Probability Updating When Drawing Signals Without Replacement

75 Pages Posted: 9 Sep 2023

See all articles by Thomas Langer

Thomas Langer

University of Muenster - Finance Center

Hannes Mohrschladt

University of Muenster - Finance Center

Susanne Siedhoff

University of Muenster - Finance Center

Lennart Stitz

University of Münster - Finance Center Münster

Date Written: September 8, 2023

Abstract

Individual biases in probabilistic belief updating have been typically examined in experimental settings where signals are drawn with replacement. Motivated by the variety of real world applications, we investigate belief updating in without replacement settings. In such settings, drawing a specific signal has two opposed effects on the likelihood to obtain another signal of the same type in a further draw. First, and equivalent to drawing with replacement, the signal provides information on the state of the world resulting in a higher probability to draw the same signal type again. Second, the drawn signal is removed reducing the probability to draw the same signal type again. We find that subjects severely underinfer with respect to the first effect and mildly underestimate the second effect.

Keywords: Probability Updating, Judgment Biases, Underinference

JEL Classification: C91, D91

Suggested Citation

Langer, Thomas and Mohrschladt, Hannes and Siedhoff, Susanne and Stitz, Lennart, Probability Updating When Drawing Signals Without Replacement (September 8, 2023). Available at SSRN: https://ssrn.com/abstract=4565557 or http://dx.doi.org/10.2139/ssrn.4565557

Thomas Langer

University of Muenster - Finance Center ( email )

Universitatsstr. 14-16
Muenster, 48143
Germany
+49 251 83 22033 (Phone)

Hannes Mohrschladt (Contact Author)

University of Muenster - Finance Center ( email )

Universitätsstr. 14-16
Muenster, 48143
Germany

HOME PAGE: http://www.wiwi.uni-muenster.de/fcm/en/the-fcm/lsf/team/hannes-mohrschladt

Susanne Siedhoff

University of Muenster - Finance Center ( email )

Universitätsstraße 14-16
Muenster, DE 48143
Germany

Lennart Stitz

University of Münster - Finance Center Münster ( email )

Universitätsstraße 14-16
Münster, 48143
Germany

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