Flexible Approximation of Subjective Expectations using Probability Questions -An Application to the Investment Game-Charles Bellemare (), Luc Bissonnette () and Sabine Kröger () Cahiers de recherche from CIRPEE Abstract: We use spline interpolation to approximate the subjective cumulative distribution function of an economic agent over the future realization of a continuous (possibly censored) random variable. The method proposed exploits information collected using a small number of probability questions on expectations and requires a weak prior knowledge of the shape of the underlying distribution. We find that eliciting 4 or 5 points on the cumulative distribution function of an agent is sufficient to accurately approximate a wide variety of underlying distributions. We show that estimated moments of general functions of the random variable can be computed analytically and/or using standard simulation techniques. We illustrate the usefulness of the method by estimating a simple model to asses the impact of expectations on investment decisions in a commonly used trust game. Keywords: Approximation of subjective expectations; spline interpolation; decision making under uncertainty (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: http://EconPapers.repec.org/RePEc:lvl:lacicr:0734 Access Statistics for this paper More papers in Cahiers de recherche from CIRPEE |
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