No. 940: Do Decision Makers Have Subjective Probabilities? An Experimental Test
David Ronayne European School of Management and Technology (ESMT Berlin) Roberto Veneziani Queen Mary University of London William R. Zame University of California at Los Angeles
June 22, 2022
Abstract
Abstract: Anscombe and Aumann (1963) offer a definition of subjective probability in terms of comparisons with objective probabilities. That definition – which has provided the basis for much of the succeeding work on subjective probability – presumes that the subjective probability of an event is independent of the prize consequences of that event, a property we term Prize Independence. We design experiments to test Prize Independence and find that a large fraction of our subjects violate it; thus, they do not have subjective probabilities. These findings raise questions about the empirical relevance of much of the literature on subjective probability.
J.E.L classification codes: D01 (Microeconomic Behavior: Underlying Principles), D81 (Criteria for Decision-Making under Risk and Uncertainty), D84 (Expectations, Speculations), C09 (Design of Experiments)
Keywords: subjective probability, choice under uncertainty, online experiments.