Preference based subjective beliefs (Q1630465)

Summary: We test the empirical content of the assumption of \textit{preference dependent beliefs} using a behavioral model of strategic decision making in which the rankings of individuals over final outcomes in simple games influence their beliefs over the opponent's behavior. This approach -- by analogy with psychological game theory -- allows for interdependence between preferences and beliefs but reverses the order of causality. We use existing evidence from a multi-stage experiment in which we first elicit distributional preferences in a random dictator game, then estimate beliefs in a related \(2 \times 2\) effort game conditional on these preferences. Our structural estimations confirm our working hypothesis on how social preferences shape beliefs: subjects with higher guilt (envy) expect others to put less (more) effort, which reduces the expected difference in payoffs.