Estimating subjective probabilities

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 eit...

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Bibliographic Details
Published inJournal of risk and uncertainty Vol. 48; no. 3; pp. 207 - 229
Main Authors Andersen, Steffen, Fountain, John, Harrison, Glenn W., Rutström, E. Elisabet
Format Journal Article
LanguageEnglish
Published Boston Springer Science+Business Media 01.06.2014
Springer US
Springer Nature B.V
Subjects
Adjustment
Attitudes
Behavior
Calibration
Curvature
Decision
Decision making
Economic models
Economic theory
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Environmental Economics
Estimating techniques
Expected utility
Financial risk
Game theory
Lotteries
Microeconomics
Operations Research/Decision Theory
Probabilities
Probability
Psychological attitudes
Risk
Risk attitudes
Risk aversion
Risk aversion preference
Risk management
Scoring rules
Studies
Subjective probabilities
Subjectivity
Term weighting
Utility functions
Risk attitudes
D84
Subjective probabilities
C8
C9
Scoring rules
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ISSN0895-5646
1573-0476
1573-0476
DOI10.1007/s11166-014-9194-z

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Summary: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.
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ISSN:0895-5646
1573-0476
1573-0476
DOI:10.1007/s11166-014-9194-z