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Suboptimality of probability matching - A formal proof, a graphical analysis and an impulse balance interpretation

Vittorio Larocca () and Luca Panaccione
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Vittorio Larocca: LUISS University

No 490, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: The objective of the paper is to study how the tax burden arising from an exogenWe prove suboptimality of probability matching in prediction tasks with an arbitrary (finite) number of outcomes and repetitions. For the popular case of binary prediction tasks, we also provide a graphical representation of the result. Finally, we relate probability matching to impulse balance equilibrium theory and show when probability matching is consistent with its predictions.

Keywords: probability matching; individual decision making; impulse balance equilibrium (search for similar items in EconPapers)
JEL-codes: D81 D83 (search for similar items in EconPapers)
Pages: 13 pages
Date: 2020-06-03, Revised 2020-06-03
New Economics Papers: this item is included in nep-ore
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