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    Eliciting Second-Order Beliefs

    Bose, S. and Daripa, Arup (2017) Eliciting Second-Order Beliefs. Working Paper. Birkbeck, University of London, London, UK. (Submitted)

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    Abstract

    We study elicitation of subjective beliefs of an agent facing ambiguity (model uncertainty): the agent has a non-singleton set of (first-order) priors on an event and a second-order prior on these first-order belief-states. Such a two-stage decomposition of uncertainty and non-reduction of compound lotteries resulting from non-neutrality to the second-order distribution plays an important role in resolving the Ellsberg Paradox. The problem of eliciting beliefs on unobservable belief-states with ambiguity-sensitive agents is novel, and we introduce new elicitation techniques using report-dependent prize variations. We construct a direct revelation mechanism that induces truthful reporting of the first-order belief states as well as the second-order distribution on the belief-states as the unique best response. The technique requires knowledge of the sensitivity function to second-order distribution (capturing ambiguity attitude) and the vN-M utility function, which we also elicit.

    Metadata

    Item Type: Monograph (Working Paper)
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Depositing User: Arup Daripa
    Date Deposited: 17 May 2018 07:43
    Last Modified: 17 May 2018 07:43
    URI: http://eprints.bbk.ac.uk/id/eprint/22386

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