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Understanding the Karni Belief-Revelation Mechanism

Suppose you wanted to find out someone’s subjective belief in the likelihood of a given event. Your first instinct might be to offer them betting odds on the event. If they would accept odds of 2:1 but no lower, you might conclude that they believe the event to have a 33.3% chance of occurring.

This would be correct if the person you’re offering the bet to is risk neutral. But if they’re risk averse, they might actually believe the event has a 50% likelihood of occurring, and they just require more favourable odds to compensate them for accepting risk.

Luckily, there’s a better way to elicit subjective probabilities. It comes from Karni (2009), a short paper published in Econometrica.* (more…)

The post Understanding the Karni Belief-Revelation Mechanism appeared first on The Economics Detective.

Understanding the Karni Belief-Revelation Mechanism

Suppose you wanted to find out someone’s subjective belief in the likelihood of a given event. Your first instinct might be to offer them betting odds on the event. If they would accept odds of 2:1 but no lower, you might conclude that they believe the event to have a 33.3% chance of occurring.

This would be correct if the person you’re offering the bet to is risk neutral. But if they’re risk averse, they might actually believe the event has a 50% likelihood of occurring, and they just require more favourable odds to compensate them for accepting risk.

Luckily, there’s a better way to elicit subjective probabilities. It comes from Karni (2009), a short paper published in Econometrica.* (more…)

The post Understanding the Karni Belief-Revelation Mechanism appeared first on The Economics Detective.

The Second Ehrlich-Simon Wager with Joanna Szurmak

Today’s interview features Joanna Szurmak of the University of Toronto. Our topic for today is the second proposed bet between Paul Ehrlich and Julian Simon. Joanna has written a paper titled “Care to Wager Again? An Appraisal of Paul Ehrlich’s Counter-Bet Offer to Julian Simon” along with coauthors Vincent Geloso and Pierre Desrochers, both former guests of this show. We mentioned the original Simon-Ehrlich bet briefly in my conversation with Steve Horwitz, but in this episode we talk about it in more detail.

Julian Simon had a cornucopian vision of development and humanity. In his view, things are getting better as we develop new ideas for improving our lives and our world. Paul Ehrlich has precisely the opposite vision. He has been predicting environmental catastrophe since the 1960s. (more…)

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The post The Second Ehrlich-Simon Wager with Joanna Szurmak appeared first on The Economics Detective.