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Decisions from experience and statistical probabilities : why they trigger different choices than a priori probabilities

Hau, Robin and Pleskac, Timothy J. and Hertwig, Ralph.. (2010) Decisions from experience and statistical probabilities : why they trigger different choices than a priori probabilities. Journal of behavioral decision making, Vol. 23, H. 1. pp. 48-68.

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Official URL: http://edoc.unibas.ch/dok/A5258341

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Abstract

The distinction between risk and uncertainty is deeply entrenched in psychologists' and economists' thinking. Knight ([1921]), to whom it is frequently attributed, however, went beyond this dichotomy. Within the domain of risk, he set apart a priori and statistical probabilities, a distinction that maps onto that between decisions from description and experience, respectively. We argue this distinction is important because risky choices based on a priori (described) and statistical (experienced) probabilities can substantially diverge. To understand why, we examine various possible contributing factors to the description-experience gap. We find that payoff variability and memory limitations play only a small role in the emergence of the gap. In contrast, the presence of rare events and their representation as either natural frequencies in decisions from experience or single-event probabilities in decisions from description appear relevant for the gap.
Faculties and Departments:07 Faculty of Psychology > Departement Psychologie > Ehemalige Einheiten Psychologie > Cognitive and Decision Sciences (Hertwig)
UniBasel Contributors:Hertwig, Ralph
Item Type:Article, refereed
Article Subtype:Research Article
Bibsysno:Link to catalogue
Publisher:John Wiley
ISSN:0894-3257
Note:Publication type according to Uni Basel Research Database: Journal article
Last Modified:22 Mar 2012 14:24
Deposited On:22 Mar 2012 13:42

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