Estimating Subjective Probabilities

Steffen Andersen, John Fountain, Glenn W. Harrison, E. Elisabet Rutström

Research output: Working paperResearch

Abstract

Subjective probabilities play a central role in many economic decisions, and act as an immediate confound of inferences about behavior, unless controlled for. Several procedures to recover subjective probabilities have been proposed, but in order to recover the correct latent probability one must either construct elicitation mechanisms that control for risk aversion, or construct elicitation mechanisms which undertake “calibrating adjustments” to elicited reports. We illustrate how the joint estimation of risk attitudes and subjective probabilities can provide the calibration adjustments that theory calls for. We illustrate this approach using data from a controlled experiment with real monetary consequences to the subjects. This allows the observer to make inferences about the latent subjective probability, under virtually any well-specified model of choice under subjective risk, while still employing relatively simple elicitation mechanisms
Subjective probabilities play a central role in many economic decisions, and act as an immediate confound of inferences about behavior, unless controlled for. Several procedures to recover subjective probabilities have been proposed, but in order to recover the correct latent probability one must either construct elicitation mechanisms that control for risk aversion, or construct elicitation mechanisms which undertake “calibrating adjustments” to elicited reports. We illustrate how the joint estimation of risk attitudes and subjective probabilities can provide the calibration adjustments that theory calls for. We illustrate this approach using data from a controlled experiment with real monetary consequences to the subjects. This allows the observer to make inferences about the latent subjective probability, under virtually any well-specified model of choice under subjective risk, while still employing relatively simple elicitation mechanisms
LanguageEnglish
Place of PublicationAtlanta, GA
PublisherCEAR, Georgia State University
Pages37
StatePublished - May 2013

Cite this

Andersen, S., Fountain, J., Harrison, G. W., & Rutström, E. E. (2013). Estimating Subjective Probabilities. (pp. 37). Atlanta, GA: CEAR, Georgia State University.
Andersen, Steffen ; Fountain, John ; Harrison, Glenn W. ; Rutström, E. Elisabet . / Estimating Subjective Probabilities. Atlanta, GA : CEAR, Georgia State University, 2013. pp. 37
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Andersen, S, Fountain, J, Harrison, GW & Rutström, EE 2013 'Estimating Subjective Probabilities' CEAR, Georgia State University, Atlanta, GA, pp. 37.

Estimating Subjective Probabilities. / Andersen, Steffen; Fountain, John ; Harrison, Glenn W. ; Rutström, E. Elisabet .

Atlanta, GA : CEAR, Georgia State University, 2013. p. 37.

Research output: Working paperResearch

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Andersen S, Fountain J, Harrison GW, Rutström EE. Estimating Subjective Probabilities. Atlanta, GA: CEAR, Georgia State University. 2013 May, p. 37.