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

Gneezy,U.
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
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Pagination: 16
Date
1996
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Publisher
Microeconomics
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Tilburg University Research Output Collection
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Keywords
bounded rationality, Probability, random walks, Estimation
Citation
Gneezy, U 1996 'Probability Judgements in Multi-Stage Problems : Experimental Evidence of Systematic Biases' CentER Discussion Paper, vol. 1996-01, Microeconomics, Tilburg.
URI
https://hdl.handle.net/20.500.14602/26293
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