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Biased Probability Judgment: Evidence of Incidence and Relationship to Economic Outcomes from a Representative Sample

Author

Listed:
  • Dohmen, Thomas

    (University of Bonn)

  • Falk, Armin

    (University of Bonn)

  • Huffman, David B.

    (University of Pittsburgh)

  • Marklein, Felix

    (Federal Ministry of Finance)

  • Sunde, Uwe

    (University of Munich)

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 B. & Marklein, Felix & Sunde, Uwe, 2009. "Biased Probability Judgment: Evidence of Incidence and Relationship to Economic Outcomes from a Representative Sample," IZA Discussion Papers 4170, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp4170
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    References listed on IDEAS

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    More about this item

    Keywords

    long-term unemployment; hot hand fallacy; representative design; gambler's fallacy; probability judgment; bounded rationality; financial decision making;
    All these keywords.

    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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