### Abstract

The hypothesis that, on average, people accurately estimate probabilities in random walk processes is experimentally investigated.Individuals are confronted with a process that starts with $X, and in every stage either goes up or down by $1, with probabilities p and 1 - p respectively.For different values of p, individuals were asked to estimate what is the chance that after 10 stages the system will be at a point higher than or equal to $X.Systematic mistakes in estimations were observed.In particular, estimations were centered around the stage-by-stage probability (p) rather then around the actual probability. Implication of this result to random walk processes in finance is considered.

Original language | English |
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Place of Publication | Tilburg |

Publisher | Econometrics |

Number of pages | 12 |

Volume | 1996-85 |

Publication status | Published - 1996 |

### Publication series

Name | CentER Discussion Paper |
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Volume | 1996-85 |

### Keywords

- random walks
- risk

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## Cite this

Gneezy, U., & Das, J. W. M. (1996).

*Experimental Investigation of Percieved Risk in Random Walk Processes*. (CentER Discussion Paper; Vol. 1996-85). Econometrics.