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Biased probability judgment: Evidence of incidence and relationship to economic outcomes from a representative sample

Author

Listed:
  • Dohmen, Thomas
  • Falk, Armin
  • Huffman, David
  • Marklein, Felix
  • Sunde, Uwe

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.

Suggested Citation

  • Dohmen, Thomas & Falk, Armin & Huffman, David & Marklein, Felix & Sunde, Uwe, 2009. "Biased probability judgment: Evidence of incidence and relationship to economic outcomes from a representative sample," Journal of Economic Behavior & Organization, Elsevier, vol. 72(3), pages 903-915, December.
    • Handle: RePEc:eee:jeborg:v:72:y:2009:i:3:p:903-915
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    More about this item

    Keywords

    Bounded rationality Probability judgment Gambler's fallacy Hot hand fallacy Representative design Long-term unemployment Financial decision making;

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D00 - Microeconomics - - General - - - General
    • D10 - Microeconomics - - Household Behavior - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H00 - Public Economics - - General - - - General

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