Measuring Belief and Risk Attitude
This work addresses a foundational issue in decision theory for researchers and economists, but it is incremental as it builds on existing frameworks.
The paper tackles the problem of measuring subjective probabilities and risk attitudes from observable preferences, extending Ramsey's method to risk-weighted expected utility maximizers, showing how to measure both risk attitudes and subjective probabilities for this broader class of agents.
Ramsey (1926) sketches a proposal for measuring the subjective probabilities of an agent by their observable preferences, assuming that the agent is an expected utility maximizer. I show how to extend the spirit of Ramsey's method to a strictly wider class of agents: risk-weighted expected utility maximizers (Buchak 2013). In particular, I show how we can measure the risk attitudes of an agent by their observable preferences, assuming that the agent is a risk-weighted expected utility maximizer. Further, we can leverage this method to measure the subjective probabilities of a risk-weighted expected utility maximizer.