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School of Economics and Finance

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

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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.

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