Suboptimality of Probability Matching − a Formal Proof, a Graphical Analysis and an Impulse Balance Interpretation

13 Pages Posted: 8 Jun 2020

See all articles by Vittorio Larocca

Vittorio Larocca

Luiss Guido Carli University

Luca Panaccione

Sapienza University of Rome - Department of Earth Sciences and Forecasting Research Center, Prevention and Control of Geological Risks

Date Written: June 3, 2020

Abstract

We prove suboptimality of probability matching in prediction tasks with an arbitrary (finite) number of outcomes and repetitions. For the popular case of binary prediction tasks, we also provide a graphical representation of the result. Finally, we relate probability matching to impulse balance equilibrium theory and show when probability matching is consistent with its predictions.

Keywords: probability matching, individual decision making, impulse balance equilibrium

JEL Classification: D81, D83

Suggested Citation

Larocca, Vittorio and Panaccione, Luca, Suboptimality of Probability Matching − a Formal Proof, a Graphical Analysis and an Impulse Balance Interpretation (June 3, 2020). CEIS Working Paper No. 490, Available at SSRN: https://ssrn.com/abstract=3618688 or http://dx.doi.org/10.2139/ssrn.3618688

Vittorio Larocca (Contact Author)

Luiss Guido Carli University ( email )

Rome
Italy

Luca Panaccione

Sapienza University of Rome - Department of Earth Sciences and Forecasting Research Center, Prevention and Control of Geological Risks ( email )

Rome
Italy

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