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Biased Probability Judgment: Representative Evidence for Pervasiveness and Economic Outcomes

Author

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

    (ROA rm)

Abstract

Many economic decisions involve a substantial amount of uncertainty, andtherefore crucially depend on how individuals process probabilistic information. Inthis paper, we investigate the capability for probability judgment in a representativesample of the German population. Our results show that almost a third of therespondents exhibits systematically biased perceptions of probability. The findingsalso indicate that the observed biases are related to observed outcomes, whichindicates the policy relevance of our findings.

Suggested Citation

  • Dohmen Thomas & Falk Armin & Huffman David & Marklein Felix & Sunde Uwe, 2008. "Biased Probability Judgment: Representative Evidence for Pervasiveness and Economic Outcomes," ROA Research Memorandum 008, Maastricht University, Research Centre for Education and the Labour Market (ROA).
  • Handle: RePEc:unm:umaror:2008008
    as

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    File URL: https://cris.maastrichtuniversity.nl/portal/files/1416317/content
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    References listed on IDEAS

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    5. Terrell, Dek, 1994. "A Test of the Gambler's Fallacy: Evidence from Pari-mutuel Games," Journal of Risk and Uncertainty, Springer, vol. 8(3), pages 309-317, May.
    6. David M. Grether, 1980. "Bayes Rule as a Descriptive Model: The Representativeness Heuristic," The Quarterly Journal of Economics, Oxford University Press, vol. 95(3), pages 537-557.
    7. Matthew Rabin, 2002. "Inference by Believers in the Law of Small Numbers," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 775-816.
    8. Marianne Bertrand & Sendhil Mullainathan & Eldar Shafir, 2004. "A Behavioral-Economics View of Poverty," American Economic Review, American Economic Association, vol. 94(2), pages 419-423, May.
    9. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
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    Keywords

    education; training and the labour market;

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