Subjective Probabilities in Household Surveys

Posted: 4 Jun 2010

See all articles by Michael D. Hurd

Michael D. Hurd

RAND Corporation; State University of New York at Stony Brook - College of Arts and Science - Department of Economics; National Bureau of Economic Research (NBER)

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Date Written: January 2009

Abstract

Subjective probabilities are now collected on a number of large household surveys with the objective of providing data to better understand intertemporal decision making. Comparison of subjective probabilities with actual outcomes shows that the probabilities have considerable predictive power in situations where individuals have considerable private information, such as survival and retirement. In contrast, the subjective probability of a stock market gain varies greatly across individuals even though no one has private information and the outcome is the same for everyone. An explanation is that there is considerable variation in accessing and processing information. Further, the subjective probability of a stock market gain is considerably lower than historical averages, providing an explanation for the relatively low frequency of stock holding. An important research objective will be to understand how individuals form their subjective probabilities.

Suggested Citation

Hurd, Michael D., Subjective Probabilities in Household Surveys (January 2009). Annual Review of Economics, Vol. 1, pp. 543-564, 2009, Available at SSRN: https://ssrn.com/abstract=1594483 or http://dx.doi.org/10.1146/annurev.economics.050708.142955

Michael D. Hurd (Contact Author)

RAND Corporation ( email )

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State University of New York at Stony Brook - College of Arts and Science - Department of Economics ( email )

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