Flexible approximation of subjective expectations using probability questions: an application to the investment game

Arbeitspapier

We use spline interpolation to approximate the subjective cumulative distribution function of an economic agent over the future realization of a continuous (possibly censored) random variable. The method proposed exploits information collected using a small number of probability questions on expectations and requires a weak prior knowledge of the shape of the underlying distribution. We find that eliciting 4 or 5 points on the cumulative distribution function of an agent is sufficient to accurately approximate a wide variety of underlying distributions. We show that estimated moments of general functions of the random variable can be computed analytically and/or using standard simulation techniques. We illustrate the usefulness of the method by estimating a simple model to asses the impact of expectations on investment decisions in a commonly used trust game.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 3121

Classification and Topics

• Classification: Wirtschaft
• Subject: Approximation of subjective expectations ; spline interpolation ; decision making under uncertainty ; Entscheidung bei Unsicherheit ; Erwartungstheorie ; Anlageverhalten ; Test ; Schätztheorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bellemare, Charles ; Bissonnette, Luc ; Kröger, Sabine
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/34656
• Last update: 10.03.2025, 11:42 AM CET