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Memory and Probability

Pedro Bordalo, John J. Conlon, Nicola Gennaioli, Spencer Yongwook Kwon and Andrei Shleifer

No 29273, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: People often estimate probabilities, such as the likelihood that an insurable risk will materialize or that an Irish person has red hair, by retrieving experiences from memory. We present a model of this process based on two established regularities of selective recall: similarity and interference. The model accounts for and reconciles a variety of conflicting empirical findings, such as overestimation of unlikely events when these are cued vs. neglect of non-cued ones, the availability heuristic, the representativeness heuristic, as well as over vs. underreaction to information in different situations. The model makes new predictions on how the content of a hypothesis (not just its objective probability) affects probability assessments by shaping the ease of recall. We experimentally evaluate these predictions and find strong experimental support.

JEL-codes: C91 D01 D84 D90 D91 (search for similar items in EconPapers)
Date: 2021-09
New Economics Papers: this item is included in nep-exp, nep-isf and nep-upt
Note: AP
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Published as Pedro Bordalo, John J Conlon, Nicola Gennaioli, Spencer Y Kwon, Andrei Shleifer, Memory and Probability, The Quarterly Journal of Economics, 2022;, qjac031

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