Yes / Many studies have examined the extent to which individuals’ probability judgments depart from Bayes’ theorem when revising probability estimates in the light of new information. Generally, these studies have not considered the implications of such departures for decisions involving risk. We identify when such departures will occur in two common types of decisions. We then report on two experiments where people were asked to revise their own prior probabilities of a forthcoming economic recession in the light of new information. When the reliability of the new information was independent of the state of nature, people tended to overreact to it if their prior probability was low and underreact if it was high. When it was not independent, they tended to display conservatism. We identify the circumstances where discrepancies in decisions arising from a failure to use Bayes’ theorem were most likely to occur in the decision context we examined. We found that these discrepancies were relatively rare and, typically, were not serious.
| Identifer | oai:union.ndltd.org:BRADFORD/oai:bradscholars.brad.ac.uk:10454/13512 |
| Date | 2017 September 1922 |
| Creators | Goodwin, P., Onkal, Dilek, Stekler, H.O. |
| Source Sets | Bradford Scholars |
| Language | English |
| Detected Language | English |
| Type | Article, Accepted manuscript |
| Rights | © 2017 Elsevier. Reproduced in accordance with the publisher's self-archiving policy. This manuscript version is made available under the CC-BY-NC-ND 4.0 license. |
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