BIROn - Birkbeck Institutional Research Online

    Eliciting second order beliefs

    Bose, S. and Daripa, Arup (2023) Eliciting second order beliefs. Journal of Mathematical Economics 107 (102865), ISSN 0304-4068.

    [img] Text
    ElicitSecOrderBeliefs Revised May 2023.pdf - Author's Accepted Manuscript
    Restricted to Repository staff only until 7 June 2025.

    Download (366kB) | Request a copy

    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 distribution on these priors. Such a two-stage decomposition of uncertainty and non-reduction of subjective compound lotteries resulting from non-neutrality to the second-order distribution plays an important role in resolving the Ellsberg Paradox. However, a key unanswered question is whether we can actually observe and separate the sets of first and second order subjective probabilities. We answer this question and show that it is indeed possible to pin the two sets down uniquely and therefore separate them meaningfully. We introduce prize variations and ensure that the tangent plane at any point on the surface of the certainty-equivalent function is reported truthfully. Any basis for this plane consists of derivatives in two different directions, and these combine first and second order beliefs in different ways. We show that this is enough to ensure that reporting both sets of beliefs truthfully is uniquely optimal. The technique requires knowledge of the changes in certainty equivalent of a mixture of acts as a result of variations in prizes, which we also elicit.

    Metadata

    Item Type: Article
    School: Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School
    Depositing User: Arup Daripa
    Date Deposited: 14 Jun 2023 15:28
    Last Modified: 02 Aug 2023 18:21
    URI: https://eprints.bbk.ac.uk/id/eprint/51373

    Statistics

    Activity Overview
    6 month trend
    1Download
    6 month trend
    247Hits

    Additional statistics are available via IRStats2.

    Archive Staff Only (login required)

    Edit/View Item
    Edit/View Item