Advanced Search
MyIDEAS: Login to save this paper or follow this series

Biased Probability Judgment: Evidence of Incidence and Relationship to Economic Outcomes from a Representative Sample

Contents:

Author Info

  • Dohmen, Thomas

    ()
    (University of Bonn)

  • Falk, Armin

    ()
    (University of Bonn)

  • Huffman, David B.

    ()
    (University of Oxford)

  • Marklein, Felix

    ()
    (Federal Ministry of Finance)

  • Sunde, Uwe

    ()
    (University of Munich)

Abstract

Many economic decisions involve a substantial amount of uncertainty, and therefore crucially depend on how individuals process probabilistic information. In this paper, we investigate the capability for probability judgment in a representative sample of the German population. Our results show that almost a third of the respondents exhibits systematically biased perceptions of probability. The findings also indicate that the observed biases are related to individual economic outcomes, which suggests potential policy relevance of our findings.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://ftp.iza.org/dp4170.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4170.

as in new window
Length: 29 pages
Date of creation: May 2009
Date of revision:
Publication status: published in: Journal of Economic Behavior and Organization, 2009, 72 (3), 903-915
Handle: RePEc:iza:izadps:dp4170

Contact details of provider:
Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page: http://www.iza.org

Order Information:
Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany
Email:

Related research

Keywords: long-term unemployment; hot hand fallacy; representative design; gambler's fallacy; probability judgment; bounded rationality; financial decision making;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Victor Stango & Jonathan Zinman, 2009. "Exponential Growth Bias and Household Finance," Journal of Finance, American Finance Association, American Finance Association, vol. 64(6), pages 2807-2849, December.
  2. B. Douglas Bernheim & Antonio Rangel, 2005. "Behavioral Public Economics: Welfare and Policy Analysis with Non-Standard Decision-Makers," NBER Working Papers 11518, National Bureau of Economic Research, Inc.
  3. Lusardi, Annamaria & Mitchell, Olivia S., 2006. "Baby boomer retirement security: The roles of planning, financial literacy, and Housing wealth," CFS Working Paper Series 2006/20, Center for Financial Studies (CFS).
  4. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  5. Cass R. Sunstein & Richard H. Thaler, 2003. "Libertarian paternalism is not an oxymoron," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, Federal Reserve Bank of Boston, vol. 48(Jun).
  6. Robin Hogarth, 2004. "The challenge of representative design in psychology and economics," Economics Working Papers 751, Department of Economics and Business, Universitat Pompeu Fabra, revised Jan 2005.
  7. Gary Charness & Dan Levin, 2005. "When Optimal Choices Feel Wrong: A Laboratory Study of Bayesian Updating, Complexity, and Affect," American Economic Review, American Economic Association, American Economic Association, vol. 95(4), pages 1300-1309, September.
  8. Marianne Bertrand & Sendhil Mullainathan & Eldar Shafir, 2004. "A Behavioral-Economics View of Poverty," American Economic Review, American Economic Association, American Economic Association, vol. 94(2), pages 419-423, May.
  9. Oechssler, Jörg & Roider, Andreas & Schmitz, Patrick W., 2008. "Cognitive Abilities and Behavioral Biases," IZA Discussion Papers 3481, Institute for the Study of Labor (IZA).
  10. repec:reg:wpaper:320 is not listed on IDEAS
  11. Richard H. Thaler & Cass R. Sunstein, 2003. "Libertarian Paternalism," American Economic Review, American Economic Association, American Economic Association, vol. 93(2), pages 175-179, May.
  12. Grether, David M., . "Bayes Rule as a Descriptive Model: The Representativeness Heuristic," Working Papers, California Institute of Technology, Division of the Humanities and Social Sciences 245, California Institute of Technology, Division of the Humanities and Social Sciences.
  13. Matthew Rabin, 2002. "Inference By Believers In The Law Of Small Numbers," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 117(3), pages 775-816, August.
  14. Annamaria Lusardi & Olivia S. Mitchell, 2008. "Planning and Financial Literacy: How Do Women Fare?," American Economic Review, American Economic Association, American Economic Association, vol. 98(2), pages 413-17, May.
  15. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
  16. Falk, Armin & Huffman, David B. & Sunde, Uwe, 2006. "Do I Have What It Takes? Equilibrium Search with Type Uncertainty and Non-Participation," IZA Discussion Papers 2531, Institute for the Study of Labor (IZA).
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp4170. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.