Behavioral probability

Alex Stein

Chapter 2 in Research Handbook on Behavioral Law and Economics, 2018, pp 45-72 from Edward Elgar Publishing

Abstract: Humans have adapted to their uncertain environment by the method of trial and error. This evolutionary process made them reason about uncertain facts the way they do. Behavioral economists censure this mode of reasoning for violating the canons of mathematical probability that a rational person must obey. Based on insights from probability theory and the philosophy of induction, Stein argues that a rational person need not apply mathematical probability in making decisions about individual causes and effects. Instead, she should be free to use common sense reasoning that generally aligns with causative probability. Stein also shows that behavioral experiments miss their target when they ask reasoners to extract probability from information that combines causal evidence with statistical data. Because it is perfectly rational for a person focusing on a specific event to prefer causal evidence to general statistics, Stein argues, those experiments establish no deviations from rational reasoning.

Keywords: Economics and Finance; Law - Academic (search for similar items in EconPapers)
Date: 2018
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