Proper Scoring Rules and Risk Aversion

25 Pages Posted: 10 Mar 2012  

Alexander Peysakhovich

Yale University - Human Cooperation Lab

Mikkel Plagborg-Møller

Harvard University - Department of Economics

Date Written: March 9, 2012

Abstract

The literature on proper scoring rules has mostly studied the case of risk neutral agents. We analytically investigate how risk averse, expected utility maximizing forecasters behave when presented with risk neutral proper scoring rules. If the state variable is binary, risk averse agents shade their reports toward saying that the states are equally likely. In the non-binary case reported probabilities are compressed relative to truthtelling. We show the implications of our results for the use of elicited probabilities as inputs to decision-making and find that naive elicitors may violate first-order stochastic dominance. Possible resolutions of these problems are presented, including an estimator for the mean population belief when the distribution of risk attitudes is known. Finally, we discuss the relevance of our results to recent work in experimental economics.

Keywords: scoring rules, risk aversion, decision-making

JEL Classification: C60, D81

Suggested Citation

Peysakhovich, Alexander and Plagborg-Møller, Mikkel, Proper Scoring Rules and Risk Aversion (March 9, 2012). Available at SSRN: https://ssrn.com/abstract=2019078 or http://dx.doi.org/10.2139/ssrn.2019078

Alexander Peysakhovich

Yale University - Human Cooperation Lab ( email )

New Haven, CT
United States

Mikkel Plagborg-Møller (Contact Author)

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

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