Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/34656 
Year of Publication: 
2007
Series/Report no.: 
IZA Discussion Papers No. 3121
Publisher: 
Institute for the Study of Labor (IZA), Bonn
Abstract: 
We use spline interpolation to approximate the subjective cumulative distribution function of an economic agent over the future realization of a continuous (possibly censored) random variable. The method proposed exploits information collected using a small number of probability questions on expectations and requires a weak prior knowledge of the shape of the underlying distribution. We find that eliciting 4 or 5 points on the cumulative distribution function of an agent is sufficient to accurately approximate a wide variety of underlying distributions. We show that estimated moments of general functions of the random variable can be computed analytically and/or using standard simulation techniques. We illustrate the usefulness of the method by estimating a simple model to asses the impact of expectations on investment decisions in a commonly used trust game.
Subjects: 
Approximation of subjective expectations
spline interpolation
decision making under uncertainty
Document Type: 
Working Paper

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