Elias Tsakas

Department of Economics
Maastricht University

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Belief identification with state-dependent utilities

It is well known that individual beliefs cannot be identified using traditional choice data, unless we impose the practically restrictive and conceptually awkward assumption that utilities are state-independent. In this paper, we propose a novel methodology that solves this long-standing identification problem in a simple way. Our method relies on the concept of influential actions. These are actions that are controlled by the analyst and lead the agent to change her beliefs. Notably, the analyst does not need to have any idea on how the agent’s beliefs will change in response to an influential action. Then, instead of eliciting directly the agent’s beliefs about the state space, we elicit her subjective probabilities about the influential action having been undertaken conditional on each state realization. The latter can be easily done with existing elicitation tools. It turns out that this is enough to uniquely identify her beliefs about the state space irrespective of her utility function, thus solving the identification problem. We discuss that this method can be used in most applications of interest. As an example, we show how it can provide a new useful tool for identifying motivated beliefs on an individual level.