First- and second-order subjective expectations in strategic decision-making: Experimental evidence

Charles F. Manski, Claudia Neri*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

17 Scopus citations

Abstract

We study first- and second-order subjective expectations (beliefs) in strategic decision-making. We 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.

Original languageEnglish (US)
Pages (from-to)232-254
Number of pages23
JournalGames and Economic Behavior
Volume81
Issue number1
DOIs
StatePublished - Sep 2013

Keywords

  • Beliefs
  • Decision-making
  • Experiments
  • Subjective expectations

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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