Eliciting subjective expectations for bivariate outcomes

• Published in: Journal of behavioral and experimental finance Vol. 23; pp. 29 - 45
• Main Author: Drerup, Tilman H.
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.09.2019
• ISSN: 2214-6350; 2214-6350
• DOI: 10.1016/j.jbef.2019.05.002

We propose a method to elicit subjective expectations about the joint distribution of two continuous outcomes. The method relies on a pen and paper exercise and allows for the calculation of arbitrary mixed (e.g., covariance) and marginal moments (e.g., means or standard deviations) of the joint distribution. We use the expected returns to pairs of financial assets to implement and evaluate the method and its results. First, we provide descriptive statistics on subjects’ expectations, including results on their covariance expectations. Next, we show that the moments of the elicited marginal distributions exhibit a high degree of internal consistency when calculated from distinct joint distributions, i.e., when we hold fixed one asset and vary the other. Finally, we show strong correlations between subjects’ mean expectations for either of the assets and choices in a complimentary portfolio choice experiment.