Lossed in translation: an off-the-shelf method to recover probabilistic beliefs from loss-averse agents

Theo Offerman () and Asa Palley ()

Experimental Economics, 2016, vol. 19, issue 1, 30 pages

Abstract: Strictly proper scoring rules are designed to truthfully elicit subjective probabilistic beliefs from risk neutral agents. Previous experimental studies have identified two problems with this method: (i) risk aversion causes agents to bias their reports toward the probability of $$1/2$$ 1 / 2 , and (ii) for moderate beliefs agents simply report $$1/2$$ 1 / 2 . Applying a prospect theory model of risk preferences, we show that loss aversion can explain both of these behavioral phenomena. Using the insights of this model, we develop a simple off-the-shelf probability assessment mechanism that encourages loss-averse agents to report true beliefs. In an experiment, we demonstrate the effectiveness of this modification in both eliminating uninformative reports and eliciting true probabilistic beliefs. Copyright The Author(s) 2016

Keywords: Scoring rule; Subjective probability assessment; Loss aversion; Prospect theory; C81; C91; D03; D81 (search for similar items in EconPapers)
Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://hdl.handle.net/10.1007/s10683-015-9429-0 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:expeco:v:19:y:2016:i:1:p:1-30

Ordering information: This journal article can be ordered from
http://www.springer. ... ry/journal/10683/PS2

DOI: 10.1007/s10683-015-9429-0

Access Statistics for this article

Experimental Economics is currently edited by David J. Cooper, Lata Gangadharan and Charles N. Noussair

More articles in Experimental Economics from Springer, Economic Science Association Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().