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  • Nicola Gennaioli
  • Andrei Shleifer

Abstract

We present a model of intuitive inference, called “local thinking,” in which an agent combines data received from the external world with information retrieved from memory to evaluate a hypothesis. In this model, selected and limited recall of information follows a version of the respresentativeness heuristic. The model can account for some of the evidence on judgment biases, including conjunction and disjunction fallacies, but also for several anomalies related to demand for insurance.

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Bibliographic Info

Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 1186.

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Date of creation: Feb 2009
Date of revision: Nov 2009
Handle: RePEc:upf:upfgen:1186

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Web page: http://www.econ.upf.edu/

Related research

Keywords: Local thinking; representativeness; stereotypes; insurance.;

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  1. Philippe Jehiel, 2005. "Analogy-Based Expectation Equilibrium," Levine's Bibliography 784828000000000106, UCLA Department of Economics.
  2. Osborne, Martin J & Rubinstein, Ariel, 1998. "Games with Procedurally Rational Players," American Economic Review, American Economic Association, American Economic Association, vol. 88(4), pages 834-47, September.
  3. Rabin, Matthew, 2000. "Inference by Believers in the Law of Small Numbers," Department of Economics, Working Paper Series, Department of Economics, Institute for Business and Economic Research, UC Berkeley qt4sw8n41t, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  4. Johnson, Eric J, et al, 1993. " Framing, Probability Distortions, and Insurance Decisions," Journal of Risk and Uncertainty, Springer, Springer, vol. 7(1), pages 35-51, August.
  5. Daniel Kahneman, 2003. "Maps of Bounded Rationality: Psychology for Behavioral Economics," American Economic Review, American Economic Association, American Economic Association, vol. 93(5), pages 1449-1475, December.
  6. Joel L. Schrag, 1999. "First Impressions Matter: A Model Of Confirmatory Bias," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(1), pages 37-82, February.
  7. Sendhil Mullainathan & Joshua Schwartzstein & Andrei Shleifer, 2006. "Coarse Thinking and Persuasion," NBER Working Papers 12720, National Bureau of Economic Research, Inc.
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