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

  • 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)

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.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4170.

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Length: 29 pages
Date of creation: May 2009
Date of revision:
Publication status: published in: Journal of Economic Behavior and Organization, 2009, 72 (3), 903-915
Handle: RePEc:iza:izadps:dp4170
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  16. Frieder Lang & David Weiss & Andreas Stocker & Bernhard von Rosenbladt, 2007. "Assessing Cognitive Capacities in Computer-Assisted Survey Research: Two Ultra-Short Tests of Intellectual Ability in the German Socio-Economic Panel (SOEP)," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 127(1), pages 183-192.
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