Inferring Beliefs as Subjectively Imprecise Probabilities

Steffen Andersen, John Fountain, Glenn W. Harrison, Arna Risa Hole, E. Elisabeth Rutström

Research output: Contribution to journalJournal articleResearchpeer-review

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.
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.
LanguageEnglish
JournalTheory and Decision
Volume73
Issue number1
Pages161-184
Number of pages24
ISSN0040-5833
DOIs
StatePublished - 2012

Keywords

  • Subjective Risk
  • Subjective Beliefs
  • Random Coefficients
  • Non-Linear Mixed Logit
  • Experiments

Cite this

Andersen, S., Fountain, J., Harrison, G. W., Hole, A. R., & Rutström, E. E. (2012). Inferring Beliefs as Subjectively Imprecise Probabilities. Theory and Decision, 73(1), 161-184. DOI: 10.1007/s11238-011-9276-1
Andersen, Steffen ; Fountain, John ; Harrison, Glenn W. ; Hole, Arna Risa ; Rutström, E. Elisabeth. / Inferring Beliefs as Subjectively Imprecise Probabilities. In: Theory and Decision. 2012 ; Vol. 73, No. 1. pp. 161-184
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Andersen, S, Fountain, J, Harrison, GW, Hole, AR & Rutström, EE 2012, 'Inferring Beliefs as Subjectively Imprecise Probabilities' Theory and Decision, vol. 73, no. 1, pp. 161-184. DOI: 10.1007/s11238-011-9276-1

Inferring Beliefs as Subjectively Imprecise Probabilities. / Andersen, Steffen; Fountain, John; Harrison, Glenn W.; Hole, Arna Risa; Rutström, E. Elisabeth.

In: Theory and Decision, Vol. 73, No. 1, 2012, p. 161-184.

Research output: Contribution to journalJournal articleResearchpeer-review

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Andersen S, Fountain J, Harrison GW, Hole AR, Rutström EE. Inferring Beliefs as Subjectively Imprecise Probabilities. Theory and Decision. 2012;73(1):161-184. Available from, DOI: 10.1007/s11238-011-9276-1