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.
Original language | English |
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Journal | Theory and Decision |
Volume | 73 |
Issue number | 1 |
Pages (from-to) | 161-184 |
Number of pages | 24 |
ISSN | 0040-5833 |
DOIs | |
Publication status | Published - 2012 |
Keywords
- Subjective Risk
- Subjective Beliefs
- Random Coefficients
- Non-Linear Mixed Logit
- Experiments