Probability Compounding in Words and in Practice

Daniel Zizzo

No 88, Economics Series Working Papers from University of Oxford, Department of Economics

Abstract: The conjunction fallacy occurs whenever probability compounds are thought of as more likely than its component probabilities alone. In the experiment we present, subjects chose between simple and compound lotteries after some practice. Depending on the condition, they were given more or less information about the nature of probability compounds. The conjunction fallacy was surprisingly robust. There was, however, a puzzling dissociation between probability compounding in words and in practice: verbal ranking responses were sensitive, but actual choices entirely insensitive, to the amount of verbal instructions being provided. This might reflect a dichotomy between implicit and explicit knowledge.

Keywords: conjunction fallacy; heuristics; probability compounding; implicit knowledge; explicit knowledge (search for similar items in EconPapers)
JEL-codes: C91 D81 D83 (search for similar items in EconPapers)
Date: 2002-03-01
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Citations: View citations in EconPapers (2)

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