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Econometrics and decision making: Effects of presentation mode

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  • Robin Hogarth

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  • Emre Soyer

Abstract

Much of empirical economics involves regression analysis. However, does the presentation of results affect economists’ ability to make inferences for decision making purposes? In a survey, 257 academic economists were asked to make probabilistic inferences on the basis of the outputs of a regression analysis presented in a standard format. Questions concerned the distribution of the dependent variable conditional on known values of the independent variable. However, many respondents underestimated uncertainty by failing to take into account the standard deviation of the estimated residuals. The addition of graphs did not substantially improve inferences. On the other hand, when only graphs were provided (i.e., with no statistics), respondents were substantially more accurate. We discuss implications for improving practice in reporting results of regression analyses.

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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 1204.

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Date of creation: Feb 2010
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Handle: RePEc:upf:upfgen:1204

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

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Keywords: Regression analysis; presentation formats; probabilistic predictions; graphs.; leex;

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  1. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  2. Deirdre N. McCloskey & Stephen T. Ziliak, 1996. "The Standard Error of Regressions," Journal of Economic Literature, American Economic Association, vol. 34(1), pages 97-114, March.
  3. Camerer, Colin F & Hogarth, Robin M, 1999. "The Effects of Financial Incentives in Experiments: A Review and Capital-Labor-Production Framework," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 7-42, December.
  4. Badi H. Baltagi, 2007. "Worldwide Econometrics Rankings: 1989-2005," Center for Policy Research Working Papers 94, Center for Policy Research, Maxwell School, Syracuse University.
  5. Tversky, Amos & Kahneman, Daniel, 1986. "Rational Choice and the Framing of Decisions," The Journal of Business, University of Chicago Press, vol. 59(4), pages S251-78, October.
  6. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
  7. Simon, Herbert A, 1978. "Rationality as Process and as Product of Thought," American Economic Review, American Economic Association, vol. 68(2), pages 1-16, May.
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Cited by:
  1. Iván Arribas & Irene Comeig & Amparo Urbano Salvador & Jose E. Vila, 2013. "Statistical formats to optimize evidence-based decision making: a behavioral approach," Discussion Papers in Economic Behaviour 0513, University of Valencia, ERI-CES.

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