Biased Probability Judgment: Evidence of Incidence and Relationship to Economic Outcomes from a Representative Sample
29 Pages Posted: 19 May 2009
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.
Keywords: long-term unemployment, representative design, hot hand fallacy, gambler's fallacy, probability judgment, bounded rationality, financial decision making
JEL Classification: C90, D00, D10, D80, D81, H00
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