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Probability Compounding in Words and in Practice

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  • Daniel John Zizzo

Abstract

The conjunction fallacy occurs whenever probability compounds are thought of as more likely than its component probabilities alone. In the experiment we present, subjects chose between simple and compound lotteries after some practice. Depending on the condition, they were given more or less information about the nature of probability compounds. The conjunction fallacy was surprisingly robust. There was, however, a puzzling dissociation between probability compounding in words and in practice: verbal ranking responses were sensitive, but actual choices entirely insensitive, to the amount of verbal instructions being provided. This might reflect a dichotomy between implicit and explicit knowledge.

Suggested Citation

  • Daniel John Zizzo, 2002. "Probability Compounding in Words and in Practice," Economics Series Working Papers 88, University of Oxford, Department of Economics.
    • Handle: RePEc:oxf:wpaper:88
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    File URL: https://ora.ox.ac.uk/objects/uuid:b3dadde2-7397-4bff-a7f7-a25cddde1de2
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    Citations

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    Cited by:

    1. M Perugini & J H W Tan & D J Zizzo, 2010. "Which is the More Predictable Gender? Public Good Contribution and Personality," Economic Issues Journal Articles, Economic Issues, vol. 15(1), pages 83-110, March.
    2. Daniel Zizzo, 2003. "Verbal and Behavioral Learning in a Probability Compounding Task," Theory and Decision, Springer, vol. 54(4), pages 287-314, June.

    More about this item

    Keywords

    conjunction fallacy; heuristics; probability compounding; implicit knowledge; explicit knowledge;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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