Testing Bayes Rule and the Representativeness Heuristic: Some Experimental Evidence

Abstract

The psychological literature has identified a number of heuristics which individuals may use in making judgments or choices under uncertainty. Mathematically equivalent problems may be treated differently depending upon details of the decision setting (Gigerenzer et al. (1988), Hinz et al. (1988), Birnbaum and Mellers (1983), Ginossar and Trope (1987)) or upon how the decisions are framed (Tversky and Kahneman (1986)). The results presented in this paper are consistent with those findings and are unsettling. In equivalent problems subjects appear to adopt different strategies in response to observing different data. All problems were inference problems about populations represented by bingo cages and all randomization was operational and observed by the subjects. Thus one cannot explain the change of decision strategy by appeal to changing reference points nor should difference between surface and deep structure of problems apply (Wagenaar et al. (1988)). A striking observation from the experiments is the result of employing financial incentives. Some experiments included financial incentives for accuracy and some did not. In the latter experiments the number of nonsense or incoherent responses increased by a factor of three. The majority of subjects in both treatments behaved reasonably, but of those lacking financial incentives a larger proportion gave obviously absurd responses. This suggests that data from decision experiments in which no financial incentives were should be treated as possibly contaminated and statistical methods robust against outliers employed.

Additional Information

Support of the National Science Foundation is gratefully acknowledged. The author thanks several colleagues especially Charles R. Plott for helpful comments. Published as Grether, David M. "Testing Bayes rule and the representativeness heuristic: Some experimental evidence." Journal of Economic Behavior & Organization 17, no. 1 (1992): 31-57.

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