Calibrating the Subjective

TL;DR

This paper explores how risk-averse agents' rejection of certain bets in subjective expected utility settings implies rejection of more extreme bets, clarifying the implications of Rabin's calibration exercise.

Contribution

It extends Rabin's calibration to the subjective expected utility framework, showing the implications of risk aversion on bet rejection.

Findings

Rejection of a risky bet implies rejection of more extreme bets.

The rejection pattern is consistent with risk aversion in subjective utility.

No additional implications beyond rejection of more extreme bets.

Abstract

I conduct Rabin's (2000) calibration exercise in the subjective expected utility realm. I show that the rejection of some risky bet by a risk-averse agent only implies the rejection of more extreme and less desirable bets and nothing more.