Journal Article10.1093/qje/qjac031
Memory and Probability
Spencer Yongwook Kwon
- 29 Aug 2022
Vol. 138, Iss: 1, pp 265-311
55
TL;DR: The authors show that the similarity structure of a hypothesis and the way it is described (not just its objective probability) shape the recall of experiences and thus probability assessments, and the model accounts for and reconciles a variety of empirical findings, such as overestimation of unlikely events when these are cued versus neglect of noncued ones.
read more
Abstract: Abstract In many economic decisions, people estimate probabilities, such as the likelihood that a risk materializes or that a job applicant will be a productive employee, by retrieving experiences from memory. We model this process based on two established regularities of selective recall: similarity and interference. We show that the similarity structure of a hypothesis and the way it is described (not just its objective probability) shape the recall of experiences and thus probability assessments. The model accounts for and reconciles a variety of empirical findings, such as overestimation of unlikely events when these are cued versus neglect of noncued ones, the availability heuristic, the representativeness heuristic, conjunction and disjunction fallacies, and over- versus underreaction to information in different situations. The model yields several new predictions, for which we find strong experimental support.
read more
Chat with Paper
AI Agents for this Paper
Find similar papers on Google Scholar, PubMed and Arxiv
Write a critical review of this paper
Analyze citations of this paper to find unaddressed research gaps
Citations
Overreaction in Expectations: Evidence and Theory
06 Mar 2023
TL;DR: The authors investigate biases in expectations across different settings through a large-scale randomized experiment where participants forecast stable stochastic processes, and develop a tractable model of expectations formation with costly processing of past information.
69
Diagnostic Business Cycles
21 Feb 2023
TL;DR: In this article , Bordalo et al. adopt the diagnostic expectations paradigm to capture the feature of belief formation, develop a method to incorporate DE in business cycle models, and study the implications for aggregate dynamics.
35
Imagining the Future: Memory, Simulation and Beliefs
Pedro Bordalo,Giovanni Burro,Katherine Coffman,Nicola Gennaioli,Andrei Shleifer +4 more
TL;DR: The model predicts that different experiences interfere with each other in recall and that non domain-specific experiences can bias beliefs based on their similarity to the assessed event.
18
Heterogeneity in Inflation Expectations and Personal Experience
TL;DR: In this article, the authors build a psychologically founded model in which consumers observe prices while shopping and listen to news about the general level of inflation, and when predicting future inflation, they selectively recall the most frequent and salient memories.
17
References
Availability: A heuristic for judging frequency and probability
Amos Tversky,Daniel Kahneman +1 more
TL;DR: A judgmental heuristic in which a person evaluates the frequency of classes or the probability of events by availability, i.e., by the ease with which relevant instances come to mind, is explored.
10K
Features of Similarity
TL;DR: The metric and dimensional assumptions that underlie the geometric representation of similarity are questioned on both theoretical and empirical grounds and a set of qualitative assumptions are shown to imply the contrast model, which expresses the similarity between objects as a linear combination of the measures of their common and distinctive features.
Confirmation Bias: A Ubiquitous Phenomenon in Many Guises:
TL;DR: Confirmation bias, as the term is typically used in the psychological literature, connotes the seeking or interpreting of evidence in ways that are partial to existing beliefs, expectations, or a h...
On the psychology of prediction
Daniel Kahneman,Amos Tversky +1 more
TL;DR: In this article, the authors explore the rules that determine intuitive predictions and judgments of confidence and contrast these rules to the normative principles of statistical prediction and show that people do not appear to follow the calculus of chance or the statistical theory of prediction.
6.2K