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Quantifying subjective oncertainty in survey expectations

Krüger, Fabian ; Pavlova, Lora

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Several recent surveys ask for a person's subjective probabilities that the inflation rate falls into various outcome ranges. We provide a new measure of the uncertainty implicit in such probabilities. The measure has several advantages over existing methods: It is trivial to implement, requires no functional form assumptions, and is well-defined for all logically possible probabilities. From a theoretical viewpoint, the measure can be motivated as the entropy function of a strictly proper scoring rule. We demonstrate the measure's good performance in a simulation study based on empirical data from the Survey of Consumer Expectations.

Item Type: Working paper
Series Name: Discussion Paper Series / University of Heidelberg, Department of Economics
Volume: 0664
Place of Publication: Heidelberg
Date Deposited: 03 Jun 2019 13:36
Date: May 2019
Number of Pages: 30
Faculties / Institutes: The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics
Subjects: 330 Economics
Uncontrolled Keywords: uncertainty, inflation, economic expectations, probabilistic forecasting
Schriftenreihe ID: Discussion Paper Series / University of Heidelberg, Department of Economics
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