Estimating Bayesian Decision Problems with Heterogeneous Priors

CAMA Working Paper 18/2013

26 Pages Posted: 19 Jul 2013

See all articles by Stephen Hansen

Stephen Hansen

University of Oxford - Department of Economics

Michael F. McMahon

University of Warwick - Faculty of Social Studies; London School of Economics & Political Science (LSE)

Multiple version iconThere are 2 versions of this paper

Date Written: April 2013

Abstract

In many areas of economics there is a growing interest in how expertise and preferences drive individual and group decision making under uncertainty. Increasingly, we wish to estimate such models to quantify which of these drive decision making. In this paper we propose a new channel through which we can empirically identify expertise and preference parameters by using variation in decisions over heterogeneous priors. Relative to existing estimation approaches, our "Prior Based Identification" extends the possible environments which can be estimated, and also substantially improves the accuracy and precision of estimates in those environments which can be estimated using existing methods.

Keywords: Bayesian decision making, expertise, preferences, estimation

JEL Classification: D72, D81, C13

Suggested Citation

Hansen, Stephen and McMahon, Michael F., Estimating Bayesian Decision Problems with Heterogeneous Priors (April 2013). CAMA Working Paper 18/2013, Available at SSRN: https://ssrn.com/abstract=2295219 or http://dx.doi.org/10.2139/ssrn.2295219

Stephen Hansen

University of Oxford - Department of Economics ( email )

10 Manor Rd
Oxford, Oxfordshire OX1 3UQ
United Kingdom

Michael F. McMahon (Contact Author)

University of Warwick - Faculty of Social Studies ( email )

United Kingdom

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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