Probability Judgements in Multi-Stage Problems: Experimental Evidence of Systematic Biases

U. Gneezy

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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 languageEnglish
Place of PublicationTilburg
PublisherMicroeconomics
Number of pages16
Volume1996-01
Publication statusPublished - 1996

Publication series

NameCentER Discussion Paper
Volume1996-01

Keywords

  • bounded rationality
  • Probability
  • random walks
  • Estimation

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