### Abstract

We report empirical evidence that in problems of random walk with positive drift, bounded rationality leads individuals to under-estimate the probability of success in the long run.In particular, individuals who were given the stage by stage probability distribution failed to aggregate this information in a multi-stage case.Estimations of the long run probability distribution did not differ much from the given stage-by-stage probability distribution, and were systematically lower than the accurate one.Applications to risk perception in financial markets are considered

Original language | English |
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Place of Publication | Tilburg |

Publisher | Microeconomics |

Number of pages | 16 |

Volume | 1996-01 |

Publication status | Published - 1996 |

### Publication series

Name | CentER Discussion Paper |
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Volume | 1996-01 |

### Keywords

- bounded rationality
- Probability
- random walks
- Estimation

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## Cite this

Gneezy, U. (1996).

*Probability Judgements in Multi-Stage Problems: Experimental Evidence of Systematic Biases*. (CentER Discussion Paper; Vol. 1996-01). Microeconomics.