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Errors in Probabilistic Reasoning and Judgment Biases

Author

Listed:
  • Daniel J. Benjamin

    (University of Southern California and NBER)

Abstract

Errors in probabilistic reasoning have been the focus of much psychology research and are among the original topics of modern behavioral economics. This chapter reviews theory and evidence on this topic, with the goal of facilitating more systematic study of belief biases and their integration into economics. The chapter discusses biases in beliefs about random processes, biases in belief updating, the representativeness heuristic as a possible unifying theory, and interactions between biased belief updating and other features of the updating situation. Throughout, I aim to convey how much evidence there is for (and against) each putative bias, and I highlight when and how different biases may be related to each other. The chapter ends by drawing general lessons for when people update too much or too little, reflecting on modeling challenges, pointing to areas of economics to which the biases are relevant, and highlighting some possible directions for future work.

Suggested Citation

  • Daniel J. Benjamin, 2018. "Errors in Probabilistic Reasoning and Judgment Biases," GRU Working Paper Series GRU_2018_023, City University of Hong Kong, Department of Economics and Finance, Global Research Unit.
    • Handle: RePEc:cth:wpaper:gru_2018_023
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    File URL: https://www.cb.cityu.edu.hk/ef/doc/GRU/WPS/GRU%232018-023%20Benjamin.pdf
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    Citations

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    Cited by:

    1. David M. Ritzwoller & Joseph P. Romano, 2019. "Uncertainty in the Hot Hand Fallacy: Detecting Streaky Alternatives to Random Bernoulli Sequences," Papers 1908.01406, arXiv.org, revised Apr 2021.
    2. is not listed on IDEAS
    3. Beinhocker, Eric & Dhami, Sanjit, 2019. "The Behavioral Foundations of New Economic Thinking," INET Oxford Working Papers 2019-13, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    4. Jonas Hjort & Diana Moreira & Gautam Rao & Juan Francisco Santini, 2021. "How Research Affects Policy: Experimental Evidence from 2,150 Brazilian Municipalities," American Economic Review, American Economic Association, vol. 111(5), pages 1442-1480, May.
    5. Enke, Benjamin & Schwerter, Frederik & Zimmermann, Florian, 2024. "Associative memory, beliefs and market interactions," Journal of Financial Economics, Elsevier, vol. 157(C).
    6. Pleshcheva, Vlada & Klapper, Daniel & Dannewald, Till, 2019. "On Factors of Consumer Heterogeneity in (Mis)Valuation of Future Energy Costs: Evidence for the German Automobile Market," Rationality and Competition Discussion Paper Series 140, CRC TRR 190 Rationality and Competition.
    7. Finigan, Duncan & Mills, Brian M. & Stone, Daniel F., 2020. "Pulling starters," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 89(C).
    8. Yves Le Yaouanq & Peter Schwardmann, 2022. "Learning About One’s Self," Journal of the European Economic Association, European Economic Association, vol. 20(5), pages 1791-1828.
    9. Pedro Bordalo & Katherine Coffman & Nicola Gennaioli & Frederik Schwerter & Andrei Shleifer, 2019. "Memory and Representativeness," NBER Working Papers 25692, National Bureau of Economic Research, Inc.
    10. repec:osf:osfxxx:te4wg_v1 is not listed on IDEAS
    11. Stone, Daniel, 2018. "Just a big misunderstanding? Bias and Bayesian affective polarization," SocArXiv 58sru, Center for Open Science.

    More about this item

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    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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