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Experiencing Simulated Outcomes

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  • Robin Hogarth
  • Emre Soyer
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    Abstract

    Whereas much literature has documented difficulties in making probabilistic inferences, it has also emphasized the importance of task characteristics in determining judgmental accuracy. Noting that people exhibit remarkable efficiency in encoding frequency information sequentially, we construct tasks that exploit this ability by requiring people to experience the outcomes of sequentially simulated data. We report two experiments. The first involved seven well-known probabilistic inference tasks. Participants differed in statistical sophistication and answered with and without experience obtained through sequentially simulated outcomes in a design that permitted both between- and within-subject analyses. The second experiment involved interpreting the outcomes of a regression analysis when making inferences for investment decisions. In both experiments, even the statistically nave make accurate probabilistic inferences after experiencing sequentially simulated outcomes and many prefer this presentation format. We conclude by discussing theoretical and practical implications.

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    File URL: http://research.barcelonagse.eu/tmp/working_papers/470.pdf
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    Bibliographic Info

    Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 470.

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    Date of creation: Jun 2010
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    Handle: RePEc:bge:wpaper:470

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    Related research

    Keywords: Probabilistic reasoning; natural frequencies; experiential sampling; simulation;

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    1. Simon, Herbert A, 1978. "Rationality as Process and as Product of Thought," American Economic Review, American Economic Association, vol. 68(2), pages 1-16, May.
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