Noisy retrievers and the four-fold reaction to rare events
AbstractPrevious research documents two pairs of inconsistent reactions to rare events: 1) Studies of probability judgment reveal conservatism which implies overestimation of rare events, and overconfidence which implies underestimation of rare events. 2) Studies of choice behavior reveal overweighting of rare events in one-shot tasks, and the opposite bias in decisions from experience. The current analysis and experimental results demonstrate that the coexistence and relative importance of the four biases can be captured with simple models that share the assumption that judgments and decisions are made based on the information conveyed by small and noisy samples of past experiences.
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Bibliographic InfoPaper provided by Department of Management, Università Ca' Foscari Venezia in its series Working Papers with number 3.
Length: 36 pages
Date of creation: Apr 2013
Date of revision:
Black swan; prospect theory; experience-description gap; case-based decision theory; overgeneralization;
Find related papers by JEL classification:
- C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-05-11 (All new papers)
- NEP-CBE-2013-05-11 (Cognitive & Behavioural Economics)
- NEP-DCM-2013-05-11 (Discrete Choice Models)
- NEP-UPT-2013-05-11 (Utility Models & Prospect Theory)
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