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Noisy retrievers and the four-fold reaction to rare events

Author

Listed:
  • Davide Marchiori

    (Department of Management, Università Ca' Foscari Venezia)

  • Sibilla Di Guida

    (SBS-EM, ECARES, Universite Libre de Bruxelles)

  • Ido Erev

    (Faculty of Industrial Engineering and Management, Technion)

Abstract

Previous research documents two pairs of inconsistent reactions to rare events: 1) Studies of probability judgment reveal conservatism which implies overestimation of rare events, and overconfidence which implies underestimation of rare events. 2) Studies of choice behavior reveal overweighting of rare events in one-shot tasks, and the opposite bias in decisions from experience. The current analysis and experimental results demonstrate that the coexistence and relative importance of the four biases can be captured with simple models that share the assumption that judgments and decisions are made based on the information conveyed by small and noisy samples of past experiences.

Suggested Citation

  • Davide Marchiori & Sibilla Di Guida & Ido Erev, 2013. "Noisy retrievers and the four-fold reaction to rare events," Working Papers 3, Venice School of Management - Department of Management, Università Ca' Foscari Venezia.
  • Handle: RePEc:vnm:wpdman:39
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Black swan; prospect theory; experience-description gap; case-based decision theory; overgeneralization;
    All these keywords.

    JEL classification:

    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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