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Do Markets Correct Biases in Probability Judgment? Evidence from Market Experiments

Camerer, Colin (1990) Do Markets Correct Biases in Probability Judgment? Evidence from Market Experiments. In: Advances in Behavioral Economics. Vol.2. Ablex Publ. Co. , Norwood, NJ, pp. 125-172. ISBN 9780893914493 http://resolver.caltech.edu/CaltechAUTHORS:20110224-110921049

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Abstract

In this chapter, two studies are reported which test whether simple biases in the probability judgment of individuals affect their aggregate behavior in markets. A judgment bias is a systematic error, which does not cancel out when individual judgments are aggregated. Trading in a market is one of many tasks used to study individual decision making. The natural hypothesis is that biases which have been found using other tasks will also affect individual judgment in a market setting. However, to economists the market 'task' is special: Economists think irrationality is generally erased by the forces of market discipline (or at least, market prices are not determined by the actions of irrational people). Since judgment biases are irrational, economists therefore conclude that these biases will not affect market outcomes. Their argument deserves a closer examination.


Item Type:Book Section
Additional Information:© 1990 Ablex Publ. Co. Thanks to Mike Chernew, Marc Knez, Peter Knez, and Lisabeth Miller for research assistance, and to Jon Baron, Greg Fischer, Peter Knez, George Loewenstein, Charles Plott, Paul Slovic, Shyam Sunder, Richard Thaler, Keith Weigelt, Howard Kunreuther, and this volume's editors for helpful comments and encouragement. This research was funded by grants from the Alfred P. Sloan Foundation (#85-5-1), the National Science Foundation (SES-8510758), and the NYU Center for Entrepreneurial Studies.
Funders:
Funding AgencyGrant Number
Alfred P. Sloan Foundation85-5-1
NSFSES-8510758
New York University Center for Entrepreneurial StudiesUNSPECIFIED
Record Number:CaltechAUTHORS:20110224-110921049
Persistent URL:http://resolver.caltech.edu/CaltechAUTHORS:20110224-110921049
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ID Code:22474
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Deposited By: Tony Diaz
Deposited On:08 Mar 2011 22:39
Last Modified:08 Mar 2011 22:39

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