Eliciting Subjective Probabilities Through Exchangeable Events: An Advantage and a Limitation

Abstract

Two events are exchangeable for an agent when she is indifferent to permutations of their outcomes. Such events are thus revealed to be equally likely. If they are complementary, the subjective probability associated with each event should be 1/2 (assuming the additivity of the probability measure). This paper reports the results of an experiment that elicits probabilities through exchangeable events. The experiment shows that this method does not suffer from source dependence, i.e., the preference for betting on some events based on knowledge about the mechanism that generates them. However, it also highlights how additivity might be violated. This paper deduces the practical implications of these results.

Does climate change information affect stated risks of pine beetle impacts on forests? An application of the exchangeability method

“…Given concerns about the usual methods, and out of curiosity to see if it could be applied, we decided to elicit subjective risk estimates by using the recently resurfaced exchangeability method (Baillon, 2008;Abdellaoui et al, 2011). We chose the EM among many other indirect methodologies or games where probabilities can be elicited because of several attractive features.…”

“…The EM relies on the definition of exchangeable events as formulated by de Finetti in 1937. To our knowledge, though recently rediscovered by Baillon (2008) and Abdellaoui et al (2011), this approach has not yet been used for eliciting environmental risk perceptions in empirical studies.…”

From the Editors: Probability Approximations, Anti-Terrorism Strategy, and Bull's-Eye Display for Performance Feedback

“…Prior Decision Analysis papers on probability assessment by other authors include Abbas et al (2008), Baillon (2008) on using exchangeable events, Bordley (2011) on updating probabilities based on outcomes of partially similar events, and Bordley (2009) on experts who partition events differently. Kilgour and Gerchak (2004), Johnstone (2007), and Schervish et al (2009) have published papers in Decision Analysis on probability scoring rules, used to judge the accuracy of assessed probabilities.…”

From the Editors—Group Decisions, Preference Elicitation, Experienced Utility, Survival Probabilities, and Portfolio Value of Information

“…Papers dealing with ambiguity that have appeared in Decision Analysis are Paté-Cornell and Dillon (2006), Baillon (2008), and Ni et al (2013).…”