeneous individuals.

Keywords: Decision-making; beliefs; subjective expectations; experiments (search for similar items in EconPapers)
JEL-codes: C92 D81 D83 D84 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2012-03
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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http://ux-tauri.unisg.ch/RePEc/usg/econwp/EWP-1206.pdf (application/pdf)

Related works:
Journal Article: First- and second-order subjective expectations in strategic decision-making: Experimental evidence (2013) Downloads
Working Paper: First- and Second-order Subjective Expectations in Strategic Decision-Making: Experimental Evidence (2013) Downloads
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