University of St.Gallen
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First- and Second-order Subjective Expectations in Strategic Decision-Making: Experimental Evidence

abstract We study first- and second-order subjective expectations (beliefs) in strategic decision-making. We propose a method to elicit probabilistically both first- and second-order beliefs and apply the method to a Hide-and-Seek experiment. We study the relationship between choice and beliefs in terms of whether observed choice coincides with the optimal action given elicited beliefs. We study the relationship between first- and second-order beliefs under a coherence criterion. Weak coherence requires that if an event is assigned, according to first-order beliefs, a probability higher/lower/equal to the one assigned to another event,
then the same holds according to second-order beliefs. Strong coherence requires the probability assigned according to first- and second-order beliefs to coincide. Evidence of heterogeneity across participants is reported. Verbal comments collected at the end of the experiment shed light on how subjects think and decide in a complex environment that is strategic, dynamic and populated by potentially heterogeneous individuals.
   
type working paper (English)
   
keywords decision-making, beliefs, subjective expectations, experiments
   
date of appearance 2012
review blind review
   
profile area SEPS - Quantitative Economic Methods
citation Neri, C. (2012). First- and Second-order Subjective Expectations in Strategic Decision-Making: Experimental Evidence.