This paper proposes a methodology to implement probabilistic belief elicitation in continuous-choice games. Representing subjective probabilistic beliefs about a continuous variable as a continuous subjective probability distribution, the methodology involves eliciting partial information about the subjective distribution and fitting a parametric distribution on the elicited data. As an illustration, the methodology is applied to a double auction experiment, where traders’ beliefs about the bidding choices of other market participants are elicited. Elicited subjective beliefs are found to differ from proxies such as Bayesian Nash equilibrium beliefs and empirical beliefs, both in terms of the forecasts of other traders’ bidding choices and in terms of the best-response bidding choices prescribed by beliefs. Elicited subjective beliefs help explain observed bidding choices better than BNE beliefs and empirical beliefs. By extending probabilistic belief elicitation beyond discrete-choice games to continuous-choice games, the proposed methodology enables to investigate the role of beliefs in a wider range of applications.
Probabilistic beliefs Belief elicitation Private information Experiments
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I had the opportunity to present earlier versions of this work at the 2010 International Meeting of the Economic Science Association, and at Northwestern University, University of St.Gallen, University of Zurich, LUISS, Universidade Nova de Lisboa, CSEF, Bank of Italy. I am grateful to seminar participants and to Charles Manski, Marco Ottaviani, Brian Rogers, Charles Bellemare, and Jacob Goeree for their comments. A previous version of this work circulated as ‘Strategic Thinking and Subjective Expectations in a Double Auction Experiment’.
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