median, or something else. However, we are not aware of any empirical evidence which compares the simpler “what do you expect” approach to the more formal methods for eliciting subjective expectations discussed in this paper in a developing country.<sup>6</sup> We therefore compare the two methods using panel data on Sri Lankan microenterprises, collected by de Mel et al. (2008), who use the elicited subjective distribution to measure the uncertainty individuals have about future profits. They elicited expectations about future profits of the enterprise in two ways. The first was to directly ask the owner “How much do you expect the profits of your business to be in December?”, two months into the future. Secondly, they elicited expectations of the full subjective distribution of future profits as explained above. We use the elicited subjective distribution to calculate the subjective mean, median, and mode of future profits.<sup>7</sup> Figure 2 plots the subjective mean, median and mode against the individual’s answer to the simple “what do you expect” question (hereafter referred to as the “simple expectation”) for the 564 microenterprises answering all questions. Figure 2 shows a strong positive association between the different measures: the correlation between the simple expectation and the subjective mean and median is 0.90. Nevertheless, there is considerable scatter around the 45 degree line. Only 19 percent of the simple expectations are within 10 percent of the subjective mean, only 34 percent are within 25 percent of the subjective mean, and 29 percent differ in magnitude by 50 percent or more.

In terms of whether the simple expectation gives a mean, median, or mode, we find that in only 23 percent of cases is it closest to the mean, in 55 percent it is closest to both the median and the mode, in 11 percent of cases it is closest to the median alone, and in 7 percent of cases it is closest to the mode alone. Thus the simple expectation is not giving the mean in the majority of cases.

> 6 Engelberg et al. (forthcoming) compare point predictions of GDP growth and inflation with the subjective probability distributions held by professional forecasters. They find that point predictions are quite close to the central tendencies of subjective distributions but that the deviations between point predictions and the central tendencies tend to be asymmetric, with forecasters tending to report point predictions that give a more favorable view of the economy than do their subjective means/medians/modes. Delavande and Rohwedder (2007) compare individuals’ point expectations about Social Security expected claiming age with their elicited subjective distributions and find that respondents are more likely to report the median or the mode than the mean of their distribution when providing a point estimate.

> 7 The subjective mean is estimated by taking midpoints of each profit interval to discretize the distribution. For the end points, we added the length of the previous interval to the endpoint. E.g. if the last two intervals were 9000 to 9,999 in profits, and 10,000 and above, the last interval was assigned value 11,000 in calculating the mean. Since there were few observations in the last intervals, this choice makes little difference to the results.

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