Correlation neglect and case-based decisions

Benjamin Radoc, Robert Sugden and Theodore Turocy

No 17-11, Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) from School of Economics, University of East Anglia, Norwich, UK.

Abstract: We test the conjecture that case-based reasoning may be used, not only when state spaces are undefined, but also when relevant probabilities can be derived by Bayesian inference from observations of random processes. Our experiment elicits participants' valuations of a lottery after observing realisations of this and another lottery. Depending on the treatment, participants know that the two lotteries are independent, positively correlated, or negatively correlated. We find no evidence of correlation neglect indicative of case-based reasoning. However, in the negative correlation treatment, valuations cannot be explained by Bayesian reasoning, while stated qualitative judgements about chances of winning can.

Keywords: case-based decision; correlation; experiment (search for similar items in EconPapers)
JEL-codes: C91 D03 D81 (search for similar items in EconPapers)
Date: 2017-11-27
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-upt
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Journal Article: Correlation neglect and case-based decisions (2019)
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