The Non-Use of Bayes Rule: Representative Evidence on Bounded Rationality
Type
discussion paper
Date Issued
2010-01-18
Author(s)
Sunde, Uwe
;
Dohmen, Thomas
;
Falk, Armin
;
Huffman, David
;
Marklein, Felix
Abstract
The ability to process new information and to compute conditional probabilities is crucial for making appropriate decisions under uncertainty. In this paper, we investigate the capability of inferring conditional probabilities in a representative sample of the German population. Our results show that only a small fraction of the population responds consistently with Bayes'' rule. Instead, most individuals either neglect the base probability, or the arrival of new information, in their responses. The probability to give normatively correctanswers decreases with the level of education.
Language
English
Keywords
Bayes' Rule
Bayesian Updating
Base Rate Neglect
Bounded
Rationality
Rationality
HSG Classification
contribution to scientific community
Refereed
No
Publisher
mimeo
Start page
11
Subject(s)
Division(s)
Eprints ID
69918