The Non-Use of Bayes Rule: Representative Evidence on Bounded Rationality
AbstractThe ability to process new information and to compute conditional probabilities is crucial for making appropriate decisions under uncertainty. In this paper, we investigate the capability of inferring conditional probabilities in a representative sample of the German population. Our results show that only a small fraction of the population responds consistently with Bayes'' rule. Instead, most individuals either neglect the base probability, or the arrival of new information, in their responses. The probability to give normatively correctanswers decreases with the level of education.
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Date of creation: 2009
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- Dohmen Thomas & Falk Armin & Huffman David & Felix Marklein & Sunde Uwe, 2009. "The Non-Use of Bayes Rule: Representative Evidence on Bounded Rationality," Research Memoranda 001, Maastricht : ROA, Research Centre for Education and the Labour Market.
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