Dual process theories: A key for understanding the diversification bias?
The diversification bias in repeated lotteries is the finding that a majority of participants fail to select the option offering the highest probability. This phenomenon is systematic and immune to classical manipulations (e.g. monetary rewards). We apply dual process theories and argue that the diversification bias is a consequence of System 1 (automatic, intuitive, associative) triggering a matching response, which fails to be corrected by System 2 (intentional, analytic, rational). Empirically, supporting the corrective functions of System 2 through appropriate contextual cues (describing the task as a statistical test rather than as a lottery) led to a decrease of diversification. Copyright Springer Science+Business Media, LLC 2007
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- Arkes, Hal R. & Dawes, Robyn M. & Christensen, Caryn, 1986. "Factors influencing the use of a decision rule in a probabilistic task," Organizational Behavior and Human Decision Processes, Elsevier, vol. 37(1), pages 93-110, February.
- Rubinstein, Ariel, 2002. "Irrational diversification in multiple decision problems," European Economic Review, Elsevier, vol. 46(8), pages 1369-1378, September.
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