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Elicitation of ambiguous beliefs with mixing bets

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Document pages: 24 pages

Abstract: I consider the elicitation of ambiguous beliefs about an event and show howto identify the interval of relevant probabilities (representing ambiguityperception) for several classes of ambiguity averse preferences. The agentreveals her preference for mixing binarized bets on the uncertain event and itscomplement under varying betting odds. Under ambiguity aversion, mixing isinformative about the interval of beliefs. In particular, the mechanism allowsto distinguish ambiguous beliefs from point beliefs, and identifies the beliefinterval for maxmin preferences. For ambiguity averse smooth second order andvariational preferences, the mechanism reveals inner bounds for the beliefinterval, which are sharp under additional assumptions. In an experimentalstudy, participants perceive almost as much ambiguity for natural events(generated by the stock exchange and by a prisoners dilemma game) as for theEllsberg Urn, indicating that ambiguity may play a role in real-world decisionmaking.

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