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  • Nicola Gennaioli

    (Universitat Pompeu Fabra, CREI, Universitat Pompeu Fabra, CEPR.)

  • Andrei Shleifer

    (Harvard University.)

Abstract

We present a model of intuitive inference, called "local thinking," in which an agent combines data received from the external world with information retrieved from memory to evaluate a hypothesis. In this model, selected and limited recall of information follows a version of the representativeness heuristic. The model can account for some of the evidence on judgment biases, including conjunction and disjunction fallacies, but also for several anomalies related to demand for insurance. (c) 2010 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology..

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Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 125 (2010)
Issue (Month): 4 (November)
Pages: 1399-1433

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Handle: RePEc:tpr:qjecon:v:125:y:2010:i:4:p:1399-1433

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  1. Sendhil Mullainathan & Joshua Schwartzstein & Andrei Shleifer, 2006. "Coarse Thinking and Persuasion," NBER Working Papers 12720, National Bureau of Economic Research, Inc.
  2. Joel L. Schrag, 1999. "First Impressions Matter: A Model Of Confirmatory Bias," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 37-82, February.
  3. Osborne, M-J & Rubinstein, A, 1997. "Games with Procedurally Rational Players," Papers 4-97, Tel Aviv.
  4. Rabin, Matthew, 2000. "Inference by Believers in the Law of Small Numbers," Department of Economics, Working Paper Series qt4sw8n41t, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  5. Daniel Kahneman, 2003. "Maps of Bounded Rationality: Psychology for Behavioral Economics," American Economic Review, American Economic Association, vol. 93(5), pages 1449-1475, December.
  6. Philippe Jehiel, 2005. "Analogy-Based Expectation Equilibrium," Levine's Bibliography 784828000000000106, UCLA Department of Economics.
  7. Johnson, Eric J, et al, 1993. " Framing, Probability Distortions, and Insurance Decisions," Journal of Risk and Uncertainty, Springer, vol. 7(1), pages 35-51, August.
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