The Non-Use of Bayes Rule: Representative Evidence on Bounded Rationality
AbstractThe ability to process new information and to compute conditional probabilities iscrucial for making appropriate decisions under uncertainty. In this paper, weinvestigate the capability of inferring conditional probabilities in a representativesample of the German population. Our results show that only a small fraction ofthe population responds consistently with Bayes'' rule. Instead, most individualseither neglect the base probability, or the arrival of new information, in theirresponses. The probability to give normatively correct answers decreases with thelevel of education.
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Date of creation: 2009
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labour market entry and occupational careers;
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- Dohmen Thomas & Falk Armin & Huffman David & Marklein Felix & Sunde Uwe, 2009. "The Non-Use of Bayes Rule: Representative Evidence on Bounded Rationality," Research Memoranda 038, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization.
- NEP-ALL-2009-01-17 (All new papers)
- NEP-CBE-2009-01-17 (Cognitive & Behavioural Economics)
- NEP-MIG-2009-01-17 (Economics of Human Migration)
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